The Problem with Solar
What can governments learn from the bankruptcy of Solyndra in September?
|Once the poster child for the promise of cleantech jobs in the US, the California based solar manufacturer company received a controversial $535 million loan in 2009 from the US Department of Energy. With taxpayers potentially on the hook for this half-billion dollar bust, many politicians in the US are sounding the alarm about the remaining $10 billion in loan guarantees that expired Sept. 30.
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Here in Ontario, the investment pledge of $7 billion by South Korea-based Samsung C&T Corp under the province’s Green Energy Act comes in exchange for $110 million in subsidies from the Government of Ontario over the next 25 years. The contract represents the first two steps of a five-step plan over two decades to build and operate 2,000 MW of wind capacity and 500 MW of solar power capacity in the province. Construction is expected to begin in 2012 and be completed by 2014. What potential headwinds are Ontario's solar energy investments likely to face?
First, developments need to be cost effective. Solyndra was a test case in the United States for Department of Energy loan guarantees to boost the domestic production of solar energy products. At the outset, Solyndra, a thin film manufacturer, had a manufacturing cost of about $2.50 a watt. The competing technology for solar at the time was available for about 80 cents a watt. Will Samsung’s manufacturing cost be lower than the going market rate when China is selling at less than $1.20 a watt?
Second, can Ontario withstand a dramatic increase in foreign solar competition? China has aggressive targets in key areas of their economy, particularly in clean technology. They held about 5% of the world’s solar market about 5 years ago. Today they dominate the market with about 60% share. Their market share is likely to grow as they cut prices even further. This drive to reduce prices of solar worldwide has also helped to fuel demand and increase the size of the market by 5x.
Third, can Ontario’s solar compete as a commodity? Solar production is exorbitantly more expensive than any other form of electricity and is about 3-4 times more expensive than fossil fuel based electricity. With economic turmoil in Europe and North America, the trend is to cut subsidies of solar, especially in the 2 biggest solar markets (Germany and Italy). The trend is also toward commoditization of the sector, not product innovation. If manufacturing costs are significantly higher than the competition and global averages, Samsung and the Government of Ontario are likely to have a problem.
Fourth, will Samsung’s technology be viable over the next ten years? Solyndra’s technology was non-standard, and required installation sites to change the membrane of the roof cover. Whatever technology Samsung brings to the table needs to be economically viable in prevent the long term erosion of Ontario’s investment. The global market for solar energy is growing mainly because of Chinese manufacturers and their government subsidies. China views solar energy as consumer electronics, essentially like a flat panel TV. They have applied the same supply chain optimization that they deployed in the LED TV market to the solar market. They have a cost advantage that companies like Samsung, Solar City and Phoenix Solar may not have to dominate the market in the US and Canada.
There is some good news- potential jobs on the installation side, whether the panels are manufactured in Ontario or not. There are 10 installation jobs for local building trades, such as roofers and electricians, for every manufacturing job in the solar sector. We can actually create hundreds of thousands of jobs in this country if we continue to expand this space- without subsidizing the manufacturing of solar panels.