Solar Industry Fears Losing Federal Support Amid Profit Decline

The hubbub over Solyndra’s $535 million federal loan guarantee, a glut of solar panels and a 40 percent drop in prices for them are stirring worries from the solar energy advocates that they would lose a popular solar grant program and see big cutbacks in research and development budgets of solar companies.

The death of the grant program and the cuts to R&D budgets would be bad news for the young solar industry, which needs government help to grow and hopes to reduce that reliance by coming up with innovations that will cut the installation cost and make solar electricity cheaper. Worries about losing both have grown as solar energy proponents see what they believe to a campaign to discredit solar as a viable alternative to fossil fuel energy. Advocacy group Vote Solar Initiative titled a blog post last week, “Reports of solar’s death are greatly exaggerated.”

The concerns stem from the mounting criticism of a $535 million government loan guarantee to solar startup Solyndra and, by extension, the loan program itself and the solar industry’s dependence on government incentives. The loan guarantee program is set to end on by the end of thismonth, and the Department of Energy is working on finalizing at least a dozen loan guarantees before then. In a surprising announcement Thursday, First Solar said it won’t be able to get a guarantee for a $1.9 billion loan for a California solar farm from the same program because “there was insufficient time to process all requirements before the Sept. 30, 2011 deadline.” First Solar spokesman Alan Bernheimer said in an email that the company “wouldn’t speculate” about any connection between the Solyndra controversy and its own loan guarantee application.

The Solyndra controversy is erupting at a time when solar equipment manufacturers are trying desperately to reverse the severe losses they have experienced for much of this year. If manufacturers continue to see declining profits or post heavier losses, they will likely shrink their R&D spending, said Paula Mints, director of energy at Navigant Consulting.

“It’s very hard to make a buck and have a positive margin. In a situation such as this, it’s hard to conduct a solid R&D that we need to move the industry forward,” said Mints in a webinar hosted Vote Solar Wednesday.

Large solar panel manufacturers are selling their products for as low as $1.10 per watt when they need to sell them for more than $2 per watt to make a healthy profit, Mints said. Wholesale solar panel prices already have fallen about 40 percent this year, according to GTM Researech.

The low prices, while they benefit buyers, aren’t good for the seller or the solar industry overall, Mints said. The prices have plummeted because incentive declines in Europe, the largest solar market in the world, have lowered demand and caused a pile up of solar panels in warehouses.

“Candidly, this is not something to rejoice on because with $1.10, there is a manufacturer losing money there. That’s not a healthy industry,” Mints said.

Companies have to cut costs heavily to limit losses, including their R&D investments, yet they face increasing pressures to improve the efficiency and installation cost of their equipment in order to survive. Last month, CEOs of solar factory equipment makers Applied Materials and GT Advanced Technologies both noted that their customers are asking for more tools that will help them produce more efficient equipment.