The cost of solar panels continues to plummet, but as concerns with panel quality begin to surface, more consumers are seeking efficiency and reliability over low panel prices. As panel prices have dropped about 80 percent over the past six years, the solar panel manufacturing industry is in the midst of a “fight for survival” with operating margins in the red, says Conrad Burke of DuPont Photovoltaic Solutions.
These financial losses, combined with industry consolidation and plunging panel prices have caused some manufacturers — primarily those in China — to cut corners in order to maintain their market position as low-cost defenders. Solar modules created with low-grade materials can taint the entire industry, as systems fail years earlier than expected and premature corrosion puts roofs at risk of catching on fire. “The solar industry cannot afford quality issues that erode consumer and investor confidence that the industry has carefully built through years of scientific advancements in this vital source of renewable energy,” Burke says.
But an isolated incident every so often won't threaten the rapidly-growing solar industry’s longevity. Jenya Meydbray, CEO of the solar technical due diligence firm PV Evolution Labs, puts it into perspective: “Solar technology is mature and proven,” he says. “Every company and industry experiences quality problems … We’ve seen numerous car recalls, and most recently, compromised bolts on the San Francisco Bay Area’s new Bay Bridge. Should we stop building cars and bridges?”
Like vehicle testing labs were created to perform crash tests and safety checks, solar due diligence firms have emerged “to support the growing need for mitigating technical risk,” Meydbray says. While the solar panel quality control firm SolarBuyer reported defect rates of 5.5 to 22 percent in an audit of 50 Chinese manufacturers, PV Evolution Labs has conducted rigorous reliability testing on hundreds of solar panels, with a majority of those performing considerably well, Meydbray reveals.
As the solar industry grows and the consumer demand shifts from lower-cost to higher-quality solar panels, the manufacturers who produce inferior products will be weeded out by market dynamics. And all eyes are on China. By 2015, GTM Research predicts that 180 solar panel producers will be out of business — 30 percent of which are China-based. It’s already happening, as the Chinese panel maker Suntech Power went bankrupt earlier this year.
On the other end of the spectrum, the San Jose, Calif.-based panel manufacturer SunPower anticipates sales of around $2.6 billion this year. This would be the company's first profit since 2010 and an increase from $2.42 billion in 2012. SunPower focuses on selling efficient solar panels that allow consumers to produce energy at a lower price, reveals CEO Tom Werner.
It seems that price-focused panel manufacturers are disregarding the fact that solar panels are only a percentage of the total system cost — and that percentage has dropped significantly in the past few years. “Panel prices make up about 20 percent to 25 percent of the cost of a solar system, compared with as much as 70 percent in 2010 and 2011,” Robert W. Baird & Co. analyst Ben Kallo tells Bloomberg.
Other expenses such as labor and customer acquisition costs comprise a greater portion of the overall system pricetag, Werner says. "Spending less on photovoltaic components won’t have much affect on the bottom line,” he adds.
For the solar industry to remain successful, Burke says there are three paths it must follow: continual increases in the efficiency with which solar panels convert sunlight into electricity; lower overall cost of solar installations; and consistent reliability and durability of the panels over their expected 25-year lifetime.
“Most all solar projects are financed on the assumption they will generate electricity for 25 years or more,” Burke says. “Any negative deviation in performance can have dire financial consequences.”
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