A Silver Lining in Declining Solar Prices

Quarterly earnings numbers are out for many publicly-traded solar manufacturing companies, and you’d be forgiven for thinking the solar industry is in trouble. Why? Because the global price of solar panels is falling and putting pressure on profit margins — and that spells bad news for manufacturers’ earnings.

This is a reminder that what is good for a market isn’t necessarily good for all market participants. Declining prices mean only those with the lowest manufacturing costs (and business models that work on much thinner margins) will earn the profits necessary to survive. Those that can’t will fall by the wayside.

The recent news about Solyndra is a case in point. Solyndra had a compelling technology when solar modules cost $3.25/Watt. But the technology didn’t prove out in a world where costs are rapidly approaching $1/Watt. This is the Darwinian process by which markets reward innovation and starve stagnation. And it is this process that will ultimately deliver cost-effective solutions to climate change.

A 70 percent decline in solar panel prices over the last 24 months has many in the industry forecasting a brutal shakeout ahead. I’d argue that this picture misses an important point. It’s myopic to focus solely on earnings of one segment of the industry. There’s a silver lining for the world in declining solar prices: cheaper solar power.

The less solar power costs, the more favorably it compares to conventional power, and the more attractive it becomes to utilities and energy users around the globe. Utility-scale solar power can now be delivered in California at prices well below $100/MWh ($0.10/kWh) less than most other peak generators, even those running on low-cost natural gas. Lower solar module costs also stimulate demand from consumer markets where the cost of solar compares very favorably to retail electric rates.

Bottom line: declining prices mean ever growing demand for solar power. That means an ever bigger role for solar in our generating mix and an increasing impact addressing climate change.

Many may see today’s handwringing about solar stocks as an indication we need to go back to past policies of rich direct subsidies for solar. The reality is “the way things used to be” isn’t a viable option. Government appetite for direct solar subsidies is waning and the industry must make the transition to electricity market demand.

That’s not necessarily a bad thing. Just as there’s a silver lining to declining module prices, there’s also an important upside to the broader changes happening in our industry: the companies that emerge successfully from our shifting subsidy landscape will be the very companies that help usher us into an era of grid parity, where solar competes on equal footing with gas, coal, and other traditional power sources.

But that’s only if we play our cards right, both as an industry and as a nation. As I’ve written before, changes to key policies — specifically, those that impact how projects are financed — are critical to developing a strong and competitive solar PV market. Ultimately, the leaders that overcome today’s crisis will be those that can tap the full potential of competitive demand, capturing massive scale as solar becomes a part of the mainstream energy supply.

This post originally ran on National Geographic’s The Great Energy Challenge Blog curated by Planet Forward, and was republished with permission. 

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I'm CEO of Recurrent Energy, a leading developer of solar projects for utilities and large energy customers. Recurrent Energy develops, builds, finances, and operates solar power projects--marketing clean electricity at competitive rates via Power Purchase Agreements or feed-in tariffs in North America and emerging markets worldwide. Recurrent Energy is a US subsidiary of Sharp Corporation, following the sale of the company in 2010. With a 2-Gigawatt pipeline and almost 500MW of signed projects, we're well on our way to building a fleet of clean power plants sited right where they're needed most. Prior to Recurrent Energy, I ran EI Solutions (now SunTech Energy Solutions), the solar power systems division of Energy Innovations. While at EIS, I delivered record growth and industry milestones that included the sale of the largest US corporate solar power system to Google. EIS was formed following the sale of Prevalent Power, a solar power system integration business I founded in 2001, to Energy Innovations. Before solar my background was in technology startups. I've raised (or helped to raise) over $200MM in equity financing for startups over the past decade or so. One company I co-founded, RedEnvelope.com, had an IPO in 2003. The other, Novo Media Group, was sold several years ago to Publicis, one of the world's premier marketing and media companies. I've also had my share of challenges along the way--my firsthand experience of a failed IPO registration for Novo and the collapse of a well-funded dot-com called WineShopper.com have helped to season me as an entrepreneur and a leader. Functionally, the bulk of my experience is in marketing, business development, and sales with a good dose of general management and finance gleaned from my startup adventures. During that time I've had the opportunity to work with clients like Toyota Motor Sales USA, GlaxoWellcome, MCI, Apple Computer, Hewlett-Packard, Nikon Precision, IKEA International, HGTV (Scripps) and NBC Digital Publishing. My background has been particuarly useful to me in the emerging clean energy industry where many of the business challenges are centered around market entry and initial sales traction. As an entrepreneur, I am passionate about startups and passionate about clean technology, but I have zero patience for dreamy ideas or unfocused execution. I'm a regular speaker at energy industry events and I'm now sharing more of my thinking via my weblog Clean Energy Future. I'm a graduate of UC Berkeley, a published author, private pilot and proud father of twin boys.

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