About two weeks ago, an industry titan weighed in on a topic I addressed six months ago.
Jigar Shah, founder of SunEdison, the world’s largest solar services provider, wrote an article about what his industry truly needs to continue to expand and thrive in the long run.
While we both came to the same conclusion, we differed in the approach.
However, on one key point, we both agree wholeheartedly: The U.S. solar industry needs lower costs and greater standardization to maintain growth.
Outsider Club founder Nick Hodge has the perfect play for it too.
Here is my article, and a crucial way to play the solar sector as it finally matures.
If the U.S. government really wants renewable energy to succeed in this country, why won’t it take the training wheels off?
The U.S. government slapped a new batch of tariffs on solar panel producers in China and Taiwan around the turn of the new year.
In some cases, the cost of the solar panels and related equipment will soar over 200%.
The solar sector definitely benefited from tariffs in its infancy in the form of guarantees of safety and security.
Funding via grants and preferential loans provided some insulation from crippling interest and acted as a catalyst for growth.
(If you take issue with that statement and cite Solyndra, please note that the Dept. of Energy loan program is turning a profit even with all defaults included.)
The problem is, we’re well past the point where tariffs make any sense. Companies are well-established and well-funded, and installations have soared 418% over four years.
Yet we’re still using a nanny state approach. It is time to take off those training wheels and let solar cell producers go it alone.
Flawed Tariffs
There are a whole slew of problems with the continuation of tariffs and subsidies for the domestic solar sector.
First, they allows it to wallow in mediocrity, and avoid making changes to increase competitiveness.
Subsidized solar power was absolutely critical, because the upfront costs for consumers were too high to compete with ultra-cheap coal and natural gas electrical generation over the lifetime of the panels.
Yet a main driver for solar installation growth being well over 100% annualized since 2010 was the plummeting cost of solar panels and related equipment.
The tariffs and subsidy schemes directly counteract this push to parity with other sources of power, along with the ability to compete with foreign companies.
Domestic producers can afford to keep making products that are only slightly better or slightly cheaper after tarriffs and subsidies. There is no reason to strive for true competitiveness as long as they are in place.
Second, as the New York Times pointed out, the big winner here isn’t going to be the U.S. producers:
The main beneficiary of the ruling is likely to be Malaysia, a Southeast Asian nation that is already the second-largest exporter of solar panels to the United States, after China and narrowly ahead of Taiwan. Western, Japanese and Korean companies are pouring investment into extensive operations there, seeing it as a stable country with a fairly low cost yet highly skilled labor force, and without China’s persistent trade frictions with the West.
So we’re handing artificially boosted profits to manufacturers that are pouring money and creating jobs in other countries. Great job.
The final point — and most important for long-term solar sector growth — is that maintaining the status quo hinders adoption of free market solutions that can address the underlying problems in the domestic solar sector.
There are solutions to this issue available to solar panel producers right now and we’re doing everything but supporting them.
Making Jalopies, Selling Ferraris
A prime example of how solar is maturing abroad, but not in this country yet, is the adoption of quality control.
Solar cells are being sold like they are top-of-the-line products when in reality they aren’t even worth the materials that went into them.
Case in point: a warehouse in L.A. installed a large array of solar panels that completely failed in just two years. The expected lifespan was 20 to 30 years.
More and more, the issue is coming up in the news:
- SolarBuyer, a Massachusetts-based company, discovered defect rates between 5.5% to 22% during audits of 50 Chinese factories over 18 months from mid 2012 through the end of 2013.
- The German solar monitoring firm, Meteocontrol, found that 80% of the 30,000 solar installations it reviewed in Europe were under-performing.
- Enertis Solar tested solar panels from six manufacturers at two power plants in Spain and found rates of malfunctioning as high as 34.5%.
All of these failed panels result in greater costs to solar cell producers. They ultimately have to replace them, and there isn’t even any guarantee that the replacements will be up to snuff.
This doesn’t even include the countless panels that are trashed as soon as they come off the line because of massive and glaring flaws.
Quality control, the most basic of concepts in the industrialized, standardized economy, has been completely ignored until now.
Companies are finally stepping up to address the complete lack of data they have on what they are making and selling.
One recently installed a system that tests the efficacy of solar panels directly into the production line of a Taiwanese company.
The Taiwanese company didn’t like what it saw at all. The problem wasn’t with the QC system, that worked perfectly at addressing when and where flaws existed in the production line in virtual real-time.
It was how crappy the company’s products were after it had been sold the latest and greatest furnaces.
Data from the QC system proved up to 27% of the panels weren’t up to snuff for the company, and it took the results straight to the furnace maker.
Solar companies, in consensus, like to estimate that 5% of their wafers are out of spec. The studies cited earlier, and the 27% figure shown to the Taiwanese company, show that they are dead wrong.
Running Out of Time
This brings us back to the tariffs the U.S. government just slapped on Chinese and Taiwanese solar panels and equipment.
Domestic producers asked for tariffs to keep the cost of solar panels high as the global price continues to decline. In essence, they asked for special rules so they did not have to compete.
Over time, the lack of realistic competitive pressure, and the lack of urgency to address the underlying issues, will only result in greater gaps between domestic and international solar panel prices.
The tariffs can prop up domestic producers at a high cost, but it does nothing to address the long-term viability of these companies in a global free market. It will ultimately hurt them.
Solar cell manufacturers in China and Taiwan will continue to sell to the rest of the world, which dwarfs the domestic market for new electrical generation needs in the future.
The Taiwanese firm that took the steps to improve quality — and lower production costs — is up in arms with its furnace suppliers.
Other companies in the industry are very interested in knowing exactly how far off the mark they truly are after seeing these results.
Around the world, solar panel manufacturers are adopting these quality control systems, improving their products, reducing costs, and getting to choose between market share or greater revenue.
This should happen in the U.S.A. as well, but tariffs will suppress it. They have to go, and ultimately they will.
In the mean time, one company with a legendary founder has developed a radical QC system that promises a return on investment for solar cell manufacturers in less than one year.
It can quite literally pay for itself and boost profits before the next corporate annual presentation.
Solar cell furnace makers are taking note too, and early orders include companies that account for 30% to 40% of the global market.
Check out Nick’s research to learn more about the small company that is revolutionizing solar energy manufacturing as we know it.
P.S. I nearly forgot, check out SunEdison founder Jigar Shah’s article here.
