Mixed Greens: Solar's harsh new reality | RenewEconomy

Mixed Greens: Solar’s harsh new reality

First Solar blames ‘new market reality’ for job cuts, plant closure; soaring solar capacity predicted; $4bn in subsidies for Oz miners; biofuel boast; GHGs rising.


A big blow for the US solar sector this week with First Solar – once the dominant thin-film solar manufacturer in the US sector – announcing that it was slashing its global work force by nearly a third (2000 jobs), shutting its plant in Frankfurt, Germany, and idling indefinitely four production lines in Malaysia. The Arizona-based company says the measures – described by one MarketWatch analyst as a “dracionian overhaul” – come in response to what it describes as “the new market reality;” a challenging combination of fierce competition from low-priced and well-financed Chinese manufacturers, uncertain government support, and a solar panel glut. “After a thorough analysis, it is clear the European market has deteriorated to the extent that our operations there are no longer economically sustainable, and maintaining those operations is not in the best long-term interest of our stakeholders,” said chairman and interim chief executive Mike Ahearn. And while news of the drastic measures had the immediate effect of sending the Nasdaq-listed company’s shares up 10 per cent (First Solar shines on bright day for energy stocks, says MarketWatch‘s Jim Jelter), the big picture does not look so good.

“The problems at First Solar spotlight how industry troubles have migrated well beyond early-stage solar-panel makers, such as Solyndra, and are now ensnaring even mature US companies with billions in annual revenue,” says Wall Street Journal. The paper reports that despite having experienced executives and strong financial backing, First Solar has seen its market capitalisation fall by $US9.86 billion, or 83 per cent to $1.99 billion in the last year. The company had a loss of $39.5 million in 2011 on revenue of $2.77 billion. The market seems to have welcomed the cutbacks – which come on top of recent decisions to postpone the opening of a manufacturing facility in Arizona, and to stop building a new plant in Vietnam – in the hope it will reduce the company’s exposure to the global solar-panel glut. The company says it expects the restructuring will reduce costs by $30 million to $60 million this year, and by $100 million to $120 million the following year. The company has also built its own solar-farm-development business, with the backing of US government loans for some projects, and has sold several of the developments to energy companies.

Solar capacity to soar, while prices rocket to parity

Some better news on solar now, with a newly released report from consultancy giant, McKinsey, predicting soaring global capacity, and price parity with fossil fuels in hot countries within two to three years. The report, Solar power: Darkest before the dawn, says demand in the domestic and commercial sectors in regions with high sunshine could rise to as much as 150-250GW by 2020, compared with a 2011 total worldwide capacity of 65GW. It also predicts that solar manufacturing capacity will double over the next three to five years and underlying costs will drop by as much as 10 per cent a year through to 2020. “Our analysis suggests that by the end of the decade, costs could decline to $1 per watt peak (Wp) for a fully installed residential system,” the report says. “But even if costs only fall to $2 per Wp, the industry is still likely to install an additional 400GW to 600GW of PV capacity between now and 2020.”

But the “most exciting” aspect of the report, says author and McKinsey associate partner Krister Aanesen, “is that costs are going to fall because of classic industrialisation levers, not major technological breakthroughs… Any major breakthroughs would simply represent an upside,” he told BusinessGreen. The report also argues that a rapid reduction in the costs of solar energy could have a revolutionary effect on the global energy industry as a whole. “Rapid growth of distributed generation could disrupt the regulated utility industry in countries that belong to the Organisation for Economic Co-operation and Development (OECD),” it says. “In non-OECD countries, distributed generation (in combination with inexpensive storage solutions) could bring electricity to millions of poor people living in rural areas, greatly improving their standard of living.”

And while Aanesen acknowledges the tough challenge facing companies like First Solar face, he predicts that those companies that survive the current market turmoil will find themselves operating in an industry able to compete – without subsidies – against energy sources like coal and nuclear. “In terms of costs, we are at the point in 2012 where I thought we would be at in 2020,” he told BusinessGreen. “The pace of cost reductions has been staggering. When companies are building new energy infrastructure, solar will be a competitive option within this decade. It will be cost comparable to peaking plant within two to three years in some countries and comparable with base load plants by the end of the decade.”

New Zealand’s biofuels boast

New Zealand algal fuel contender Aquaflow Bionomic Corporation has thrown down the gauntlet, declaring it will make refining next generation biofuels a commercial reality in its homeland, and overseas, within three years. The Nelson, NZ-based company announced on Wednesday that it has executed a technology cooperation agreement with CRI Catalyst Company, a Shell subsidiary which has exclusive global rights to a commercially viable renewable fuel process – “IH2 technology” – developed by Gas Technology Institute. The deal will combine what Aquaflow describes as its “unique capability with algae, mixed and varied feedstocks,” and CRI’s license to IH2 technology, in an attempt to prove their commercial effectiveness in producing hydrocarbon fuel. Aquaflow director Nick Gerritsen says the IH2 technology is ready to go, and the companies have plans underway to demonstrate it at the 5-200t/d scale.

“We believe this is a game changer,” says Gerritsen. “The technology is self-sufficient and means that regional fuel refining is now a real possibility.” Gerritsen says the two companies should be able to produce renewable hydrocarbon fuel that is equivalent to fossil fuel at a cost that is highly competitive with the current per barrel price of crude oil. And he believes New Zealand could produce enough biofuel to meet its renewable fuels’ requirement within 10 years. “The current estimation of the IH2 process economics suggests it to be among the most economical for renewable hydrocarbon fuel production. The combination of Aquaflow multi-biomass feed and CRI IH2 technologies means that any biomass – algae, wood waste, agricultural waste such as vine prunings, invasive weeds like gorse or broom and solid waste, can be turned into renewable transport fuels,” Gerritsen also argues that New Zealand has an opportunity to take advantage of the breakthrough. “The ability to produce our own commercially viable biofuels which integrate with current infrastructure would increase our economic competitiveness, improve our environmental performance and reduce our reliance upon imported crude oil. Benefits would flow through our economy in terms of new jobs and boosts to regional businesses.”

Who’s mining the subsidy dollar?

Another new report, this time from The Australia Institute, has done some calculations on Australian energy subsidies, and has come up with a pretty astounding figure: $4 billion – that’s the amount the think tank says goes the way of the mining industry each year, in the form of subsidies and concessions from the federal government alone. The generous financial assistance offered by both state and federal governments comes from a range of direct financial assistance, tax concessions and public provision of infrastructure such as ports, rail, and road assets, says the report. And it lists some examples of these that help make up the $4 billion tally: $1,900 million in fuel subsidies; $550 million in reduced tax payments for the gas industry’s production of condensate; $368 million on tax write-offs for capital works; $330 million on deductions for exploration and prospecting; and $312 million in accelerated depreciation write-offs.

TAI also says that its tally of mining industry subsidies “are almost certainly an underestimate of the full amount,” which would include potentially “substantial” state subsidies, such as the $1.4 billion a year the Queensland government was estimated to spend on its state’s mining sector, in a report released by Trevor Berrill in March this year. “In January, we had a big debate about what the $500 million we gave to the car industry said about the Australian approach to industry assistance, so it seems bizarre that we are yet to have a debate about the billions a year we give an industry that is growing so fast,” TIA executive director, Richard Denniss, said of the subsidies. And the report concludes by saying that it is not in the national interest that they continue. “Mining subsidies during a mining boom simply represents a transfer of money from taxpayers to mine owners,” it says. “Indeed, the faster the mining industry booms the higher the Reserve Bank of Australia will likely increase interest rates.”

Carbon count

Meanwhile, greenhouse emissions are still on the rise, with the latest federal government data showing Australia released 546 million tonnes more carbon dioxide than its land mass absorbed last year, not including the data from changes in land use and logging. That’s a 0.6 per cent increase on the 2010 emissions figure, but still below the nation’s peak in 2008. It also keeps Australia within its international commitments under the Kyoto Protocol – a pretty moderate deal that says Australia’s emissions can increase to 108 per cent of its 1990 greenhouse gas output; this new data puts us at 104 per cent. The data also shows that emissions equal an average of 24.3 tonnes of greenhouse gases a year for every person in Australia, meaning we remain bigger per capita emitters than the US. The US, meanwhile, has submitted its latest EPA data to the UN, showing that its greenhouse gas emissions grew by 3.2 per cent in 2010 from the previous year, after two consecutive year-on-year falls. America – the world’s second largest emitter of greenhouse gases after China – will now need to move aggressively to reach targets set by President Barack Obama.

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