Hope Shines Through Bankruptcy Clouds for US Solar Sector
All Eyes East
Competition has intensified for solar panel manufacturers as cheaper Chinese modules have become more widely available. Manufacturing costs are lower in China, due in large part to relatively cheap labor and low-cost loans from China’s state-dominated banking system.
Another factor that has driven down costs is a reduction of feed-in tariffs in some European countries, according to Gilligan.
“The demand they thought was going to be there in Europe for solar has drastically been reduced in 2011,” he said.
Solar manufacturer and project developer SunPower‘s investments in Italy were hit when the government reduced feed-in tariffs in response to debt crisis, according to project development analyst Brian Bailey.
“SunPower basically lost a major market, and we’ve been moving modules to other markets and trying to fill the gap,” Bailey said at the conference.
The Problem With Policy
SunPower’s experience in Italy also highlights the importance of policy risk in the solar industry, as firms are still working towards lower costs that would allow them to compete without government incentives.
And SunPower and Q-Cells have both managed to attract capital, despite uncertain economic conditions.
Q-Cells is employing innovative means of raising project funds, such as going through a traditional project finance route but “wrapping” it in an insurance policy, according to director of new market development Nick Chaset. A wrap provides a guarantee against potential losses.
“We’ll provide a parental guarantee as a publicly traded company or we’ll go through a third party like [insurance company] Zurich,” Chaset said.
SunPower is continuing to fund projects using power purchase agreements, as well as lease financing, according to Bailey. The company’s creditworthiness benefits from French oil major Total‘s decision, announced in April, to buy 60% of the solar firm’s shares and provide $1 billion in credit support over five years.
“We have one of the strongest balance sheets in the world behind us”, Bailey said.
And the companies’ solid track records give them a leg up over less established firms.
“Big investment banks, financial institutions aren’t interested in taking risks on a new developer,” said Gilligan.
Two Certainties: Natural Gas And Taxes
But the US solar industry may face additional challenges in the coming years. One of the primary drivers behind a recent boom in solar projects is the option for solar developers to receive a 30% investment tax credit in the form of a cash grant, according to Gilligan. He does not expect the cash grant option to be renewed next year, which would force solar project developers to seek tax equity financing, which may not be as readily available.
And if the price of US natural gas fails to rise, it could act as a barrier to development of all renewable fuel generation sources.
“As long as this natural gas price stays around $4…it’s so cheap that it’s not going to be a good financial decision to build big wind and solar farms,” Gilligan said.