Sun Peeks Through in Solar – Wall Street Journal

Sun Peeks Through in Solar

Overseas Suppliers Trounce U.S. Panel Makers but Installations Are Soaring

Solar is reaching escape velocity. In a few years no subsidies will be needed

By RYAN TRACY And CASSANDRA SWEET

The solar-power business is expanding quickly in the U.S., helping lift the cloud that has surrounded the industry since the demise of Solyndra LLC a year ago.

But the growth isn't coming from U.S. solar-panel manufacturing, despite the money and rhetoric devoted to the industry by the Obama administration. Instead, it is in installations of largely foreign-made panels, whose falling price has made solar more competitive with other forms of power.

“There should be little emphasis put on where the panels are made,” said Lyndon Rive, chief executive of SolarCity Corp., which finances and installs rooftop solar systems. “Most of the jobs are in delivery and they're long-term, permanent jobs.”

The U.S. is on pace to install as much solar power this year as it did in this century's entire first decade: at least 2,500 megawatts, the equivalent of more than two nuclear-power plants. The U.S. added about 742 megawatts of solar capacity in the second quarter, or enough to power about 150,000 homes, the Solar Energy Industries Association said in a report scheduled for release Monday.

The price gap with traditional power sources is shrinking fast. When President Jimmy Carter installed a solar-powered water-heating system at the White House in the late 1970s, solar panels cost about $15 per watt of electricity generated, or about $50 in current dollars, according to GTM Research, a consulting firm that co-wrote the new report. Now they average about 84 cents a watt.

The decline suggests that solar power could play a significant role in U.S. power generation, although the industry still relies on favorable state and federal policies. States such as California have created subsidies for solar-power developers and established requirements for utilities to buy solar power and other renewable energy in an effort to cut greenhouse-gas emissions and fight climate change.

China supplied nearly half the world's solar panels last year, up from one-fifth in 2008. The U.S., which once dominated the solar industry, shipped just 3% of solar panels used globally last year, down from 7% in 2008, according to Paula Mints of Navigant Consulting.

President Barack Obama's 2009 economic-stimulus package provided funds for loan guarantees to five U.S. solar manufacturers. Two have filed for bankruptcy, including Solyndra, the California maker that borrowed more than $500 million from the federal government. Of the others, two are still developing their technology and haven't drawn any loans, and one has put a factory on hold. A separate pool of loan guarantees to support large solar-power plants is on firmer financial ground.

Republican presidential nominee Mitt Romney has pointed to Solyndra as an example of green-energy policies that are failing. Mr. Obama “is picking winners and losers. Mostly he's been picking losers,” Mr. Romney said in a recent speech.

The Obama administration said it isn't satisfied with an industry built around inexpensive imports. Developing a U.S. solar-manufacturing base is “of vital importance to our future as a nation,” Deputy Energy Secretary Daniel Poneman said.

Tom Concannon, a retired computer engineer in Ellicott City, Md., put 33 solar panels on his roof this summer after noticing a neighbor's system. The panels came from a German company with suppliers in Taiwan and Europe.

The system cost about $34,000. But the installation, by Maryland-based Solar Energy World LLC, was paid for by NRG Energy Inc., NRG -2.46% a large power company based in Princeton, N.J.

Mr. Concannon's contract with NRG guarantees him a fixed rate for the solar power for 20 years, which he expects will be lower than what his utility will charge for any conventional energy he uses. “I figure, nothing down, what do I have to lose?” he said.

NRG gets a federal tax credit for 30% of the cost of systems such as Mr. Concannon's. The company can profit over time by selling the electricity from the systems to homeowners and utilities. NRG spokeswoman Lori Neuman said the company also planned to sell some solar systems to third-party investors.

Such deals got a push from a little-noted part of the 2009 stimulus law and a late-2008 law signed by President George W. Bush. The legislation lifted a cap on the federal tax credit for solar-power systems and made it easier for solar companies to turn the credit into cash.

Among the leading solar-development companies is SolarCity, which has raised about $1.7 billion in project financing and has more than 2,000 employees across the U.S. Sunrun Inc., which has raised $1 billion for solar projects, is another leading solar-development company. The field has drawn investment from major financial institutions and Google Inc. GOOG +0.97%

According to Monday's report, utility-scale solar projects and installations at big-box retailers and warehouses and the like each account for about 42% of installations since the beginning of last year. Solar for homes made up the remaining 16%. The U.S. expanded solar capacity by 2,045 megawatts in the nine months through June, enough to power about 409,000 homes.

Even the federal government's plan to slap antidumping tariffs on Chinese-made solar cells—the devices that convert sunlight into electricity—hasn't affected prices much since Chinese companies have been able use solar cells from other countries in their panels.

Solar power is particularly viable in states where retail electricity rates have been rising quickly.

“As systems prices come down, people will buy bigger systems to offset the most expensive part of their electricity bill,” said Nat Kreamer, chief executive of Clean Power Finance Inc., a San Francisco solar-power financing firm. The average capacity of a residential rooftop solar system has grown over the past few years to 6.5 kilowatts from about four kilowatts, Mr. Kreamer said.

Maryland and 42 other states require utilities to pay retail prices for solar power generated by rooftop systems rather than the lower price paid for power from conventional plants, according to a North Carolina State University database. That ensures home or business owners a high rate when they sell excess power form rooftop panels. Twenty-nine states have mandates that utilities buy renewable power.

Though analysts expect solar to keep growing, the industry's expansion could slow. A government program that provided cash in lieu of the tax credits stopped taking new applications last December. The industry also must expand into more states. In New Jersey, a leading market, growth is cooling as utilities move closer to satisfying legislative mandates to buy solar power.

After growing 71% this year, the U.S. solar-power industry is likely to grow 21% next year and 25% to 40% a year through 2016, GTM Research predicted.