The Solar Market Goes Nova—Almost

While the solar market has waned, it remains a rising star in the U.S. energy mix.

A nova has been defined as “a star that increases dramatically in brightness and then fades to its original luminosity over a short period of month or years.” The same description might be applied to the utility-scale solar market over the past few years.

While the projected outlook looks promising, tumult within the solar market has challenged many companies over the past year with stalled growth and declining revenues. Photovoltaic (PV) module production plants including Solon, Solar World and Uni-Solar shut their doors, while Solyndra, Evergreen Solar and Spectrawatt went bankrupt.

Several companies sought protection through mergers and acquisitions, with module manufacturers and developers teaming up to leverage each other's strengths in the market. And, as if the market wasn’t turbulent enough, the Coalition for American Solar Manufacturing filed complaints with the U.S. Department of Commerce and the International Trade Commission (ITC) seeking relief from China’s alleged illegal product dumping into U.S. markets.

The state of the solar market was underscored by the Solar Power International (SPI) conference held earlier this year which, according to SPI officials, reported to have over 30,0000 attendees. Over the course of the three day event, seemingly every solar module manufacturer in attendance was vying to position their product as the low cost, module of choice. Given the 40 percent reduction in solar module pricing over last year, it was clearly evident that the masses were banking on low price to drive market growth.

However, the worldwide over-supply of PV modules versus the drop in demand due to reductions in the European markets and the reduced need for electricity in the U.S. resulted in an environment of stalled or delayed solar project development and construction.

In 2011 the utility-scale solar star faded. If it is to “go nova,” reductions in module prices alone will not drive projects through development and into construction. So what else is needed to propel the market to a point where more solar projects are built? A shift in focus to the reduction in the balance of systems (BOS) construction costs is inevitable.

A report by the Rocky Mountain Institute entitled "Achieving Low-Cost Solar PV: Industry Workshop Recommendations for Near-Term Balance of System Cost Reductions," states that, unlike solar modules – single pieces of capital equipment that are fairly uniform and interchangeable – the balance of systems (BOS) and accompanied installation process requires contributions from many players, including developers, engineering procurement contractors (EPCs), suppliers, regulators, utilities and owners, making the search for cost reductions fragmented and dependent upon many moving parts.

The report further suggests that not only is it feasible to decrease BOS costs by up to 50 percent over the next five years but that these cost reductions are essential.

While this remains to be seen, clearly, the current reduction in the cost of modules (40 percent year to year) and companion reductions in BOS costs (50 percent over five years) do not align. The market indicates that an overall reduction in both the capital equipment and BOS portions of a project’s cost must occur at the same time – and the sooner the better.

The companies that will succeed in this effort will significantly streamline their design and construction processes, standardize their component selection to decrease labor costs, and work to reduce the time between permitting and the start of construction. The market will reward companies who understand how to leverage these incremental improvements in efficiencies and accelerate the construction of utility-scale solar projects to achieve meaningful cost reductions. The utility-scale solar market in the U.S will then most likely experience a continued drop in installation costs that include both capital equipment and BOS efficiencies, re-igniting the market to its former luster.

While the solar market has waned in recent months, it still remains a bright spot in the U.S. energy mix. The current frenetic pace of the market needs to stabilize and companies must improve their efficiencies and costs before another chance of becoming more mainstream – and “going nova” presents itself.

About the author: Steve Hansen is Director of Business Development for Mortenson Construction's Renewable Energy Group focusing on the utility-scale solar market.