After Solyndra and Evergreen, Welcome to the Age of Solar PV Commoditization (And 5 Things You Can Do About It)
by Tor Valenza a.k.a. “Solar Fred”It’s official. With the bankruptcies of Solyndra and Evergreen, two solar panel companies with unique premium solar PV technologies, the Market — with a capital M — hath spoken: “Solar PV manufacturers, we, the purchasers of solar PV, do hereby care more about price than any fancy innovation. Just give us the best quality panel for the lowest $/watt, thank you very much.”
String ribbon doesn’t matter. Cylindrical CIGS film doesn’t matter. Even made in America doesn’t matter unless it's at a competitive price.
Apparently, all the Market wants to know are the basics:
- Is it solar PV? You know, electrons, the photovoltaic effect, hooked to an inverter? Cool.
- Are you backed by some bank that I’ve heard of? A government’s bank is fine. Yes? Excellent. My bank is now happy and will approve my loan. Merci.
- How much? Is that your final answer? I’ll get back to you.
Naturally, this is an over simplification. I would add that I believe there are tiers of commoditization today. Name brands on the stock market that are deemed “bankable” by the grace and due diligence of some large or government-run bank will command the highest prices, but not much higher over brands you’ve never heard of and backed by unknown banks. Have a lot of space? Lower efficiency thin films will also be commodiitized in its own tier.
In short, low $/watt price, financial confidence, and long term viability are now the default prerequisites for volume global sales. That’s great for solar installers and making solar PV more affordable and price competitive with fossil fuels, but what about the solar PV manufacturers?
Without any breakthrough manufacturing innovations, Solar PV companies may have to survive on loans and thin profit margins in order to survive what's bound to be a year or two or three or longer of industry consolidation. (Another solution may be mergers and acquisitions, but hush! Let's not go there for now.)
So the end of Solyndra and Evergreen have unveiled the age solar PV commoditization. Now what? How will solar PV companies compete and profit when the market price goes down below a buck/watt? Will panels one day be moved to the Chicago commodities exchange alongside pork bellies, oranges, and wheat?
No. That will never be the case for many reasons, but sad to say, PV companies have not been able to make the case — within market tiers — that their brand matters more than price. I've read and heard of pointing fingers at China, but there's going to be a bottom for them too. At a certain point, they too will start to worry about rock-bottom prices feeding their operations (and stock holders and loans).
Now, I love this industry. And as much as I want solar to kick coal and gas in the pants when it comes to price, I also want PV manufacturers to thrive and profit so that there is robust competition and choice.
And so, as usual, I not only offer my usual Solar Fred warnings and perspective above, but I also offer solutions:
1) The only innovation anyone cares about now is low price. The Wal-Mart mentality ain’t going away any time soon, especially with this American and global economy. Everyone’s pinching pennies and worried about tomorrow's cash flow, so the only innovation your solar engineers should be working on is how to make reliable, conventional, solar PV panels for the least expensive price. Period.
2) Added values matter, but only if they’re included in the same competitive price. Are you working on sleek black beauties? Do you have some kind of panel failure insurance plan? Are you the cleanest, greenest, clean-tech company in China or anywhere? Wonderful, but don’t expect anyone to pay much extra. If that were the case, Evergreen would still be in business. String ribbon may have been eco-friendly, but the Market refused to pay more for that benefit.
3) American made panels may now be competitive—but only at the same price. I’ve personally noticed an American jingoism from consumers and installers. In the age of solar pv commoditization, price will remain king, but if you can offer a Made-in-America panel at the same price as a tier one foreign made panel, my bet is that American installers will choose the American-made brand. Naturally, don’t forget to highlight this U.S.-made fact in your marketing. That being said, Solon (SGFRF.PK) and SolarWorld (SRWRF.PK)just shut down two U.S. factories, so it's not an easy or perhaps cost effective solution — at least not yet. (See #1.)
4) New government policies may make or break you. Get political. Decent demand is keeping a lot of PV companies above water right now, and some of that demand is driven by these record low PV prices and the threat of rising fossil fuel prices. However, if the EPA is (further) gutted and we have a pro-fossil fuel new president in 2012, solar will become less competitive with fossil fuel and nukes. Without the 1603 grant program and 30 percent ITC, solar will survive, but grow much slower. Therefore, pay your dues and support SEIA, Vote Solar, IREC, SolarTech, and any other organization that supports solar jobs, growing the industry, and educating politicians. Political leadership matters now more than ever.
5) Build a trusted brand. Obviously, as a solar marketing consultant, there’s some self interest here, but honest: In the new age of solar commoditization, it’s more important than ever to create an army of solar brand loyalists. Given relative equal quality and price, it’s up to your company to create solar fans through exceptional customer service and communications. Chicken soup is on every grocery store shelf in America, but people have different feelings and will often pay more because of their trust in Campbell’s or Progresso health or taste benefits. People will pay more for and defend their Harley-Davidsons. There are Mac people and there are Microsoft people. There are Ford F-150 lovers and Dodge Ram die-hards. This kind of enthusiasm can happen with solar too, whether it's commercial, utility, or residential. “Trust” is the key word here. Learn about your customers and learn how to build brand trust, and then it won’t be such a coin flip for the $/watt panel that an installer chooses. Instead, it will be a very conscious choice. It will be "I like and trust that solar brand. I recommend it because...” There's already a little bit of that out there. Now, in the age of solar commoditization, there needs to be much, much more.
As I stated in my previous post on REWorld, despite the loss of Solyndra and Evergreen, I’m confident that our global industry will survive and thrive. For solar PV manufacturers, now is the time to genuinely UnThink Solar.