PV Innovation in North America
The $50 billion global PV industry is fast approaching a critical juncture in its history. Buoyed by climate change, national security concerns and slowing productivity in traditional, fossil fuel-based power generation, PV has emerged over the last 20 years as an economically and environmentally sustainable source of energy. However, the global recession, tightening credit markets and slow integration into the global power sector presage at least two years of difficulty for the majority of players in the PV industry. Despite these pressures, one constant force remains a primary driver of growth in this important and dynamic market — technological innovation.
Among the things that are critical for making sound investments and planning decisions in this difficult financial environment include: understanding how incumbent PV technologies will affect cost curves, learning what hot new technologies are emerging to disrupt established players, and considering how end users are incorporating new and up-and-coming PV technologies into their power-generation portfolios and daily lives. Greentech Media and the Prometheus Institute for Sustainable Development’s latest industry-leading report, PV Innovation in North America, analyzes these critical technology issues within the context of the dynamic North American PV market. Most importantly, this report highlights the ways in which North American-based technological innovation will contribute to make this the world’s leading PV market.
This report’s key findings are:
- Small, entrepreneur-driven PV companies are the dominant force in the North American PV market. There are more PV technology developers in North America than in Europe and Asia combined, and these companies are rapidly developing the newest generation of innovative PV technologies.
- North America’s two dominant firms, First Solar and SunPower, began as small, entrepreneur-driven companies whose technologies are unparalleled worldwide in terms of cost and performance. These two companies are the yardstick by which success among North American PV companies is measured.
- Unlike the majority of European and Japanese PV companies, North American PV companies emerged largely independent of government support. As a political climate favorable toward renewable energy takes hold in the United States, government support combined with traditional sources of private capital will engender industry growth unseen in other leading global PV markets.
- Tightening credit markets and higher costs of capital will slow demand for PV installations in established markets. Recessions, however, historically are potent times for research, development and innovation, which require little in the way of project finance. North America’s small, entrepreneur-driven PV companies stand to emerge well-positioned globally following the resetting of credit markets in 18 to 24 months.
- The North American PV industry as a whole represents a strongly diversified technology portfolio, with firms developing x-Si, thin-film, concentrating photovoltaic (CPV) and third-generation organic and nano-scale PV technologies. No other global market has as much technological diversity and, as such, North American firms will likely emerge as the commercial leaders in each of these important technology verticals.
- Though the expected shakeout in the PV industry, combined with the global recession, will result in the failure of many PV companies, those that exhibit significant technological differentiation in terms of cost, performance or application are likely to succeed. The majority of technologically differentiated firms are located in North America.
Overview of the Global PV Market: Drivers of Growth
The Prometheus Institute for Sustainable Development was the first organization to argue for the economic inevitability of PV. The ability of PV to generate electricity closer to the point-of-use than any other power generation technology, in addition to exponential cost decreases and performance increases driven by efficiency gains at the technology level, were identified as the primary forces behind this emerging revolution in electricity generation. The fundamentals of this argument have proven true — the PV industry has demonstrated annual growth rates of 30 percent to 40 percent for the past 20 years, while revenues are expected to increase 10-fold between 2007 and 2012. Underpinning this substantial growth is a thriving market for private capital. Greentech Media estimates nearly $4.3 billion in venture capital has been invested in PV technology between 2005 and the third quarter of 2008, representing close to 40 percent of all venture capital investment across the green technology asset class. The majority of this funding has gone to innovative firms based in North America.
Unlike traditional industrial technologies, where economies of scale in manufacturing are responsible for driving down costs and enhancing competitive potential, cost drivers in the PV industry are principally related to efficiency gains at various points in the materials fabrication and manufacturing process. Enhancing conversion efficiency at the solar-cell level drives performance increases over the lifetime of the PV system as wellas reducing input material requirements in manufacturing and generation costs over time. Innovative wafering, deposition and module manufacturing techniques also allow producers to reap efficiency gains. These forces are driving PV toward the goal of grid parity — the point at which the levelized cost of electricity generated from a PV system is comparable to that of a traditional fossil fuel-based generation technologies. Though manufacturing scale does play a role in this movement, the primary driver is efficiency. Efficiency depends entirely on ongoing technological innovation.
Certainly, other macro-level trends play a role in the rapidly expanding global PV industry. Primary among these is climate change and the necessity of reducing our dependence on fossil fuel-based generation technologies. The environmental problems associated with these technologies are well understood. Going forward, however, it is important to recognize the growing set of economic constraints associated with traditional power sources. A global regulatory regime is developing that will place considerable economic costs on the use of fossil fuel-based generation. PV represents a viable alternative to this increasingly costly problem.
Concomitant with this is the growing global demand for electricity. According to the International Energy Agency, electricity demand is growing roughly 3 percent to 4 percent annually and is projected to grow 50 percent between 2005 and 2030, and it is developing overwhelmingly in emerging markets that lack sufficient capacity to meet this demand. Much as wireless telecommunications technology provided an affordable, dynamic solution to the problem of mobile telephony and data connections in the developing world, so too will PV provide an affordable, dynamic solution to the problem of power generation in these areas.
Security of supply, both in terms of reliance on foreign sources of energy and in terms of the security of domestic power grids, requires an innovative solution. This is true for European reliance on natural gas from Russia, Japanese reliance on coal from China and American reliance on oil from the Middle East. Though the high costs of primary energy sources seen globally within the last 18 months have abated in the near term, rising global demand combined with declining productivity from natural gas fields and oil reserves means prices will likely continue their upward trend despite weakening global financial conditions. This means the costs of electricity generation from sources that rely on fossil fuels will increase substantially as well. PV, which relies on free energy from the sun, exhibits fixed-generation costs over the lifetime of a PV system. Additionally, PV is an inherently local technology. The emergence of robust PV sectors in Europe and Asia has created millions of jobs ranging from high-technology researchers to specialized electricians and construction workers. As North America prepares to enter the worst recession since the Great Depression, the ability of its economy to survive this financial malaise will be inextricably linked to the development of a dynamic PV industry.
These macro-level trends highlight an important aspect of PV technology. Compared to traditional fossil fuel-based generation technology, PV is inherently economically sustainable. All industries reliant on project finance will suffer through periods of tight credit and high costs of capital. This report argues that technologies whose costs are known and whose cost trajectories move continuously downward will be favored in weakened financial climates. PV embodies this argument more than any other power generation technology.
The global recession, however, will not be kind to all PV companies or all PV technologies. Lack of access to capital and the failure to prove PV technologies at scale and at cost means many companies will not survive the coming shakeout. Larger firms will acquire some companies in the anticipated wave of consolidation, while some companies will merely fall by the wayside. This report argues the companies that will fail to succeed are those that fail to market technologies differentiated by lower cost or performance. It is the goal of this report to analyze the companies and technologies that will succeed and the grounds upon which that success will be built.
Core PV Technologies
Currently, the global PV market can be characterized by dramatic expansion in three-plus generations of PV technology: first generation (silicon), second generation (thin film), third generation and concentrating PV (CPV).
First-generation technologies, based on silicon wafers, have experienced the most dramatic increase in production volume, as manufacturers, particularly in Germany, Japan and China, have scaled up well-defined manufacturing technologies. These producers have the capacity to produce in the gigawatts but have been constrained by a severe shortage in raw silicon, which has increased costs and decreased volumes. As the constraints on silicon supply ease up, these manufacturers will provide a massive quantity of solar PV to the market. This dramatic increase in volume will drive down costs through economies of scale and price competition. The downside will be that, like in all developing industries, as competition among large producers increases, inefficient producers will likely be forced out of business, leaving behind a cadre of highly efficient manufacturers. That being said, even given massive scale advantages, silicon is still an inherently expensive material with a long supply chain and therefore will face significant competition from up-and-coming PV technologies.
Second-generation PV technology, or thin film, has just begun to broadly reach commercial scale. Thin-film technologies, namely amorphous silicon, cadmium telluride and CIGS (Copper Indium Gallium Di-Selenide) are already making significant inroads in silicon PV market share. Thin-film technologies have the advantage of requiring much less semiconductor material (often less than 1 percent of that used in silicon) and can be manufactured using high-speed techniques such as roll-to-roll printing. The disadvantage of thin film is that modules have a lower efficiency than silicon and the technology has been slow to reach commercial stage. Nonetheless, multiple manufacturers in each thin-film category have reached the commercial stage with others coming online every quarter with large manufacturing capacities. In terms of global distribution, a number of manufacturers in this category have sprung up in Europe and North America with some of the most innovative coming from North America.
Third-generation PV technologies are diverse and generally promise higher efficiencies or lower cost manufacturing than either first- or second-generation technologies. This PV category includes technologies like: dye-sensitized solar cells, quantum dots, nano-antennaes, nano-modified materials and organic cells. Generally these technologies, while promising, are further from the market, although organic cells appear to be on the cusp of being produced at commercial scale. This remains a technology category to be watched. In terms of geographic dispersion, again North America is a center for much innovation in third-generation technologies.
Finally, although not a “generation” of technology, concentrating PV has become a major global category. Concentrating PV employs mirrors or lenses to focus light on a small area of actual PV material, the argument being that lenses and mirrors are less costly than PV, thereby lowering costs. This category can be divided into low concentration modules (often two to 10 times) that do not normally require tracking and high concentration modules (often 100 times or greater) that require tracking (an element that increases installation requirements and costs). Furthermore, many high concentration units employ multi-junction PV cells—solar cells capable of capturing multiple spectrums of light and thereby capturing more power from the light falling on the cell. Geographically, North America has seen an explosion of concentrating PV technologies.
Innovation in PV Technologies
Technology developers and suppliers in each of the leading global PV markets are distinct in their approach. Chinese manufacturers, for example, have focused on high-volume, low-cost production, while their Japanese counterparts have introduced manufacturing techniques from semiconductor and plasma display fabrication. European manufacturers, by and large, produce high-cost, high-performance PV components directed primarily at their domestic markets. The lack of certain, clear policy support in North America combined with a market focused on early-stage research and development has spawned a large number of small, entrepreneur-driven PV companies, some which will be well-positioned as industry leaders in the coming years.
Innovation alone, however, does not make a market. As such, not all of the more than 120 North American PV companies will make a significant impact in the global PV industry. Those poised for success are ones that have addressed three significant technology development criteria. First, they have developed or are developing PV technologies that serve an addressable market. Low concentration CPV technologies, for example, may never gain widespread deployment in the residential solar space because the efficiency advantages are overshadowed by complex designs and high manufacturing costs relative to the small scale these technologies are meant to address. Conversely, flexible BIPV technologies may prove disruptive because they address balance of system cost inefficiencies in ways no other PV technology can.
Second, the underlying manufacturing processes drive cost reductions at the plant level and minimize manufacturing complexity. No fewer than nine Copper Indium Gallium Selenide (CIGS) manufacturers lay claim to the title of “Next Big Thing”. However, all of these companies are pursuing a separate manufacturing process to fabricate their CIGS cells and modules. Where companies are producing roughly identical products, it is likely that a convergence across manufacturing technologies will occur, with some of these companies disappearing in the ensuing shakeout. In the c urrent credit environment, project finance will look kindly on those companies with low cost, easily reproducible manufacturing technologies that support, rather than inhibit, the commercial production of the downstream PV technology.
Third, downstream PV technology must provide tangible value to the end user. A popular argument, and one advanced first by Greentech Media and the Prometheus Institute for Sustainable Development, is that the PV industry will be dominated by two types of firms: those manufacturing low cost technologies that generate high internal rates of return and those manufacturing high performance technologies that generate high gross returns. First Solar is an example of the first, while SunPower is an example of the second. Regardless of the level of innovative skill that a PV company embodies, failure to fall into one of these categories will meet with little success at commercial scale.
This report provides essential analysis of the companies and technologies that meet these criteria, as well those that are not. As such, it is essential reading for any investor, entrepreneur, project developer, or end-user actively searching for innovative PV companies that will emerge successful in the rapidly evolving global PV market and the rapidly changing global economy.
Explanation of Report Structure and Format
This report attempts to provide insight into the PV industry at multiple levels.
First, this report provides an overview of major players and key trends in the international photovoltaic cell and module manufacturing market. Second, this report attempts to provide a high-level but comprehensive picture of North American PV cell and module manufacturers. Third, and most importantly, this report attempts to provide deep and comprehensive detail on all North American startups in the PV cell and module manufacturing space. Startups here are defined as firms founded after 1992 which have pursued PV as their primary line of business and which have expressed the intent to reach commercial scale (as opposed to doing custom work at small production levels). Tables are provided summarizing the activity of each startup as well as an in-depth profile in the appendix. Firms in the tables are listed with their current name first, with any previous names listed after a forward slash. Every attempt is made to assure that the information is accurate but because information changes rapidly and because over 25 percent of North American startups are in stealth mode, inaccuracies may occur.
Finally, this report attempts to provide insight into other areas of innovation in the North American PV market. This includes a survey of R&D stage firms with technology that might be commercialized by an outsider, an overview of innovation in other areas of the value chain, and potential investment strategies in this market.