First of a four-part series.
"This is our generation's Sputnik moment," President Obama said at the top of his State of the Union address to Congress last week. He was expressing a vision of his administration's high-stakes campaign to help American companies claim leadership in future clean energy technologies.
Behind the rhetoric is a thrust by the administration to target federal investments in technology on ways to dramatically change energy use across the economy -- in transportation, electricity generation, industrial processes and building design. It is a bet that spending taxpayer dollars today can lead to better jobs and more secure, cleaner energy for tomorrow's economy.
It marks a fault line between the president's goals and those of a resurgent Republican Party in Congress. "Government cannot force the people to innovate, but if we can get government out of the way, American ingenuity will emerge every time," responded Rep. Fred Upton (R-Mich.), the new chairman of the House Energy and Commerce Committee.
On two very competitive fronts -- advanced solar power and advanced automotive batteries -- the Department of Energy has already mounted a double-edged campaign. Through awards of loan guarantees, DOE is trying to shore up U.S. companies with today's technology at the same time that it targets R&D funds from the stimulus program toward "game changing" technology breakthroughs for the future. What is happening in the solar power industry offers one telling example.
First Solar, based in Tempe, Ariz., and SolarReserve, headquartered in Santa Monica, Calif., are two bright hopes engaged in the process of building a more competitive solar power industry, where the United States is a decided underdog.
Their technologies could hardly be more different. First Solar's solar cells -- the U.S. best seller -- produce electricity when sunlight strikes a thin film of cadmium telluride sandwiched between glass. SolarReserve uses solar energy reflected and focused by ground mirrors to heat molten salt to 1,000 degrees Fahrenheit. The salt is stored in Thermos-like reservoirs and then is used to create steam to generate electricity hours after sundown, making it a leader in the budding field of renewable energy storage, industry analysts say.
They have this in common: Like the rest of the American solar industry, the growth of their U.S. operations is vitally dependent upon a fragile matrix of government support -- state renewable portfolio standards and federal tax credits, grants and construction loan guarantees.
These lifelines, created by state and federal actions of past years, have been strongly promoted as a key element of the president's strategy to hasten the conversion to clean energy technologies that can expand jobs and exports and reduce greenhouse gas emissions.
But at a time of growing concern about federal spending and deficits, U.S. solar firms may be racing the clock to prove their viability.
"While proponents argue that wind is free, harnessing it into useful electricity certainly is not," said a report last year by the conservative Heritage Foundation Center for Data Analysis. "Mandating that an ever-increasing fraction of electrical power must be generated from renewable sources will raise the cost of electricity, force inconvenient and painful cuts in electricity use, and damage the economy," the report said.
Dependent on the kindness of governments
Industry leaders are frank to state their life support comes from taxpayers.
"Although the projects are economically and environmentally viable, we believe that these DOE programs are a necessary financing bridge until the financial markets in the U.S. are prepared to fund solar projects at this scale without risk-sharing with the DOE," said First Solar senior executive Jens Meyerhoff.
"The overall federal government support has been hugely valuable to the industry in pushing it forward," said Kevin Smith, SolarReserve's CEO.
While still a minuscule part of total U.S. electricity supply, solar power generation has enjoyed record increases thanks to federal and state backing. The Solar Energy Industries Association and GTM Research estimated late last year that solar energy installations in 2010 would approach or perhaps exceed 1,000 megawatts, well more than double installations in 2009 of 441 megawatts. The pipeline is full of new projects.
First Solar's net annual sales grew from $48 million in 2005 to $2.51 billion in 2010, aided by a once-through manufacturing process that turns out finished modules in two-and-a-half hours. Like other U.S. solar manufacturers, First Solar's search for project investors has benefited from a 30 percent tax credit that was converted to a temporary cash grant by the American Recovery and Reinvestment Act.
The stock price of First Solar jumped more than 3 percent on Dec. 10, after Senate negotiators agreed to extend cash grants to U.S. solar and wind power companies for another year. Several other U.S. solar firms' shares rose even more -- testimony to the importance of the federal support, market reports noted. First Solar's strongest U.S. sales are in California and New Jersey, where state renewable energy goals support solar investment.
In a classic validation of the technology learning curve, increasing production has led to a plunge in First Solar's modules' cost per watt, from $2.94 in 2004 to 77 cents currently, according to its shareholder reports. That brings the wholesale cost of its power down to 14 to 16 cents per kilowatt-hour in sunny regions. "We need to get to 10 to 12 cents," said spokesman Alan Bernheimer. The company is aiming to hit that mark by 2014. Its power will still be more than twice the expected cost of existing coal-fired generation, but competitive with the price of peaking generators on the grid, First Solar says.
SolarReserve's molten salt approach recently won key approvals for utility-scale projects in California and New Mexico.
Nursed along by parenthood, incentives and hope
Both companies are offspring of federal R&D. The thin-film solar technology First Solar developed was born at the DOE National Renewable Energy Laboratory in Colorado. SolarReserve's solar tower and molten salt process grew out of a DOE-backed demonstration project by Rocketdyne, now a division of United Technologies Corp.
SolarReserve will sell its power from the Nevada project for about 13 cents per kilowatt-hour, with annual adjustments for inflation, under a 25-year power purchase contract with NV Energy. Its California installation is also backed by a long-term utility contract, and in both cases, state renewable energy mandates provide the policy foundation for the developments. Solar's expansion today "is either driven by incentives or driven by ideology," said Kevin Book of ClearView Energy Partners LLC in Washington.
The growth of solar power is helping to drive down the cost of installation as well as the cost of solar modules. Several years ago, putting up a 1-megawatt solar system would have cost $8 million and taken six months. Today, it may cost $5 million and be done in six weeks, says Thomas Rooney, who until recently was chief executive of SPG Solar, one of the leading U.S. solar power installers. Creating a steady, stable growth path is key to automating manufacturing and installation, experts agree.
Yet the reality is that solar power producers still cannot compete with conventional electricity generators without state and federal help, particularly in a U.S. energy market dominated by the availability of cheap natural gas. "The combination of weak electricity demand and new natural gas resources has pushed the moment of solar grid parity farther away," Book says.
"The current technology has come down in cost by 20 percent with every doubling of output," said Ken Zweibel, director of the George Washington University Solar Institute. "That cost reduction curve goes back 30 years, and it is going to continue. The question is how fast, and whether we will do it with U.S. companies."
Federal loan guarantees, tax credits and direct payments to solar developers totaled $2.5 billion last year, more than four times the figure in 2009, according to analysis by Book at ClearView Energy Partners.
A 'titanic' battle with Chinese companies
Arun Majumdar, head of DOE's Advanced Research Projects Agency-Energy, says DOE isn't trying to pick winners. "We are looking at a portfolio of approaches to reach the target and we want to create the competition between these approaches. And we don't know which ones are going to win but one of these approaches will likely get there. There is a chance that none of them will, but it's worth taking a shot."
One of those gambles involves DOE's award of a $535 million loan guarantee to Solyndra Inc. in 2009 to help finance construction of a new plant in Fremont, Calif., to produce the company's cylindrical solar modules that employ thin-film chemical layers to generate electricity. President Obama toured the plant in May 2010, hailing it as "a testimonial to American ingenuity and dynamism."
But a month after Obama's visit, Solyndra canceled a planned initial public stock offering because the market response wasn't favorable. The new plant backed by DOE is ready to open, but the company has had to scale back its goals sharply because of stepped-up competition from silicon-based solar module makers.
The White House used the presidential visit to highlight job creation from clean energy projects like Solyndra's -- a key political selling point. Instead, the project spotlights the risks of government intervention in a dynamic market.
Solyndra will operate only one manufacturing plant as this year begins -- the new one -- idling its original plant, which it had planned to keep running, too. Instead of doubling employment, it has trimmed its work force. Revenue in 2010 was about $140 million, double that of the year before, but it is still not profitable, says spokesman David Miller. The company hopes to double production again this year, taking advantage of automation in the new plant, but it must bring down its sales price, which last summer was two-thirds higher than silicon module makers' prices, according to analysts.
Ric O'Connell, a renewable energy consultant at Black & Veatch -- Solyndra is a client -- said the negative media coverage of Solyndra's outlook is overdone. "I'm not saying they don't have challenges, but -- what's the famous phrase? -- 'The reports of my death are greatly exaggerated.'"
Rooney, whose company has installed Solyndra systems, called it "an interesting technology. But it's in a titanic battle with some incredibly well-funded Chinese manufacturers, which in many ways have more money to invest than we do."
"A bank isn't going to finance a module technology if it thinks there is financial instability or technology risk," said Shyam Mehta, a senior analyst at GTM Research. Solyndra must prove itself on both fronts, he said. "They have a technology that is potentially promising. ... But they have a lot of work ahead in catching up with industry leaders. Solyndra is not alone in that respect," Mehta added. "I'm not singling them out. This is one of the stumbling blocks -- we may see many competitors fall."
U.S. has launched winners in the past
Failures of high-profile government investments in clean energy technologies could give more weight to critics of federal intervention in the economy and Republican pressures to reduce federal spending.
It is an old debate. In the past half-century, federal funding of the space program, cancer research, military aircraft and the precursor to today's Internet all created transforming advantages for U.S. companies, historians of American business note.
Those efforts supported innovation on new frontiers. The infant solar power companies, however, must gain their foothold by taking business away from the incumbent and politically powerful coal, natural gas and nuclear power providers, at a time when overall growth in U.S. electricity demand is still slowed by an underperforming economy. And the case for solar energy rests on the proposition that the United States must move to low-carbon or carbon-free energy production to meet climate threats -- a premise that sharply divided Republican and Democratic party leadership.
"You can come up with endless scare scenarios that we aren't insuring ourselves again, that are just as worthy as climate threat scenarios. Just because you can image a scenario that's high-cost isn't a reason to take out an arbitrarily large insurance policy," said David Kreutzer, one of the Heritage report authors.
A draft report on an Energy Department workshop on solar power's future last year said that preliminary analysis suggests that if solar power could hit a $1 per watt target for installed systems by 2020, one-third of the current cost, total U.S. solar generating capacity could rise to 5 percent of the nation's total. By 2030, the figure could grow to 14 percent of capacity, a level that would be met with "minimal" additional investments in power transmission and storage, while significantly cutting carbon dioxide emissions from power plants, the draft asserted.
The surest way to achieve these goals would be for the United States to set a rising price on climate emissions, or create a "feed-in" electricity tariff that subsidizes an expansion of renewable power, as Germany and Canada's Ontario province have done, said Rooney. Increasing production will continue to push prices down, reducing the needs for subsidy, he said. "I believe within five to seven years, the U.S. would claw its way back to technological dominance, and we would recoup a justifiable number of manufacturing jobs," he said. Then the United States could let the market choose winners, he said.
A starting point in 'no-man's land'
The major international hurdle is that the worldwide "market" for solar power is anything but free, U.S. industry leaders say. American solar firms must survive in an international arena dominated by national governments pursuing explicit strategies to win scientific and commercial leadership.
China, which became the world's largest producer of photovoltaic panels in 2008, with one-third of all shipments, has made development of renewable energy a national security priority, and is providing a 50 percent subsidy for grid-connected solar plants, a National Research Council panel noted last year. The report added that within the next two decades, China could dominate renewable energy industries "that are emerging as among the most critical sectors of the 21st century."
"In an era of massive high-tech investment in next-generation products, it's stunning to me that we neither own the high ground on technology nor on manufacturing," said Rooney. The United States is "square in no-man's land," he said.
The report last year by the National Research Council panel focused on the technology strategies of Brazil, China, India, Japan, Russia and Singapore. While the United States' model still leads, the report raises questions of whether the traditional American process -- with top-down government-sponsored research support and commercial development by an entrepreneurial private sector, can prevail against more directed national programs.
Creating a new U.S. approach "is a tall order for a decentralized democratic government that has never had a comprehensive national S&T [science and technology] strategy," said the authors of the report, "S&T Strategies of Six Countries -- Implications for the United States."
"Renewable energy is a worldwide market. We're competing against other countries in other markets, most of which have long-term national goals on renewable energy," said SolarReserve's Smith. "We don't."
Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500