Solar Horizon for 2012 Shows Shadows, Bright Spots

""The U.S. solar industry ends 2011 with a mix of news that’s being interpreted both as a sign that solar is near a mainstream tipping point and that it is in deep trouble. Which is it?

With the likes of Warren Buffett, Google and General Electric making big solar investments late in a year that saw record growth in the industry, it’s easy to buy into the comment by Paul Leming, an analyst with Ticonderoga Securities in New York, that "the move toward alternative energy continues to be a well-recognized megatrend."

By the end of the third quarter, the U.S. solar industry in 2011 had installed 1,000 megawatts of solar panels—enough to power about 120,000 American homes—topping the total for all of 2010. The growth came amid the fallout of photovoltaic cell manufacturer Solyndra’s bankruptcy and controversy over its Energy Department loan, which led to heavily politicized criticism of renewable energy subsidies.

In that atmosphere, Congress adjourned without renewing the 1603 Treasury Program, set to expire Dec. 31. The program allowed a 30 percent alternative-energy tax credit to be taken as an up-front cash payment as part of the post-recession stimulus package. It was credited by the Solar Energy Industries Association (SEIA) with providing 3,600 grants totaling $1.5 billion for solar projects in 47 states and supporting more than $3.5 billion in private investment.

Loss of the grant program, which eased financing, casts a shadow on solar’s breakneck growth. The SEIA believes its expiration will forestall creation of 37,000 jobs, and the U.S. Partnership for Renewable Energy Finance estimates the available financing for energy projects will shrink by 52 percent in 2012.

Still, big money is flowing into solar, and the investment tax credit underpinning the expired Treasury program remains in place until 2016. Bigger investors such as Buffett and Google don’t need cash up front and can benefit from the credit when they file taxes.

So it is a good sign for solar when Google, partnering with global investment giant Kohlberg Kravis Roberts, makes a $94 million investment in a portfolio of four solar projects being built by Recurrent Energy in California. It’s a good sign when GE decides to build a $300 million PV module manufacturing plant in Colorado.

And it was no small deal when Buffett’s Berkshire Hathaway, through its MidAmerican Energy subsidiary, made the biggest plays of all in December:

  • Purchase of the $2 billion, 550-megawatt Topaz solar farm in California—roughly equivalent to buying half of a fully functioning nuclear plant. The farm, expected to finish construction in 2015, is the world’s second-largest photovoltaic plant now under construction.
  • A deal with NRG Energy to buy a 49 percent interest in Agua Caliente, a 320-MW, $1.8 billion project in Arizona. While Agua Caliente is backed by a $967 million loan guarantee from the same program criticized in Solyndra’s failure, the Topaz plant, GE and Google deals are not.

Regarding the Topaz farm not having DOE backing, MidAmerican Energy Holdings CEO Greg Abel said the project "demonstrates that solar energy is a commercially viable technology without the support of governmental loan guarantees and reflects the type of solar and other renewable generation that MidAmerican will continue to seek to add to its unregulated portfolio."

That’s an important endorsement. Just as Google and GE aren’t small players, MidAmerican Energy isn’t a little electric cooperative that invests in clean energy because it feels good. The company—the No. 1 owner of wind-powered energy generation among U.S. rate-regulated utilities—supplies and distributes energy to nearly 7 million customers spread across the U.S. and the United Kingdom. MidAmerican holds over $46 billion in assets representing some 22,000 megawatts of generation capacity. [1]

Skeptics suggest that Buffett and MidAmerican’s deals will be significant for renewable energy only if they represent a larger move into the sector. If the acquisition of two of the largest solar farms in the world in a single month isn’t enough, there’s more: Buffett already has a number of other indirect investments in clean energy. For example, look at his 10% interest in Chinese electric car, energy storage, and PV manufacturer BYD, a company with 1 gigawatt of wafer and cell production capacity. Or check out his stake in German insurer Munich RE, a major player in the photovoltaic and concentrating solar power spaces. [2]

It’s clear that, despite the Solyndra controversy and expiration of the Treasury grant program, the U.S. solar industry has substantial momentum.

Rocky Mountain Institute sees solar power as a significant part of its Reinventing Fire vision for freeing the U.S. from fossil fuel dependency by 2050 and creating an electrical system that is clean, secure and resilient. Reinventing Fire also recognizes that the "transformation of electricity will be complex and perhaps messy."

The solar industry, just one part of that huge transformation, is shaking out, as all developing industries must. BP, for example, is ending its solar equipment manufacturing operation in the face of dropping prices and competition from China. Solar Millennium, a German manufacturer of concentrated solar systems also undercut by dropping PV prices, declared bankruptcy this month.

Analyst Leming sees BP’s move as against the grain of other big companies worldwide. In the U.S., when Google, GE and Warren Buffett are moving strongly into an industry that is coming off its biggest year ever, it is a sign that solar is established and will continue to attract private investment even without DOE loans and as the Treasury grant, a key subsidy, expires.