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Thursday, June 21, 2012

U.S. Solar Photovoltaic Manufacturing: Industry Trends, Global Competition, Federal Support

Michaela D. Platzer
Specialist in Industrial Organization and Business

Every President since Richard Nixon has sought to increase U.S. energy supply diversity. In recent years, job creation and the development of a domestic renewable energy manufacturing base have joined national security and environmental concerns as rationales for promoting the manufacturing of solar power equipment in the United States. The federal government maintains a variety of tax credits, loan guarantees, and targeted research and development programs to encourage the solar manufacturing sector, and state-level mandates that utilities obtain specified percentages of their electricity from renewable sources have bolstered demand for large solar projects.

The most widely used solar technology involves photovoltaic (PV) solar modules, which draw on semiconducting materials to convert sunlight into electricity. By year-end 2011, the total number of grid-connected PV systems nationwide reached almost 215,000. Domestic demand is met both by imports and by about 100 U.S. manufacturing facilities employing an estimated 25,000 U.S. workers in 2011. Production is clustered in a few states, including California, Oregon, Texas, and Ohio.

Domestic PV manufacturers operate in a dynamic and highly competitive global market now dominated by Chinese and Taiwanese companies. All major PV solar manufacturers maintain global sourcing strategies; the only U.S.-based manufacturer ranked among the top 10 global cell producers in 2010 sourced the majority of its panels from its factory in Malaysia. Some PV manufacturers have expanded their operations beyond China to places like the Philippines and Mexico. Overcapacity has led to a significant drop in module prices, with solar panel prices falling more than 50% over the course of 2011. Several PV manufacturers have entered bankruptcy and others are reassessing their business models. Although hundreds of small companies are engaged in PV manufacturing around the world, profitability concerns appear to be driving consolidation, with 10 firms now controlling half of global cell and module production.

The Department of Commerce and the U.S. International Trade Commission are investigating allegations that U.S. producers have been injured by dumped and subsidized imports from China. If significant duties are ultimately imposed, U.S. production could become more competitive with imports, but the cost of installing solar systems might rise. On the other hand, a number of federal policies that have helped to spur domestic demand for solar PV products have expired or reached their funding limits. These include the 1603 cash grant program and the advanced energy manufacturing tax credit; S. 591, which would extend the credit, has been introduced in the 112th Congress. Unless extended, the commercial Investment Tax Credit for PV systems will revert to 10% from its current 30% rate after 2016, while the 30% credit for residential investments will expire.

The competitiveness of solar PV as a source of electric generation in the United States will likely be adversely affected both by the expiration of these tax provisions and by the rapid development of shale gas, which has the potential to lower the cost of gas-fired power generation and reduce the cost-competitiveness of solar power, particularly as an energy source for utilities. In light of these developments, the ability to build a significant U.S. production base for PV equipment is in question.

Date of Report: June 13, 2012
Number of Pages: 33
Order Number: R42509
Price: $29.95

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