How Small Solar Companies Can Survive the Shakeout

For manufacturers in the solar industry, it’s a race against time: If a product can match the industry-leading cost per watt, your company can live another day. Abound Solar is the latest to fail for being a step behind.

The Loveland, Colorado-based company yesterday filed for bankruptcy and said it will lay off 125 workers. Like now-infamous Solyndra, Abound Solar received a loan guarantee from the Department of Energy to build a solar panel factory, but Abound drew $70 million on the loan compared to more than $500 million at Solyndra.

To close industry watchers, Abound Solar’s demise was not surprising, given its me-too product, the company’s small size, and the glut of solar panels on the market. But its failure raises the inevitable question: When will the sad parade of insolvent solar manufacturers end? More specifically, can U.S.-based manufacturers like Abound Solar compete with alternative technology in what has rapidly become a commodity business?

Analysts say there is still a window for smaller solar manufacturers to compete against giants from China, but it will be difficult. To survive the shakeout, solar panel makers across the board need a competitive cost per watt—aided by better cell efficiency—and the financial health to endure a multi-year shakeout.

Abound Solar was among the many smaller thin-film solar providers, some of which were launched in the past five years with venture capital backing. These companies are particularly vulnerable because that technology’s traditional advantage of low production costs is rapidly evaporating.

“The industry has shocked itself with how much prices have come down so that’s accelerated everyone’s roadmap. Companies need to be much more lean and much more aggressive on costs and improve their efficiency,” said MJ Shiao, a solar analyst at GTM Research, which estimates panel prices have fallen about 50 percent in the last year.

Abound Solar didn’t meet the technical milestones and cost reductions it was shooting for fast enough to be competitive. In February, it shut down its first factory line to shift its priorities to its second, more efficient production process. Blaming “aggressive pricing actions from Chinese solar panel producers,” it decided to give that up as well. The DOE, which had approved a $400 million loan guarantee for a factory, cut off funds in August of last year.

Analysts and industry executives say it’s a foregone conclusion that more solar manufacturers will go out of business. GTM Research estimates that about 21 gigawatts of capacity will come off line between now and 2015, an indication of how much excess product there is in the market.

The DOE Loan Guarantee program provided loan guarantees for two other solar manufacturers–SoloPower and 1366 Technologies–to build factories. (The rest of the solar loan guarantees were for solar power projects which, in general, are less risky.) Neither SoloPower nor 1366 Technologies have drawn from those loans, but SoloPower in particular could run into troubles simply because it’s trying to break into this cutthroat environment with a relatively unproven product, said Lux Research analyst Matthew Feinstein.

“What demand there is in the solar industry is going to the bigger, more trustworthy companies. When you have a new technology and you’re a small company, there’s a big disadvantage,” Feinstein said.

SoloPower CEO Tim Harris argues that the company is not competing head to head with Chinese manufacturers. The company makes flexible solar collectors which are packaged as narrow strips rolled out onto a rooftop. They are mounted to lightweight plastic platforms and specifically designed for commercial and industrial rooftops which can’t handle the full weight of traditional panels and racks.

“Making a flexible, lightweight panel turned out to be a really critical decision. Otherwise, we’d be just another thin film company competing against First Solar and Chinese companies,” Harris said.

1366 Technologies is a bit shielded from the brutal price competition around solar panels because they make wafers which can be sold to multicrystalline silicon panel manufacturers. Another big difference is its manufacturing technology can be added onto existing silicon cell production lines. That approach or licensing technology to larger companies, as solar startup Stion did, is a less risky strategy than building a new factory, said Feinstein.

Beyond good technology, solar companies also need access to capital in order to scale up and commercialize their product, which is why a number have partnered with larger industrial companies. An upstart company can get a foothold with a U.S.-based manufacturing, but even with a flawless business strategy, the market conditions are difficult for everyone, Feinstein said.

“The thin film companies have the shiny new technology, which is mostly what’s going on in the U.S. but it’s still unproven,” he said. “This is probably the worst time to be competing against the big boys.”