Next year will be a big year for the solar industry, one way or the other. Two momentous variables will play significant roles; One, the extension of solar tax credits, including the removal of the $2000 residential cap and the admission of utilities into the tax credit game. The second factor is, of course, a dwindling economy that is unlikely to recover any time soon.

Speculation as to the effects of the arguably-imminent recession are ambiguous. The overall mood among the industry is still one of positivity, so far as I can tell. Yet there is also an underlying sense of apprehension. Homeowners are tucking in their cash and banks are far less willing to lend today as they were just a year ago. Many in the solar industry, especially those who deal mainly in rooftop systems, maintain a reserved optimism.

I have little doubt that the solar industry will continue to grow, the need for renewable energy is undeniable. The more relevant question seems to be, will competition continue to grow? The odds are, as the economy tightens its belt, that smaller, single-minded solar companies will struggle. So, with lower costs and higher profit margins in mind, many solar firms are going the route of vertical integration.

“Vertically integrated” companies are involved at several levels of the solar process, from silicon production to panel manufacturing to system installation. SolarWorld is a prime example. Their website boasts of integration and “full control over the manufacturing of their product, from beginning to end.” What this garners for solar companies such as SolarWorld, is not only control over manufacturing, but more control over pricing as well. For one, while demand is high, you can keep prices high while reducing costs, resulting in higher profits. For two, should business slow down, a vertically integrated company may be able to maintain one price while niche companies are forced to raise theirs. Who will get the contracts?

To be fair, some successful companies do not agree with such speculation. Q-Cells, the German company which blossomed into the world leader in solar cell manufacturing, is a firm believer in sticking to one’s guns. Q-Cells has been very successful and may have little to worry about, but there is a multitude of small solar start-ups that may be less likely to survive.

To me, it is unclear. I personally support sustained competition and I believe, for a substantial amount of time anyway, that solar will remain competitive. But hey, this is free market capitalism we’re dealing with and that system tends toward integration and consolidation. Just look at the oil and auto industries. Imagine how many auto companies there once were…now only three dominate in the US. Furthermore, just a handful of oil companies exist in the US; all of which recently boasted record profits while consumers suffered record prices.

Is vertical integration the future of the solar industry? Perhaps. Wall Street investors have a penchant for integration. But much depends on governmental policies and the consumer’s ability to freely choose their solar company (i.e., expendable income). For now, however, there is still no technology set to dominate the industry. Silicon is master now, but in 10 years? Solar is a growing industry, not just in size but in technology. So who will win the race? I don’t know.

Let’s just hope that free and clean energy, as opposed to profits, remains the primary focus.

Posted on December 1st in Solar Politics by Dan.