Solar Companies of All Sizes Race To Develop Cheap, Efficient Panels

By LEILA ABBOUD June 14, 2007

In a laboratory in Palo Alto, Calif., engineers testing new, super-powerful solar panels shock them with searing heat and deep cold, then blast them with wind, sand and hail.

The year-long battery of tests aims to assess the reliability of new panels being developed by a start-up called SolFocus Inc. The panels contain curved mirrors that magnify the sun's rays up to 500 times, concentrating them onto a tiny solar cell that converts them into electricity far more efficiently than conventional panels. "We even shot them with BB guns," says Nancy Hartsoch, the marketing director for SolFocus.

How the panels stand up has big implications, and not just for SolFocus, which raised $32 million from venture capitalists last year. Also on the line: whether, after decades of unfulfilled promises, solar power will become a cost-effective alternative to coal and natural gas.

Hampered by its high cost, solar power accounts for less than 1% of world-wide electricity generation. It costs 35 to 45 cents to produce a kilowatt hour of electricity from solar panels, compared with about three to five cents burning coal, according to the International Energy Agency. A different approach, known as concentrating solar power, uses huge arrays of mirrors or solar dishes to track the sun and collect its heat to make electricity. Yet even that costs nine to 12 cents to generate one kilowatt hour.

For now, government subsidies are necessary for solar power to develop, and the biggest markets for it aren't the sun-drenched southwestern U.S. but Germany and Japan, whose generous incentives have spurred growth.

But that equation is beginning to change. SolFocus is one of nearly a dozen start-ups competing alongside established solar giants like Japan's Sharp Corp. to develop a solar panel that is both cheap and efficient. Well-known tech venture capitalists like Apax Partners, Benchmark Capital and US Venture Partners, as well as Google founders Sergey Brin and Larry Page, have poured cash into solar start-ups in recent years. Meanwhile, established leaders in conventional solar panels like Sharp, the U.K.'s BP PLC and Germany's Q-Cells AG have well-funded research labs working on their own technology.

Whoever can come up with the answer will be able to claim a large chunk of the solar-power pie, an $11 billion market that is growing by more than 25% a year. "The race is on," says George Scott, who spent 20 years in the solar industry and now runs a renewable-energy consulting firm in England.

Of course, even if solar power explodes, it won't replace coal as the primary source of electricity anytime soon. "Solar will only be a small part of the solution to global warming," says Christian Reitzberger, who has invested in solar companies for Apax Partners. But solar's environmental contribution is considerable even if it provides only a fraction of the world's electricity because it can kick in when demand is the highest. Usually utilities fire up old, inefficient coal plants when demand is high, invariably spewing out higher levels of greenhouse gases. If solar were used at peak times instead, the world's energy grids would be cleaner and more efficient.

For years, solar panels followed a standard design: large blue or black rectangles made of silicon. The panels, which account for about 90% of today's market, do a decent job of making power, converting anywhere from 12% to 20% of the sun's rays into electricity, depending on clouds, weather and location. But the high cost of silicon makes them far too expensive to compete with coal or gas.

With some 20 states in the U.S. calling for programs to increase the use of renewable energy, solar power is already growing rapidly here. California has set up $2.85 billion in incentives to spur solar power, and Gov. Arnold Schwarzenegger is calling for solar in one million homes. The U.S. Congress is also debating a law to encourage renewable energy sources. Nonetheless, most of the spending on solar installations is happening in Europe, where many governments have set up so-called feed-in tariffs that require utilities to buy electricity made from renewable sources at above-market rates.

First Solar Inc., the largest maker of next-generation solar cells, launched its product on the German market in 2003 and has signed major contracts for solar installations in the not-so sunny climes of Bavaria and Saxony.

Founded in Phoenix, Ariz., in 1999 and backed by a venture-capital firm controlled by Wal-Mart heir John T. Walton, First Solar's "thin-film" panels are relatively cheap because they use only 1% of the costly semiconductor material found in conventional solar panels. But engineers at the company's Ohio plant struggled for years to get their manufacturing process to an industrial scale. The method involves feeding a sheet of glass into a pressurized chamber filled with cadmium telluride gas, which condenses in a thin, uniform layer onto the glass.

"Every time you fix one piece of the production line, another part would go out of whack," says First Solar Chief Executive Michael Ahearn. First Solar ended up spending $100 million and six years to get it right, far more than the initial plan of $40 million over three years.

But it's finally paying off. Revenue grew to $135 million in 2006 from $13.5 million in 2004. The company signed long-term contracts with six European solar-project developers totaling 795 megawatts -- about the size of a coal-fired power plant -- that are expected to bring in $1.62 billion in revenue through 2011. The world's biggest -- 40 megawatt -- solar park is now being built in the Saxony region by Juwi GmbH using First Solar's thin-film cells.

When First Solar went public in June 2006, it was listed on the Nasdaq at $20 a share. It closed at $74.36 yesterday. Mr. Ahearn's goal is for First Solar's panels to compete with fossil fuels even without government subsidies by as early as 2010. "It's a big challenge certainly, but it's not a pipe dream any more," he says.

Many other companies are also pursuing thin-film solar cells, which minimize the use of silicon or eliminate it altogether to drive manufacturing costs even lower. Nanosolar Inc. in Palo Alto has attracted $100 million in venture-capital for its method of printing solar cells on rolls of shiny foil. The company spent two years researching how to make ink filled with nano particles of copper indium gallium selenide and another two years designing the manufacturing.

"The ink is basically the secret sauce," says Martin Roscheisen, Nanosolar's chief executive.
Q-Cells, the second largest maker of traditional solar cells after Sharp, is taking a different approach to next-generation solar technologies. The company has bought, invested in or developed joint ventures with four companies researching four different types of thin-cell technologies. Pilot batches of the cells have been made, and scaling up production of some should start this year, says Q-Cells Chief Technology Officer Florian Holzapfel.

Many in the solar industry are betting that the market will make room for products with different prices and efficiencies. "What works for a solar array on a rooftop in Tokyo wouldn't be the best choice for the desert in Spain," Mr. Holzapfel says.