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May 31st, 2013

Solar PV: Too Cheap, Too Fast?

by Andrew Price, President & COO

The cost of installed Solar PV has plunged over thepast few years. Solar is now being installed in the mid to high $2 per watt range, for even small commercial and large residential systems. The drop in prices has been driven by a massive buildup in manufacturing capacity, primarily in China. Signs are emerging that low pricing is causing distress among solar cell manufacturers. We have witnessed some high profile bankruptcies including Suntech, a Chinese company that was once the largest PV manufacturer in the world. The New York Times reported this week about another possible sign of stress - PV manufacturers cutting corners to reduce cost.

The investment in solar PV comes up-front. High initial capital cost is offset by the promise of decades of cost free (or nearly free) energy production. Solar cell production is expected to decay over-time, but at a very slow and predictable rate. If solar system output decays at a faster than anticipated rate, or cells start failing altogether before the end of their expected 20-30 year life expectancy, this could put a big damper on solar’s surging prospects in the US. The NY Times article relies on anecdotal evidence from several industry sources to suggest that defects are a growing concern. With no central repository for defect claims, however, it is impossible to know if the pace of defects is accelerating, or if the failure rate is unchanged and we just have many more solar PV panels in operation than ever before. 

PV manufacturers are constantly pushing their technology and design process. They are substituting new materials and testing new manufacturing processes to gain a performance advantage over their competitors. This will inevitably lead to some defective panels, but will push the industry forward overall. The NY Times article suggests that it may be extreme pressure to cut cost, not a drive for innovation, that is leading some manufacturers to use cheaper materials or manufacturing processes that lack the necessary quality control. Luckily a few PV makers appear to be taking this concern very seriously.

A friend recently asked my opinion about a solar system he is evaluating for a rental property he owns. The solar panels proposed for the project are made by Canadian Solar - a company that makes its PV cells in China. The Canadian Solar panels are backed by what appears to be a very remarkable warranty; a 10 year manufacturer’s warranty on materials and workmanship and a 25 year guarantee on performance. With no way to know if Canadian Solar will be the next Suntech, however, what value can you really place on a manufacturer's warranty? To address this, the solar panels come with pre-paid, irrevocable, non-cancellable warranty insurance underwritten by three A-rated insurance carriers. The 25 year insurance would extend through a Canadian Solar bankruptcy. Canadian Solar pioneered pre-paid warranty insurance in the solar industry in 2010. Its ability to get such insurance year after year, presumably at a reasonable cost, provides some comfort that quality control is being monitored on the factory floor.

Much of a solar PV system’s value today can be tied up in tax incentives, rebates, credits and other policy mechanisms. It is important to consider how a warrantee, that pays a pre-determined amount based on a depreciation schedule, protects against the loss of these incentives.

Solar PV’s future is very bright thanks, in large part, to the rapid decline in costs. State and Federal incentives can make solar PV a very attractive investment in many parts of the US today. Buyers should not hesitate to proceed with solar projects that meet financial and nonfinancial goals. It is important to pay attention to available warranty provisions, however, when selecting among competing solar systems. Buyers should seek out reputable installers and knowledgeable advisors in order to maximize their likely return on investment.    

Tags: Solar PV, Canadian Solar, Suntech, warranty insurance


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