Ever since former U.S President Jimmy Carter first installed solar panels on the roof of the White House during the 1979 oil crisis, widespread adoption of solar energy as a source of clean, convenient energy has proven elusive. For decades, the greatest barriers facing the U.S. solar market have been material efficiency and scaling up production and distribution of solar energy to achieve “grid parity” that is, driving down the price to be on par with traditional fossil fuel sources.

Today, despite a severe credit crunch and supply glut of raw materials which have hurt solar power equipment manufacturers' earnings, the world is undoubtedly moving from polluting sources of energy to cleaner renewables, especially wind and solar, on an unprecedented scale. The United States and China currently lag behind Europe in demand for solar power, but are expected to vault ahead in the next few years as both nations work to curb their emissions of greenhouse gases.

Right now, wind power is one of the cheapest ways for utilities to meet renewable energy mandates that exist in at least 28 states. However, declining installation costs and state and federal incentives, together with emerging utility feed-in tariffs established for the purchase of renewable power, are helping make solar energy more cost-competitive with grid electricity.

“In many areas, an investment in solar power can pay itself back in less than five years,” says Jerrod Schreck, vice president business development, Hoku Scientific, Inc. “Since the systems are designed to operate for 20 years or more, users enjoy their economic savings and environmental benefits over a long period of time, leading to a very compelling return on investment for system owners.”

Solar Is Red Hot

According to data from the Solar Energy Industries Association (SEIA), at year end 2008, the United States had about 8,800 megawatts (MW) of installed solar capacity. This included about 1,100 MW of photovoltaics (PV); 418 MW of utility-scale concentrating solar power; at least 485 MWTh (megawatts thermal equivalent) of solar water heating systems; and more than 7,000 MWTh of solar pool heating systems.

More than 18,000 individual PV systems were installed in 2008. These additions totaled 342 MW, of that 292 MW was grid-connected, an 81 percent increase over 2007 grid-tied capacity additions. In addition to electric capacity, the United States added an estimated 139 MWTh of solar water heating capacity in 2008, a 50 percent increase over 2007 capacity additions.

Despite the recession, manufacturing capacity for solar panels will rise at a rate of 45 percent each year, from 875 megawatts in 2008 to 3,880 megawatts in 2012, according to a study from Greentech Media.

Manufacturing capacity for solar cells will exhibit similarly strong growth, rising 50 percent each year from 785 megawatts in 2008 to 4,001 megawatts in 2012. Overall, the United States' share of global solar manufacturing capacity will increase from just 5 percent in 2008 to 14 percent in 2012.

Greentech Media's research estimates that the United States will have a total of 38 PV manufacturing facilities by 2012, compared to 26 at the beginning of 2009. Eighteen states will have some form of manufacturing presence in PV by 2012, 10 of which (Oregon, California, Arizona, New Mexico, Colorado, Michigan, Ohio, Massachusetts, New York and Pennsylvania) are expected to have production in excess of 100 MW by 2012, compared to only three (Ohio, Michigan and Oregon) in 2009.

Beyond Early Adoption

Public and private sector solar initiatives, such as San Jose, Calif.'s

Smart Grid partnership and the Sacramento Municipal Utility District's SolarShares program, abound throughout the country. Emergent technologies like First Solar's thin-film cadmium telluride panels and Idaho National Laboratory's heat-collecting nanoantennas are but a few examples of projects pushing the frontiers of solar energy. At the same time, commercial users in particular have begun moving beyond “feel good” projects and are tapping into this burgeoning capacity and innovation as a proactive business decision.

“Investment in solar systems allows businesses to invest in their own energy needs via on-site energy production, allowing them to take advantage of net metering, business energy tax credits and regional installation rebates and incentives,” says Tom Wineman, principal, Clean Energy Design, LLC.

“In very specific applications, it can actually be cheaper than traditional sources,” adds Clay Young, CEO, Inovus Solar. “Often the economic savings are seen in the form of avoided costs [like grid infrastructure].”

During the last 18 months, the disruption in the financial markets affected market forces in this sector on several levels forcing manufacturers to reconfigure prices and production, but allowing end users to find better deals.

“In general, while some solar manufacturers aren't making as much money as before, it's been good for solar because it is becoming more price competitive faster than anyone thought,” says Reid Rutherford, CEO, Photon Energy Services, Inc.

“Whatever financing option customers choose [from out-of-pocket capital expense to a third-party financing deal], they will see a reduction in their energy bills,” says Bradley Hibberd, director of engineering, Borrego Solar Systems, Inc. “More importantly, solar allows customers to lock in a price-per-kilowatt-hour of electricity. This provides better insight into operating budget projections and less volatile energy costs. Especially since we've historically seen energy prices rise on average 4 percent to 5 percent annually.”

Solar-Powered Job Growth

A 2008 study by Navigant Consulting Inc. predicts that the solar industry will create 440,000 permanent jobs, and capture more than $230 billion in new investment by 2016. Whether such ambitious job growth will actually occur is unknown, but it's clear that states and regions are recognizing the energy sector's long-term job creation potential and pursuing solar companies for economic development.

In addition to states like Oregon and California, which already have a robust solar industry, the beneficiaries of the sector's expansion will be states whose cheap power, skilled labor and generous incentives make them attractive locations to base solar manufacturing plants. A number of these will be owned by companies based in Europe and Asia, indicating growing interest from foreign manufacturers in entering the U.S. manufacturing market.

“Colorado's solar manufacturers have noted that they benefit from the state's low business costs, availability existing facilities for ramp up of production, and a local workforce familiar with technologies applicable to solar manufacturing,” says Christine Shapard, executive director, Colorado Cleantech Industry Association.

Fast-Forward Funding

The Emergency Economic Stabilization Act of 2008 (EESA) extended the 30 percent solar investment tax credit (ITC) for eight years; lifted the cap for residential PV installations; allowed the application of the tax credits against the Alternative Minimum Tax; and removed the prohibition against utilities' use of the ITC.

On the heels of the ESSA came the 2009 American Recovery and Investment Act, which established a temporary grant program allowing commercial solar customers to receive a cash payment to cover 30 percent of the cost of installing solar equipment.

“From the last quarter of 2008 through the first half of 2009, deal flow was essentially shut down,” says Mark Lerdal, CEO, MP2 Capital. “Moving the ITC from a pure credit to cash payment has sped up a lot of projects and substantially widened the group of investors in this sector beyond large institutions and into more conventional sources of financing.”

Many commercial customers are also taking advantage of third-party financing called Power Purchase Agreements. But some contracts have high escalators and unique clauses at year 10 and beyond, Hibberd cautions. “It's best to make sure you understand the terms of any financing deal from day one to the end of the 20-year agreement.”

Making Hay While The Sun Shines

As the SEIA notes in its U.S. Solar Industry Year in Review, long-term policy stability will help companies in the U.S. solar market make longer-term investment decisions. “Everyone is operating on a tighter budget and trying to minimize risk until they're more confident in the economy turning around,” Hibberd says. “The customers who are waiting to see if solar will get any cheaper are going to miss out on the current incentives that are built to decline over time as more solar is installed.”

With so many variables to consider, site selectors, integrators and end-user companies can look to the Database of State Incentives for Renewables & Efficiency at www.dsireusa.org for comprehensive information on state-by-state contractor licensing, building energy codes, energy standards for public buildings, interconnection, net metering rules, and solar access laws and guidelines. The site also lists rebate and tax incentive information for system owners.

Overall, despite some clouds on the horizon, the growing human energy in the solar energy marketplace is almost palpable. “Not only are large companies like Siemens, GE, and Kyocera Sharp active, but 50 other entrepreneurial companies are trying to manufacture a better mousetrap,” Lerdal says. “It's quite exciting.”

Mark Kleszczewski is a freelance writer based in Oneonta, N.Y. He can be reached by e-mailing mkceo@verizon.net.

For complete details on the organizations featured in this article, visit:

Borrego Solar Systems, Inc., www.borregosolar.com

Clean Energy Design, www.cleanenergydesign.com

Colorado Cleantech Industry Association, www.coloradocleantech.com

Greentech Media, www.greentechmedia.com

Hoku Scientific, Inc., www.hokuscientific.com

Inovus Solar, www.inovussolar.com

MP2 Capital, www.mp2capital.com

Navigant Consulting, www.navigantconsulting.com

Photon Energy Services, Inc., www.photonenergyservices.com
Solar Energy Industries Association, www.seia.org