Solar power has hit an all time high in the United States, but it is now plagued by over capacity, declining prices, dwindling subsidies and bankrupt companies. That is because its product is uneconomic without massive subsidies, needs the sun to shine in order to produce power, must be backed-up with other power sources for reliability, and has steep competition from China where labor rates are low and solar manufacturers are subsidized. Led by China, global production of solar panels tripled over the last three years.

U.S. Solar Activity

Solar installations are skyrocketing in the U.S., driven by subsidies and State mandates. In 2011, more than 1,000 megawatts of solar panels were installed through the third quarter and a total of 1,700 megawatts are expected to be installed by year’s end. This is an increase of 89 percent over last year.[i]

One of the drivers of this boom has been the Obama administration’s Section 1603 Treasury grant program. To date, this program has given $1.5 billion to more than 22,000 solar projects and 3,600 grants in 47 states through November 2011.[ii] The 1603 program, which also covers wind, is expected to cost $9.6 billion by the end of 2011—more than 3 times what Congress had expected.  Without further authorization, the program expires at the end of this year.[iii]  And when the taxpayer-funded subsidies end, things will get rougher for U.S. manufacturers.  They are already feeling the squeeze.

For instance, California’s largest utility, PG&E Corp. has been using a provision in the tax code to reduce its tax liability by providing equity for solar energy projects. By spending the capital to install home solar arrays through 2 companies, SolarCity and SunRun Inc., PG&E has doled out $160 million, receiving payments from those customers and local, state, and federal subsidies, including the 1603 program.[iv] But the company is halting putting equity in these projects to focus on its own equipment that needs repair.[v] PG&E will continue to buy solar and wind power to achieve California’s mandate of getting one-third of its electricity from renewable power by 2020.

As companies like PG&E pull back on solar investments because of the expiration of the 1603 grant program and fulfillment of state solar mandates, things will get tougher for U.S. solar manufacturers. While a 30 percent rebate on investment in solar power provided by the U.S. government spurred growth in solar power in the United States, U.S. solar manufacturers are being pushed out of the market by low-cost and government-subsidized Chinese manufacturers. In California, for instance, the Chinese solar panel manufacturers held 29 percent of the market at the beginning of the year, but their share grew to 40 percent in the third quarter of 2011, while U.S. solar manufacturers’ share fell from 37 percent to 29 percent.

With the Chinese flooding the market with cheap solar panels, prices for solar panels in 2011 fell by about 40 percent. Black and Veatch, an engineering firm, note that manufacturing costs may not be covered at this lower price level. Prices for solar panels started 2011 at $1.60 per watt, but started to drop by the end of the second quarter and now are around $1.00 per watt. The CEO of SolarCity, a U.S. solar installer, feels the price will decline further next year with the floor at $0.85 per watt. [vi]

This decrease in prices has led to bankruptcies by U.S. solar companies. Three U.S. solar companies filed for bankruptcy in 2011, and recently two more U.S. solar companies announced staff cut backs. MEMC Materials Inc. will be cutting staff by a fifth and closing some facilities to stay in competition. First Solar cut staff saying they expected their 2012 profits to be up to 50 percent lower than Wall Street forecasts. The federal government provided $3 billion in loan guarantees to First Solar, the most of any recipient, helping the company to develop 3 solar farms in Arizona and California.  According to government records, since 2007, First Solar spent $2.2 million on lobbying in Washington and the company’s representatives met Obama administration officials before receiving the federal loan guarantee. The company is eliminating 60 jobs in California where it received $3.43 million in state sales tax credits.[vii]

The most notable solar bankruptcy in 2011 was the Fremont, California-based Solyndra LLC. The company went bankrupt despite receiving a loan guarantee of $535 million from the U.S. government. This bankruptcy occurred despite increased demand for solar panels in the United States due to state mandates for solar energy. Once those mandates are filled, however, U.S. solar expansion will be stalled due to higher costs of solar power compared to onshore wind power, which meets most state renewable mandates, and to natural gas-fired generation.[viii]

Solar in the Global Market

Global demand for solar power has grown in 2011 but is expected to be level in 2012. In 2011, about 8 percent more solar panels are expected to be installed compared with 2010, according to Jefferies Group analysis. At least seven solar-panel manufacturers have filed for bankruptcy or insolvency recently, including two German companies, Solar Millennium AG and Solon SE. For years, Germany was the world’s largest market for solar, doubling its solar installations in 2010 alone. But the Jeffries Group expects a 29 percent decline in demand in 2011 compared to 2010.

One of the reasons for this decline in demand is a reduction in solar subsidies. According to Citigroup Global Markets, there is now “a very hostile political environment” for renewables in Europe.[ix] These analysts chronicle 27 political interventions in the utility industry, most of which are reductions in subsidies to the solar sector which will cost utilities 200 billion Euros. Without lavish subsidies, more solar companies will struggle.

Another factor in the bankruptcies of European solar firms is the rise of Chinese low-cost solar firms, helped out by government aid. The Chinese government directed its banks to lend freely to new manufacturers and according to Bloomberg New Energy Finance, Chinese banks have offered at least $43 billion in credit to Chinese renewable-energy companies since 2009. Easy access to capital during the height of the global credit crunch allowed Chinese companies to build factories and start production, forcing competitors in Europe and the United States to do the same. “The industry simply cannot support 300-plus cell and modular manufacturers, so the companies left will capitulate and exit the industry,” said Zhengrong Shi, chief executive of Chinese solar-panel manufacturer Suntech Power Holdings Company. Suntech is planning to cut its operating expenses by at least 20 percent next year.

Factors in the Over Supply of Solar Panels

While China is a significant reason for the glut in solar manufacturers, other factors include governments’ encouraging clean technology through subsidization, venture capitalists pouring into the solar sector, and investors buying into IPO issues of solar companies. In the United States, records show that the Obama Administration gave easy access to venture capitalists with stakes in some of the companies backed by the loan guarantees of the administration. For instance, documents show that senior Administration officials pushed career DOE bureaucrats to rush their decision on the Solyndra loan so Vice President Biden could announce it during a trip to California.[x]

A noted contributor to the Obama campaign, George Kaiser, complained to the president about Chinese manufacturers dumping cheap solar panels on the U.S. market and pressed the need for a “Buy American Act” for federal agencies. Solyndra wanted to make the federal government a major customer, which it called the “Uncle Sam” strategy. The George Kaiser Family Foundation, a nonprofit organization, owned a third of Solyndra.


The plentiful production of solar panels resulted in cut-throat pricing competition. A year ago, distributors of solar panels and project developers could buy solar panels for $1.60 per watt, on average. Now the price is between 90 cents to $1.05 per watt, according to investment bank Jefferies. China, with its subsidization and low labor costs, is overtaking the market and putting U.S. and European companies   out of business. Of the 1,100 Solyndra workers who lost their jobs, an estimated 90 percent remain unemployed. It does not seem like Obama’s green job strategy is working!

[i] Wall Street Journal, US Solar Power Grows In 2011 But Future Cloudy – Study, December 14, 2011,

[ii] Wall Street Journal, US Solar Power Grows In 2011 But Future Cloudy – Study, December 14, 2011,

[iii] New York Times, Why 2012 Will Be a Bad Year for Renewable Energy, December 13, 2011,,8599,2102129,00.html?artId=2102129?contType=article?chn=sciHealth

[iv] Wall Street Journal, US Solar Power Grows In 2011 But Future Cloudy – Study, December 14, 2011,

[v] Bloomberg, PG&E Not Seeking More Solar Tax-Equity Deals, CEO Earley Says, December 13, 2011,

[vi] Reuters, Insight: More solar firms set to burn up as prices sink, December 23, 2011,

[vii] Bloomberg Business Week, First Solar Outspent BP in California While Building Support, December 28, 2011,

[ix] Citigroup Global Markets, A Very Hostile Political Environment, September 13, 2011.

[x] The Washington Post, Solyndra: Politics infused Obama energy programs, December 28, 2011,

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