James Murray argues the shakeout currently underway in the solar sector is an encouraging sign of maturity
Five years ago news that one of the world's largest companies planned to quit the solar industry because it "simply can't make any money" would have been a devastating blow to the sector's self-confidence and credibility – but not anymore.
BP's decision, reported yesterday, that it is to close its 40-year-old solar division will not make one iota of difference to the fast-expanding global market for solar technologies. In fact, its conclusion that solar has become a low-margin commoditised market where it is very difficult to make money only serves to highlight the growing attractiveness of solar technologies.
It might not feel this way to those companies that will be forced to the wall, but commoditisation is the best thing that can happen to the solar industry. As with all industries, the shakeout we are currently seeing is a sign of growing maturity. A maturity that will lead to more M&A activity, more specialisation, more economies of scale and, hence, lower-cost solar panels which, if current trends continue, will be cost competitive with coal some time around 2015.
Of course, no one wants to see a monopoly and regulators will have to be careful not to allow one or two solar firms to build market dominance. But the concentration of the market around a reasonable number of large players promises to only accelerate the fall in prices.
What of BP's argument that you can't make money from solar? Well, as in any commoditised market, there is money to be made, but only if you are a highly efficient and competitive operation. Those companies exiting the market might complain that they are unable to compete with unfairly subsidised Chinese competitors (hence recent calls for the US to investigate whether Chinese solar imports breach trade rules); they might even have a point; but life is not fair and the best managed and most innovative solar firms are still finding ways to survive and prosper in a competitive market.
Meanwhile, investors as varied as Google, Warren Buffett, French oil giant Total, electronics goliath Sharp, and countless venture capitalists are brushing aside fears of low margins and flocking to play a role in a fast-expanding market with huge growth potential.
All of this is great news for those green businesses keen to deploy solar energy who will continue to see prices fall, and even better news for the global climate which should start to see solar and other low-cost renewables gradually displace fossil fuels.
Meanwhile, BP can get back to what it is good at, which, depending on your point of view, is either mortgaging the future by continuing to invest in unsustainable oil extraction, or diversifying into alternative energy technologies, such as second-generation biofuels that were always a better fit for an oil major than solar panel manufacturing. Either way, the solar industry will continue to prosper without the presence of the oil giant.
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