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Like anyone running a solar power company, BP Solar's chief executive, Rayed Fezzani, has a peculiar job. The solar industry, by definition, depends on sunlight. Yet where do solar panel and photovoltaic manufacturers go to sell half of all their products? Get this – Germany.
That's right, Germany, a country with weather not much brighter than Blighty's will this year account for a solid 50 per cent of the world's solar electricity installations. San Francisco-based BP Solar sells closer to 60 per cent of its products there, to homes, business, utilities and newfangled power producers.
The reason: German government policies prop up the solar industry by forcing utilities to buy electricity at premium prices from homes and business that generate their own power. These so-called "feed-in tariffs" have encouraged the take-up of a power technology that should help to wean the world off the carbon-belching fossil fuels.
But, as Mr Fezzani said in an interview from BP Solar headquarters, the German solar success also represents what troubles solar: the industry relies on subsidies, and cannot survive without them in a world where the cost of traditionally generated electricity, such as coal, is far lower. "We believe that solar will not be a real business until it can stand on its own two feet," says Mr Fezzani.
Not that he advocates abolishing government support. Economies of scale dictate that costs won't decline until the industry cranks up production volume, and, as he notes, "Subsidies are a way to get there."
The problem is that subsidies can distort a market, with disastrous consequences. BP and the industry found that out a year ago, when the Spanish government abruptly emasculated Spain's feed-in programme. Sunny Spain, not Germany, accounted for half the planet's solar installations in 2008, according to the research firm iSuppli based in El Segundo, California. Like Germany, Spain had generous feed-in tariffs until it decided to slash by 80 per cent the amount of solar electricity that utilities had to buy from photovoltaic sources.
Policy, not weather, drove the Spanish market. And when, as Photon Consulting analyst Chris Porter notes, the rules changed "dramatically and abruptly", the world's largest market imploded. That saddled manufacturers like BP and rivals from around the world, including China and Europe, with sky-high inventories that some analysts believe won't clear until 2011. Plunging prices drove down sales and earnings at scores of manufacturers. The bright and chirpy solar industry – this is a business where you can call your production facility a "farm" rather than a "plant" – turned ugly and nasty. German and American companies railed against alleged dumping by Chinese manufacturers, and solar panel makers started trying to wiggle out of long-term commitments to buy photovoltaic cells, resulting in several lawsuits.
BP, which according to iSuppli is the world's seventh largest maker of solar panels, did not escape the consequences. In April it cut more than 600 jobs as it closed down solar panel plants and assembly lines in Frederick, Maryland, and in Madrid, following a 2008 plant closure in Australia.
Some critics suggested that BP was backing off on its famous commitment to move "Beyond Petroleum" and that green was no longer a priority following the departure of former chief executive John Browne.
Not so, says Mr Fezzani. BP was caught up in the same storm that swept through the rest of the industry – the Spanish subsidy cut coupled with the recession, which hit particularly hard in Spain.
"It was inconceivable when we saw the financial crunch that the solar industry would be immune," says Mr Fezzani.
When BP announced its layoffs in April, it committed itself to a "long-term strategy to reduce the cost of solar power to that of conventional electricity." In other words, to drive the cost of solar power down to the point where the industry can finally grow out of its prolonged adolescence and cut the cord of subsidies.
Although it wasn't clear then exactly what Mr Fezzani had in mind, BP's plans have begun to clarify.
In October, it decided to outsource production of solar panels to an American manufacturer in Poland, Jabil Circuits, a move that it hopes will lower production costs as Jabil buys large quantities of materials such as glass and cable for BP and other vendors. "Jabil can aggregate our demand and others, basically going to the same supplier and getting volume discounts," says Mr Fezzani. Jabil will serve BP's European customers. Meanwhile, BP continues to make modules in India through a 20-year joint venture with Tata and in China through a four-year-old venture with Sinjiang New Energy in Xi'an.
While BP hands the commodity side of its business to Jabil, it is shifting its own emphasis to selling electricity, rather than simply selling solar panels. "People don't care so much about the equipment. They want electricity," says Mr Fezzani.
Earlier this year, BP signed a deal to install, operate and maintain solar panels for certain Wal-Mart stores in California and the western US, for instance. BP expects to generate a portion of the electricity that the stores need.
The electricity won't be inexpensive. Mr Fezzani says that BP will sell at a "competitive rate – not the cheapest, not the most expensive". The benefit to Wal-Mart is that it buys green electricity, and it locks into a tariff that lasts for 25 years – a good hedge against the volatile price of fossil fuel-generated electricity.
And therein lies the German factor again. Germany supports feed-in subsidies because the economics of solar power do not allow producers to generate electricity readily at a rate that competes with coal-fired plants. Although solar prices are coming down, most analysts agree they are still not on "grid parity" with other production methods.
The trick with subsidies is to offer enough of them to kick-start an industry, but not to provide them in such quantity that manufacturers make lazy manufacturing decisions and stop advancing technologies.
There's no shortage of science in the solar power industry. BP uses a classing type of solar cell known as crystalline, which is in the majority of installed solar panels. Crystalline photovoltaics are rudimentary semiconductors that are more efficient than newer "thin film" cells. Users need fewer of them, so they are good where space is limited, such as on rooftops. But crystalline cells are more expensive than thin film. And ironically, crystalline can overheat on a hot day, making them questionable in desert installations such as in the grand Desertec plan in Africa (see right) or in China's recently announced – but not yet closed – Mongolian desert plan with Arizona's First Solar, the world's largest solar panel maker.
Another technology known as concentrated solar power is also gaining favour in desert implementations. Solar concentrators heat a fluid that runs through parabolic panels and turns water into steam that drives turbines. Solar also has its share of fanciful ideas – Idaho's Solar Roadways wants to build roads out of toughened solar panels. Southern California's Solaren Corp wants to mount solar panels on satellites and transmit their energy to earth in radio waves for re-conversion to electricity.
The unsettled technology battles mark one reason why solar costs have yet to come down to "grid parity". There are enough different technologies to keep any one of them from driving economies of scale.
Even within thin film, advocates are trying various different materials. Some swear by a substance called cadmium telluride, others by copper indium gallium selenide.
The industry could get a boost as more big companies enter the market and bring buying and manufacturing power. Today, only three household names make iSuppli's list of top 10 solar panel manufacturers – BP, Sharp and Sanyo. The others are relative unknowns such as First Solar, China's Sun Tech, and Germany's Q-Cells. But consumer electronics giants Samsung and LG are entering the business: thin film cells use technology similar to flat-screen TVs. Germany's Siemens and Bosch are making significant move into solar. Others will follow.
"It's all about scale now," says Mr Fezzani. It's also, still, all about subsidies. One day, it should be all about the sun.