Clouds over the Solar Power Industry

If the recent five-year boom in solar energy marked the birth of a global industry, the next half-decade should be its coming of age. But like most adolescents, solar is experiencing growing pains. The economic crisis has weakened demand for everything from polysilicon to rooftop panels, just as manufacturers have spent billions expanding production. The overcapacity has caused prices to plummet and left the industry financially exposed. A number of companies—especially startups—may not survive a shakeout that could last 18 months or longer.

The causes of the downturn are complex and interrelated. As the price of oil plunged from its peak last summer, solar and other forms of renewable energy became relatively less cost-competitive—dampening demand from industrial, commercial, and residential customers. At the same time, the credit squeeze has made it harder for customers, whether power companies or energy-conscious homeowners, to finance solar projects. Some also are holding back in anticipation that solar equipment prices will fall even further.