As the United States and the world work harder to minimize the use of greenhouse gases, renewable energy sources have taken on a larger role in the economy. In 2001, renewable energy made up 13% of the energy supply in the United States, with photovoltaic power only contributing about 1% of the 13% (solarbuzz). With continued research and development focused on manufacturing more efficient photovoltaic cells, the price of solar power has continued to decrease. In 1982, the price of solar power was $27 per Watt peak (Wp); as of 2006, the price of solar power has dropped to $4 per Wp (solarbuzz).This dramatic decrease in solar power price along with the world’s drive to decrease greenhouse gas emissions continues to spur the photovoltaic industry.

In 2006, the photovoltaic manufacturing industry totaled over $10 billion in sales (First Solar). From 1995-2005, the photovoltaic industry’s sales have grown at a 40% compounded rate, but jumped to a 60% increase in 2006 (First Solar). If this 60% growth continues, the industry could reach over $65 billion in sales by the year 2010.For the fiscal year 2006, diversified companies within the industry saw revenues reach over $100 million, with smaller companies reaching just over $60 million. These revenues increased from 2005 when diversified companies totaled around $44 million and around $20 million for smaller companies (S&P).

However, because of the high capital expenses required to begin manufacturing photovoltaic cells and modules, many companies did not realize a net profit until 2006. The photovoltaic manufacturing industry has experienced some volatility over the years.Those companies that have been able to withstand the difficult solar market include large companies like General Electric (GE), British Petroleum (BP), Sanyo, and Kyocera.

The most likely explanation for the success of these companies is their ability to diversify their operations, thus supplementing the company’s profits. Companies such as AstroPower, Shell Solar, United Solar Systems, PowerLight, and Solarex, which specialize in photovoltaic manufacturing, have all either gone bankrupt and liquidated their assets, merged with another company, or found themselves bought out by a larger company.Evergreen Solar, a company that specializes in photovoltaic manufacturing and has been in existence since 1994, has yet to realize a profit. In 2002, Evergreen reported a net profit margin of -195. 71%. For the fiscal year 2007, Evergreen’s net profit margin improved to -23.

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76% (S&P). While this is not consistent for every photovoltaic manufacturer in the industry, the increasing trend appears to be representative of the industry. First Solar, another solely photovoltaic manufacturer, reported a net profit margin of -13. 63% in 2005.However, in 2006, First Solar reported a net profit margin of 2.

94%, one of the few photovoltaic manufacturers to report a profit for the past ten years (S&P). Figure 2 below depicts the net profit margins of diversified companies in the industry, while Figure 3 depicts net profit margins of companies mainly focused in photovoltaics. Figure 2 Figure 3 Perhaps the reason for First Solar’s ability to report a net profit is due to their ability to lower manufacturing costs to $1. 40 per watt.The industry has not been as successful in reducing operating costs. The photovoltaic manufacturing industry averaged gross profit margins of approximately only 20% and reported operating margins of -17.32% from 2003 to 2005 (S;P).

These low margins indicate just how expensive and capital intensive a photovoltaic manufacturing operation is, thus emphasizing the difficulty for companies in the industry to recognize a profit. In order to overcome the burden of the extreme operating costs, companies seek various forms of financing. The companies that focus solely on photovoltaic manufacturing record debt to equity ratios well above 100, while companies that are more diverse in their operations-except GE-show debt to equity ratios between 4 and 16.

See Figure 4.Figure 4 Interestingly, most companies have low asset to equity ratios, between 1 and 7, implying that most of these company’s assets are covered by the equity within the company (S&P). Therefore, the amount of capital that each company must obtain in order to operate is substantial enough to require the company to take on large amounts of long-term debt. The high leverage of the photovoltaic manufacturing companies only increases the difficulty to procure loans, or other forms of financing, while increasing the interest expenses associated with financing operations.Both the federal and state governments can alleviate the photovoltaic manufacturing industry’s financing burden by offering tax credits, grants, and investments in photovoltaic energy research.Since the Kyoto protocol was put into force in 2005, many government initiatives to promote photovoltaic energy use have been started; namely, the EP Act of 2005 which gives tax credits to companies that integrate solar energy into their operations, the President’s Solar America Initiative, that funds photovoltaic companies in order to increase the amount of solar energy used within the U.

S., the Solar Roofs Initiative which aims to have one million homes with solar roofs in California, and the Clean Energy Stimulus Act of 2008, which will extend commercial tax credits for more research in solar energy.Until 2005, when these initiatives became active, the photovoltaic industry experienced very stagnant growth. Since these initiatives, demand for manufacturing of photovoltaic cells has increased dramatically.

While it is difficult to know just how much of an influence these initiatives will play in the future financial success of the industry, the future looks promising if recent trends (See Figure 5) continue.