22111e solar power in the us industry report

WWW.IBISWORLD.COM Solar Power in the US December 2014 1

IBISWorld Industry Report 22111eSolar Power in the USDecember 2014 Darryle Ulama

Sunny days: Government incentives will support revenue growth as demand heats up

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance4 Executive Summary

4 Key External Drivers

6 Current Performance

9 Industry Outlook

11 Industry Life Cycle

13 Products & Markets13 Supply Chain

13 Products & Services

14 Demand Determinants

15 Major Markets

16 International Trade

17 Business Locations

19 Competitive Landscape19 Market Share Concentration

19 Key Success Factors

19 Cost Structure Benchmarks

21 Basis of Competition

22 Barriers to Entry

23 Industry Globalization

24 Major Companies24 NextEra Energy Inc.

27 Operating Conditions27 Capital Intensity

28 Technology & Systems

28 Revenue Volatility

29 Regulation & Policy

30 Industry Assistance

31 Key Statistics31 Industry Data

31 Annual Change

31 Key Ratios

32 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]


Operators in this industry own and operate solar-power-generating facilities in the form of either photovoltaic panels or solar thermal

power stations that make use of mirrors or lenses to concentrate the sun’s energy. Operators then sell the energy to downstream customers.

The primary activities of this industry are

Solar-fueled power generation

22112 Electric Power Transmission in the USOperators in this industry transmit and distribute electricity.

22111a Coal & Natural Gas Power in the USOperators in this industry generates electricity from fossil fuel, such as coal and gas.

22111b Nuclear Power in the USOperators in this industry generates electricity in nuclear power stations.

22111c Hydroelectric Power in the USOperators in this industry generates electricity from large water dams.

22111d Wind Power in the USOperators in this industry generates wind power using turbines and sets up wind farms.

Industry Definition

Main Activities

Similar Industries

Additional Resources

About this Industry

For additional information on this industry

www.ases.org American Solar Energy Society

www.seia.org Solar Energy Industries Association

www.census.gov US Census Bureau

www.energy.gov US Department of Energy

The major products and services in this industry are

Concentrating solar power

Photovoltaic power


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Revenue vs. employment growth

Products and services segmentation (2014)

65%Photovoltaic power

35%Concentrating solar power


Key Statistics Snapshot

Industry at a GlanceSolar Power in 2014

Industry Structure Life Cycle Stage Growth

Revenue Volatility Very High

Capital Intensity High

Industry Assistance High

Concentration Level Low

Regulation Level Heavy

Technology Change Medium

Barriers to Entry High

Industry Globalization Medium

Competition Level Medium

Revenue

$491.9mProfit

$83.6mWages

$65.0mBusinesses

91

Annual Growth 14-19

7.6%Annual Growth 09-14

70.0%

Key External DriversTax credits for energy efficiencyPrice of semiconductor and electronic componentsElectric power consumptionWorld price of steaming coalWorld price of natural gas

Market ShareNextEra Energy Inc. 12.0%

p. 24

p. 4

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 31



Key External Drivers Tax credits for energy efficiencyTax credits for energy efficiency incentivize solar energy generation by lowering industry operators’ cost of production and subsequently increasing profit margins. These tax credits also allow solar energy generators to compete on the price of electricity with other and more established energy sources, such as coal and natural gas, and thereby encourage entrance into the growing

industry. Tax credits for energy efficiency are expected to remain the same in 2015.

Price of semiconductor and electronic componentsSemiconductor and electronic components are essential inputs in the production of solar panels, which are major purchase costs for industry operators. Thus, price movements of semiconductor components generally

Executive Summary

The Solar Power industry has experienced clear skies over the five years to 2014, propelled by favorable government incentives in the form of renewable portfolio standard (RPS) laws and tax credits. RPS legislation, currently implemented in more than 30 states and territories, requires local utilities to generate a percentage of their total energy portfolio from renewable sources. Meanwhile, increased public support for green energy has led to tax incentives and grants to encourage investments in solar power. Additionally, semiconductor input

costs have continued to fall during the period. In light of these trends, industry revenue is expected to grow at an annualized rate of 70.0% to $491.9 million in the five years to 2014, including growth of 90.3% in 2014 alone.

Federal and state government assistance for renewable energy has led to strong growth in solar power. The increase in projects over the past five years exemplifies a triumph for industrial policy in solar power, which historically struggled to compete with established energy sources, such as coal and natural gas. Credits, grants and tax exemptions

have helped mitigate the high investment costs of solar power generation, encouraging industry activity. Furthermore, a decline in the price of silicon, an essential semiconductor input in solar panels, has lowered the operational costs incurred by industry operators. Falling input costs have accelerated the number of photovoltaic (PV) panel projects and widened profit margins. In 2014, industry profit is expected to account for 17.0% of total revenue.

In the five years to 2019, industry revenue is expected to increase at an annualized 7.6% to $710.0 million. Government support will continue to help the industry compete with other energy sources, at least in the first half of the next five years. State mandates for renewable energy power and lower input costs will continue to translate into high revenue growth. Electricity consumption is projected to pick up in the next five years, and operators are poised to meet the growing demand for cleaner energy. PV solar power generation is also anticipated to achieve grid parity during this time period, whereby the cost of solar-generated electricity is equal to or less than the retail rate of grid power. These trends suggest that the industry will become more viable in the next five years, lowering its dependence on government assistance.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Continued state mandates for renewable energy will translate into higher revenue


Industry Performance

Key External Driverscontinued

influence industry profit; when semiconductor input prices decrease, solar panels become less expensive, in turn increasing profit margins for solar energy generators. The price of semiconductor and electronic components is expected to decrease in 2015, representing a potential opportunity for the industry.

Electric power consumptionElectric power consumption drives overall demand for energy, including solar energy. An increase in electric power consumption will typically lead to an increase in demand for solar energy from industry operators; conversely, a decline in electric power consumption will lower demand for solar energy, dampening industry revenue. Electric power consumption is expected to decrease slightly in 2015, representing a potential threat to the industry.

World price of steaming coalSolar energy competes with other energy sources such as coal, which currently

generates the largest share of US electricity. Thus, an increase in the price of coal will typically lead to an increase in demand for substitute energy sources such as solar energy, which becomes relatively more affordable to electricity generators; as a result, industry operators benefit. Conversely, a decline in the price of coal will typically lower demand for solar energy from industry operators. The world price of steaming coal is expected to decrease in 2015.

World price of natural gasIn addition to coal, solar competes with natural gas in providing energy to American consumers. Thus, the price movement of natural gas generally moves in line with demand for substitute energy sources, such as solar power. If the price of natural gas increases, there is typically a greater demand for substitute solar energy; if the price of natural gas decreases, demand for solar energy will also likely decrease. The world price of natural gas is expected to increase slightly in 2015.

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Current Performance

The Solar Power industry has been basking in sunlight over the past five years, spurred by strong government incentives and falling input costs. Industry performance is dependent on the volume and price of solar generation, which is driven by overall electricity consumption. However, extremely high capital costs and competition from established energy sources have historically hindered solar energy generation. Recently, industry operators have benefited from attractive tax credits and requirements for downstream utilities to diversify energy holdings and integrate renewable energy into their portfolio. In addition, falling prices of solar photovoltaic (PV) installations have propelled the industry forward since 2010. As a result, solar power plants have been built at accelerating rates over the

past five years. In light of these trends and financial incentives, industry revenue is expected to grow at an average annual rate of 70.0% to $491.9 million in the five years to 2014.

Strong government support

Government legislation has been an essential force in the Solar Power industry in the past five years. As an emergent energy source, solar and its associated technology could not compete with established energy sources, such as coal and natural gas, even as public support for renewable energy gained traction. High initial capital costs, continued research and development efforts made solar uncompetitive with other energy sources, prompting the government to step in and enact legislation that would catalyze the industry. The role of the government was particularly crucial in the aftermath of the recession, when private investors cut back their investments in solar. To counter investment losses, the government provided grants and tax incentives to solar companies so that they remained operative.

The US government has enacted several key laws and incentives that have benefited the industry over the past five

years. The federal investment tax credit (ITC), first introduced in 2006 and extended into 2016, has allowed solar-power-generation operators to write off 30.0% of the taxes associated with building a plant, which has encouraged investment in the industry. Furthermore, to promote renewable energy during the tough economic conditions following the recession, the government provided cash grant equivalents to the tax write-off for the construction of new projects. This incentive has spurred significant investment in solar power plants over the past five years, especially in 2009 and 2010. According to the Solar Energy Industries Association (SEIA), the multiple-year extension of ITC has helped annual installation grow 1600.0% since 2006. As a result, many operators entered the industry with the hopes of using the incentives to start selling solar-generated power. In the five years to 2014, the number of industry

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Strong government supportcontinued

enterprises is forecast to grow at an annualized 7.0% to 91 operators.

The renewable portfolio standard (RPS), another important incentive, requires utility companies to generate a percentage of their energy from a renewable source in states that have passed the mandate. According to the US Energy Information Administration (EIA), 29 states, Washington, DC and Puerto Rico, have passed RPS laws, reflecting the growing government support for renewable energy. For example, California requires 33.0% of its generated energy to be renewable by 2020. The penalties vary from state to state with regard to violation of the requirement, but most are in the form of compliance payments. This regulatory trend has facilitated solid renewable energy growth in states with RPS laws. RPS legislation has also resulted in job growth within the Solar Power industry, as more employees are required to

initiate and operate solar projects. Consequently, industry employment is expected to grow at an annualized 14.2% to 486 people in the five years to 2014.

At the state and local level, solar tax incentives exist in the form of property tax and sales tax exemptions. Property tax exemptions allow businesses to exclude the value of a solar system from the valuation of their property for tax purposes. According to the SEIA, there are currently 38 states that offer property tax exemptions for renewable energy. Furthermore, 29 states currently offer sales tax exemptions for purchase of solar-energy systems.

Innovative financing mechanisms

The rise of innovative financing mechanisms such as power-purchase agreements (PPAs) also contributed to revenue growth in the past five years, as they facilitated the sale of energy from solar-power producers to downstream customers. The industry differs markedly from its competitor industries of coal and gas power generation in terms of ownership. In the Solar Power industry, independent power producers that sell power to the wholesale market rather than distributing it through their own retail network generate the highest percentage of solar power. These independent power producers generate revenue by entering into a power purchasing agreement (PPA) with the interested buyer. A PPA offers revenue opportunities for small producers by allowing them to generate power without a large investment. The

agreement allows the producer to sell its energy to any customer, given that the electricity infrastructure is favorable. Typically, these customers are large utilities companies that are required to buy and sell renewable energy as a result of the RPSs. Industry operators that have joint ventures with utilities tend to decrease risk by owning a small share of the project. Utilities companies often employ this strategy to lower the risk of the overall project.

Solar energy can also be used for power-plant-electricity generation and in homes and businesses. Each of these segments uses the PPA as a contract to deliver and generate energy at a specified point and location. They are generally supported by government incentives that lower the cost of initial investment and, thus, the cost of electricity generation.

RPS laws require utilities to generate a minimum amount of energy, benefiting the industry



Dawn of solar Electricity production from solar power has expanded broadly over the past five years, yet solar accounts for only 0.23% (2013, latest data available) of total electricity generated in the United States. Nevertheless, the industry’s rapid growth, spurred by government policy and augmented by strong public support,

suggests that solar will secure its place in the domestic energy sector. In 2013, the SEIA projected that the United States would surpass Germany in solar installations for the first time in 15 years. The industry’s explosive growth will continue through 2014, as revenue is anticipated to grow 90.3% to $491.9 million.

Falling panel prices spur growth

In addition to attractive government incentives and financing options, the declining prices of solar panels have been a significant contributor to the industry’s rapid growth over the past five years. Underlining this trend is a fall in the price of semiconductor devices, essential inputs in the production of solar panels. In the five years to 2014, the price of semiconductor and electronic components has declined at an average annual rate of 2.2%, leading to lower panel costs. According to a joint-research study conducted by the SEIA and GTM Research, solar panel costs in the second quarter of 2013 were down 60.0% from the first quarter of 2011. Solar-panel prices are expected to continue to drop in 2014 as production costs continue to fall. According to Solarbuzz, the average cost for tier-1 photovoltaic (PV) manufacturers is anticipated to drop 6.0% throughout 2014. Lower costs have allowed solar-power generators to expand their production capacity. In 2012, 3,364 PV systems were installed, surpassing the combined total of 2010 and 2011 installations. As a result,

industry revenue increased 133.9% in 2012 alone.

The drop in solar-panel prices has also resulted in widening profit margins over the past five years. Due to declining semiconductor prices, a surge in the market for silicon allowed industry operators to purchase panels at lower prices. Domestic and foreign manufacturers produced too many panels for too few projects during the recession, during which the ability to finance solar projects became increasingly difficult. Oversupply caused prices for solar equipment to drop during that period. Additionally, manufacturers are increasingly using less silicon per solar module and panel to decrease costs and meet growing demand from industry players.

Declining prices of solar panels have been a significant contributor to industry growth



Push for solar energy Throughout the next five years, more states are expected to introduce ambitious renewable energy targets with specific requirements for solar power. Currently, 29 states, Washington, DC and Puerto Rico have mandated RPS legislation, requiring utilities to generate renewable energy as part of their energy mix. Utilities companies are anticipated to meet these goals, thereby providing more opportunities for solar-generation companies to put solar on the map. As the mandated RPS goals approach the deadline, more utilities companies will scramble to reach the target. Several RPS goals are set for 2015, and states under these programs will experience the fastest growth for solar generation. These states are expected to contribute to growth of 19.2% in industry revenue over 2015. Most other states have RPSs goals set for 2020.

Additionally, the US Bureau of Land Management (BLM) has enacted

policies aimed at speeding up the development of solar energy on public lands. Since 2010, the BLM has approved 25 utility-scale solar projects with a potential to generate 8,000 megawatts of energy (enough to power 2.5 million US households). Recently, the Secretary of the Interior finalized a program to facilitate solar-energy development on public land in six southwestern states (Arizona, California, Colorado, Nevada, New Mexico and Utah). Government-backed solar expansion will require a larger labor force going forward; consequently, in the five years to 2019, industry employment is expected to increase at an annualized 6.5% to 667 workers.

Industry Outlook

The Solar Power industry is poised for additional growth over the next five years. During this time, favorable government legislation is expected to continue making solar power cost competitive with other energy-generation sources. Moreover, the price of silicon (the industry’s main input) will continue to decrease, lowering panel costs and driving growth. General economic conditions are anticipated to strengthen, as consumer income and business investment increase. As these trends prevail, electricity consumption is expected to increase. Demand for solar power will rise in tandem with general electricity demand, as companies seek to diversify energy

sources and green energy becomes mainstream. However, because the industry depends heavily on government incentives, political uncertainty threatens industry performance, at least in the short-term. Legislators’ indecisiveness could hinder investment in solar technology, dampening operational efficiency and, ultimately, limiting more accelerated revenue growth. Nevertheless, industry operators will rely less on government incentives in the latter half of the next five years as they become more viable and financially sustainable. As a result, industry revenue is forecast to rise at an average annual rate of 7.6% to total $710.0 million in the five years to 2019.

More states are expected to introduce ambitious renewable energy targets



Favorable market conditions

Solar-power generators will benefit from favorable market conditions over the next five years, buoyed by solid growth in demand for electricity and an ongoing focus on green energy. As the US economy strengthens and growth resumes, overall electricity consumption will pick up. In the five years to 2019, electric power consumption is expected to increase at an annualized 0.8%, resulting in a moderate rise in prices. Solar power capacity and output will likely continue expanding strongly during the same period and is poised to meet demand for electricity. According to CleanTechnica, a leading

news source for clean-technology news, PV solar power is expected to hit grid parity (which occurs when an alternative energy source can generate electricity at a cost that is equal to or less than the retail rate of grid power) in the United States between 2014 and 2017.

In favor of PV In the past, concentrating solar power (CSP) technology proved more competitive in large-scale energy generation than PV panels, which required high purchasing and installation costs. Recently, declining semiconductor input costs and a glut of solar panels in the world market have driven down the price of PV panels, encouraging industry operators to favor PV installations. Falling silicon prices will continue allowing operators to pay less for PV panels over the next five years, lowering operational costs and boosting profit.

In addition to falling prices, vertical integration in the Solar Panel Manufacturing industry (IBISWorld report 33441c) will reduce prices for solar-related equipment. The movement of solar-panel-manufacturing factories to

countries with lower production and labor costs will also keep prices for solar equipment low. As the Solar Panel Manufacturing industry matures, PV panels will achieve greater efficiency in converting solar energy to electricity. According to the Rocky Mountain Institute, improving efficiency could make distributed solar energy financially and logistically accessible on a large scale.

These trends will exert a downward pressure on the industry’s operational costs, leading to healthy profit margins. As profit margins increase, more operators will enter the industry to take advantage of solar power’s robust growth. IBISWorld forecasts that the number of industry operators will increase at an average annual rate of 5.2% to total 117 companies in the five years to 2019.

Falling silicon prices will lower operational costs and boost profitability for operators


Industry PerformanceIndustry output is growing much more rapidly than the economy as a wholeSolar cell technology is continuing to advanceThe industry is home to a substantial number of small, innovative firms

Life Cycle Stage


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Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Growth Industry

Revenue grows faster than the economyMany new companies enter the marketRapid technology & process changeGrowing customer acceptance of productRapid introduction of products & brands

Coal & Natural Gas Power

Aluminum Manufacturing

Steel Framing

Nuclear Power

Solar Power



Industry Life Cycle Solar power production in the United States is growing strongly, underpinned by a combination of favorable government incentives and technological advancements. Furthermore, solar power falls into the emergent green energy sector and benefits from rising public and private support. Industry value added, which measures the industry’s contribution to the overall economy, is anticipated to increase at an annualized rate of 30.9% over the 10 years to 2019, significantly outpacing GDP growth of 2.5% during the same period.

Most states have enacted mandatory or voluntary targets relating to energy production from renewable resources. These targets, which force utilities companies to diversify their energy portfolio, have contributed significantly to industry revenue growth in the past five years. Public pressure to improve US energy self-sufficiency and concerns regarding climate change are also likely to spur continued growth in solar power generation into 2019. Strong government and public support for the emergent renewable energy market will encourage the private sector to invest in solar technology. The new frontier will

encourage entrance, characteristic of a growing industry: in the 10 years to 2019, the number of solar power generators is expected to increase at an annualized 6.1% to 117.

Rapid technological change is keeping the industry in a growth phase of its life cycle. New technologies that more efficiently convert sunlight to electricity are constantly being introduced. Although the industry does not actively take part in manufacturing the technology, industry operators use this technology to transmit energy to downstream customers. An example of such technology is concentrating solar power (CSP), which uses mirrors to focus sunlight on a surface to create electricity; large-scale deployment of CSP is anticipated to continue into 2019. The industry’s technological shifts have focused on reducing initial costs, with the hopes of mainstreaming solar energy. Photovoltaic (PV) panels have consistently achieved greater efficiency in converting sunlight into usable energy, and manufacturers worldwide are competing to drive down the price of these panels. These trends have lowered the operational costs of industry operators.

This industry is Growing


Products & Services

The products and services provided by the industry depend on the firm and the location of the project. Different locations might require different types of technology, depending on the amount of sunlight available (measured as sunlight density). According to SEAI, in the second quarter of 2013 (latest available data), cumulative operating photovoltaic (PV) installations totaled 8,858 megawatts; according to the US Department of Energy, operating concentrating solar power plants currently generate more than 800 megawatts, with four additional projects underway.

Concentrating solar powerConcentrating solar power (CSP) involves directing heat from sunlight, often via large curved dishes, onto a solar cell or panel. The heat is then converted into electricity through processes with different levels of efficiency. For example, some CSP processes rely on mirrors to reflect sunlight onto a large tower to generate heat, which is then turned into steam to power a turbine-generator. On a large scale, CSP technology converts energy from sunlight more efficiently per kilowatt-hour than photovoltaic devices. Firms that take advantage of CSP technology enjoy lower costs over the life of the project. In addition, CSP is strictly

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

22112 Electric Power Transmission in the US This industry distributes electricity to end users.

33131 Aluminum Manufacturing in the US This industry is a major consumer of electricity.

KEY SELLING INDUSTRIES

23812 Steel Framing in the US This industry assists with the construction of solar power generating facilities.

33441c Solar Panel Manufacturing in the US This industry supplies solar cells and panels for solar power generation.

Supply Chain

Products and services segmentation (2014)

Total $491.9m

65%Photovoltaic power

35%Concentrating solar power



Products & Markets

DemandDeterminants

Demand for solar power is based on a variety of different factors including government legislation and assistance, interest in green technology, and the price of solar power. All of these determinants tend to interact with each other as well. For example, favorable government legislation might lower the price of solar power by providing a tax rate to solar power generation firms. In the past, this has occurred at the state level, via mandates that require states’ utilities provide power from renewable energy as a certain percentage of their total energy portfolio. Different types of legislation can influence demand for solar energy.

Public interest in green technology and renewable energy has increased demand for solar power. The movement toward a sustainable energy infrastructure has encouraged consumers and businesses to demand and lobby for renewable energy, such as solar power. Several states have programs where consumers can buy

green energy from a utility at a premium price. The extent to which this option is exercised is very limited; only about 0.5% of electricity customers have chosen to purchase power generated from renewable energy sources, but this is set to grow over the next five years.

Industry demand is also driven by price; the lower the price of solar, the higher the demand for this type of energy. In the past, solar struggled to compete with established coal and natural gas because solar energy generation proved too costly. Government legislation was key in lowering the cost of production and allowing solar energy generators to compete with other energy sources. Furthermore, technological progress in the industry has decreased the price of solar per unit of energy generation. As technology continues to advance and the production of solar power gains traction, prices will fall due to economies of scale.

Products & Servicescontinued

used for utility-scale electricity production because of the technology’s large scalability. Although CSP’s higher efficiency has attracted industry operators, photovoltaic power has outpaced CSP in the past five years, due largely to the rapid decline of panel prices and increasing its increasing efficiency.

Photovoltaic powerPhotovoltaic (PV) power relies directly on solar cells to generate electricity from the sun’s energy. PV panels are suitable for individual and commercial use because they are easily attached to buildings and offices; however, large scale PV systems are also capable of generating energy for use in utilities and industrial activities. In

the past, the relatively high cost of solar photovoltaic technology and its dependence on weather conditions have restricted its use in the United States. However, the price of silicon has dropped significantly over the past five years, decreasing the production cost of solar panels. Additionally, PV panel manufacturers are producing panels with greater energy efficiency. The industry owes much of its explosive growth to PV, a trend that is expected to continue in the following years: the EIA currently projects that utility-scale solar capacity will increase by about 40.0% between year-end 2013 and year-end 2015, with PV capacity accounting for about 85.0% of that growth.


Products & Markets

Major Markets

The major markets in this industry are utilities, commercial customers and industrial customers. Utilities buy solar energy from solar producers or generate solar power themselves to retail electricity to their end customers. Industrial and commercial consumers typically generate electricity onsite, or buy large amounts of energy from a utility or independent power producer. Firms in this industry provide downstream customers with a power purchasing agreement (PPA), which enables the firm to provide electricity to an end user under specific terms. A PPA is also typically used as a financing mechanism when the downstream customer chooses not to pay for the system outright. In this scenario, the customer pays the firm for the power produced. The PPA can be provided to any downstream customer of electricity, although it is much more profitable for industry operators to sign PPAs with larger customers, such as utilities.

UtilitiesSome of the largest solar projects sell generated power to utilities firms. Many states have renewable portfolio standards (RPS) that require utilities within that state to sell renewable energy as a

segment of their energy portfolio. As a result, solar power generators are increasingly relying on utilities and other power producers for revenue. These customers tend to buy large amounts of energy, given the renewable energy mandates set by state governments, and enter secure commercial contracts. This segment has been growing over the past five years, as utilities seek to meet RPS goals and public support for renewable energy strengthens. Also, it is often more cost-effective to sell solar energy to utilities because of the large size of the project, allowing solar power generators to achieve economies of scale: the greater the production scope, the lower the marginal cost of the solar power plant.

CommercialMany commercial entities have been interested in supplying solar energy to facilities. For example, Walmart has made it a priority to power their stores with solar energy. Firms that sell energy to commercial users often sign a PPA with solar power generators. This segment has increased over the past five years, as more businesses push to become “greener” in efforts to market to a consumer public interested in sustainability.

Major market segmentation (2014)

Total $491.9m

36%Utilities

34%Commercial sector

30%Industrial users



Products & Markets

International Trade This industry is not engaged in international trade, as the generation of solar energy occurs within US borders. Upstream suppliers of solar panels do import and export products, but this

activity is not accounted for in this industry. For more information on solar panel production, please refer to the Solar Panel Manufacturing industry (IBISWorld report 33441c).

Major Marketscontinued

Industrial usersIndustrial users enjoy lower prices than households and, to a lesser extent, commercial users of electricity. In part, this reflects large-scale purchase of power by industrial users. These users typically use

other types of generation in addition to solar power. Because industrial production typically require large amounts of energy, the high price of solar relative to other types of energy sources has deterred many industrial users over the past five years.


Products & Markets

Business Locations 2014

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Solar power capacity (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more

Great Lakes


Products & Markets

Business Locations Favorable state legislation with regard to renewable energy and sunlight availability typically determine business locations in the Solar Power industry. Furthermore, the availability of land in a certain area is also a factor, as solar plants can require large physical spaces. Higher abundance of land can encourage firms to locate in those regions.

More than three-quarters of US solar power capacity is located in the West. California accounts for about 67.4% of capacity, leading in terms of both photovoltaic capacity and thermal solar capacity. Not only does the state have favorable landscape and climate for solar power generation, but the state’s government has been a long-term supporter of solar power. Nevada (also located in the West) accounts for nearly 6.0% of solar capacity, also due to a favorable climate and adequate land.

The next major solar power-producing region, although at a distant second to the West, is the Mid-Atlantic, particularly New Jersey. All solar power generation in this region comes from photovoltaic panels. Other regions account for only small shares of solar power capacity, although some individual states are significant.

Colorado (Rocky Mountains) and Arizona (Southwest) are home to 3.5% and nearly 3.0% of US solar capacity, respectively, mainly in the form of photovoltaic power. Florida (Southeast) has about 2.3% of capacity and is home to the largest photovoltaic power facility in the United States, the DeSoto Next Generation Solar Energy Center, which has a capacity of 25 megawatts.

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Distribution of solar power capacity vs. population



Cost Structure Benchmarks

The Solar Power industry’s cost structure depends on the size of the firm and the type of solar technology used. Larger solar power generators typically have higher profit margins due to their ability to leverage scale, while smaller operators incur high initial investments, and therefore higher operational costs. Photovoltaic technology is typically used for smaller-scale production, although the rapid decline of panel prices have encouraged their use in large-scale utility operations as well. Concentrating solar power (CSP) is used on larger utility-

scale projects and can results in cheaper electricity per unit.

The payment for energy ultimately depends on the PPA signed by both the firm and the customer. The PPA locks in the rate that the customer pays for the solar electricity generated. The rate under the PPA contract might not be as profitable as another PPA signed by a competing firm. The cost structure below represents a typical firm using photovoltaic technology, as the vast majority of the firms in this industry use photovoltaic technology to generate solar power.

Key Success Factors Ability to pass on cost increasesGenerators must cover their cash-operating costs and also substantial capital charges.

Optimum capacity utilizationHigher capacity utilization is generally associated with lower unit costs.

Superior financial management and debt managementBorrowing and interest rates have a major impact on an operation’s profitability.

Access to financingFirms in this industry that have access to financing will fare better than others because of the large capital cost for solar generation technologies.

Ability to negotiate contracts with downstream customersIndustry firms must be competent at dealing with a range of contractual issues regarding the power purchase agreement (PPA) and be able to secure profit with proper contracts.

Market Share Concentration

The Solar Power industry has a low level of concentration. The four largest industry participants hold a combined market share of 22.5% in 2014. There is currently only one major player, NextEra Energy Inc., with a market share of 12.0%, but this will likely change in the near future. In a climate of high growth, companies are more willing to expand their operations to gain market share, and many companies are finalizing solar projects that will increase their solar-generating capacity. However, industry concentration remains low because of the

lack of economies of scope in the industry. While individual solar power facilities are getting larger, there appears to be little movement toward owning facilities across many areas. Over the five years to 2014, market share concentration has increased, albeit marginally, as many players enter the industry to benefit from the growing opportunities and existing operators scale their solar energy production. Market share concentration is expected to continue to increase in the five years to 2019.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is Low

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure Benchmarkscontinued

ProfitEarnings before interest and taxes (EBIT) are high in this industry, accounting for about 17.0% of industry revenue in 2014. Profit margin is generally a critical factor when industry operators consider the viability of a potential project. If the project is risky or could prove to be unprofitable, then it is usually not executed. Strong government incentives in the form of tax breaks and grants, along with declining silicon input costs and greater operational efficiency, have led to significant profit margin growth among industry operators. Although the emergent industry remains risky, renewable energy sources such as solar have accumulated strong public support, and investors are flocking to support companies in solar generation and solar technology. As a result, industry profit has grown since 2009, when margins accounted for about 11.5% of revenue.

DepreciationAs a capital-intensive emerging industry, solar power generators report substantial depreciation, which is expected to represent 29.0% of industry revenue in 2014. A large outlay of capital is required for solar power infrastructure and the selling of power to a customer. Solar power generation firms purchase the technology used in the project as an upfront cost. Often, the viability of a project is dependent on the cost of the technology and whether the customer will buy enough of the energy to make it a profitable venture in the long run. Due decreasing solar panel costs, buoyed by falling semiconductor prices, and investment in research and development, depreciation as a share of revenue has decreased from 2009, when it accounted for 39.0% of industry revenue.

Sector vs. Industry Costs

■ Profi t■ Wages■ Purchases■ Depreciation■ Marketing■ Rent & Utilities■ Other

Average Costs of all Industries in sector (2014)

Industry Costs (2014)

0

20

40

60

Perc

enta

ge o

f rev

enue

80

100

20.1

11.54.7 0.68.0

45.9

9.2

17.0

17.22.02.3

29.0

19.3

13.2




Basis of Competition Firms generating solar power not only compete for sales, but also against traditional power plant generators, such as natural gas, fossil fuels and nuclear power. Additionally, solar power operators must also compete against other green technology, including hydroelectricity and wind power. Consumer and business preferences are a major component of demand, but so are costs, as traditional power generation is much cheaper than solar power and other green technology. As a result, the industry must compete for government subsidies and other incentives designed to lower the cost of solar power production.

Electric-power generators compete on price, but the different types of capacity (base load, intermediate and peak load) have different cost structures that dictate price levels. On average, a base-load plant has the lowest cost structure. Competition between electricity producers using different fuel sources is blurred by the fact that some producers generate electric power using a range of plant types. Such

diversification provides a means of reducing reliance on a particular type of plant, thereby reducing risk.

Solar power typically provides intermediate power, which can be switched on or off to meet seasonal fluctuations in demand. The energy source itself is also somewhat erratic, depending on the climatic conditions and the seasons. As such, the main competitors in this sector of the electricity market are technologies that are switched on and off to meet demand. These technologies include wind farms and power stations fuelled by natural gas and oil that can be powered up or powered down fairly readily. These types of electricity-generation technologies serve the same purpose for electricity-generation firms: they provide power when needed. Because they serve the same function, these technologies compete on price as electricity generation firms seek the most inexpensive technology to produce power. Coal-fired and nuclear power stations, which

Cost Structure Benchmarkscontinued

WagesSalaries and wages absorb a substantial share of industry revenue, reflecting the industry’s growth phase. Accounting for about 13.2% of industry revenue in 2014, these costs have decreased over the past five years, due mainly to the explosive revenue growth that has outpaced wage increases. Although wages as a share of revenue has decreased since 2009, they remain a significant segment of the industry’s cost structure, as a highly skilled labor force is required in solar power generation. Wages as a share of revenue is expected to decrease slightly in the next five years, as the industry approaches maturity and the steady flow of new workers standardizes wage costs.

PurchasesRepresenting 19.3% of industry revenue in 2014, general purchases relate to services such as maintenance and items such as spare parts; other expenses include administrative and transport costs. These costs have grown over the past five years because firms have been aggressively campaigning to gain customers. Furthermore, because many industry operators moved to the United States from Europe, where solar markets are more established, they need to purchase a wide variety of materials to resume operation. These costs do not fall under the category of depreciation and include set-up costs once a project is underway. These costs are set to increase in the five years to 2019, as firms continue to enter the industry from abroad.

Level & Trend Competition in this industry is Medium and the trend is Increasing



Barriers to Entry The Solar Power industry is capital intensive: high capital costs are incurred to set up the necessary solar infrastructure before power generation can commence. As such, new entrants need to secure a significant amount of capital and investments to enter into the industry. The industry does benefit from growing concern over greenhouse gas emissions associated with fossil fuel-fired power plants, and strong public support has produced tax incentives o mitigate the large initial costs. However, production costs for solar power remains higher than those associated with fossil fuels like coal.

Finding firms and experts who have extensive knowledge of the industry is a barrier to entry. Most industry participants have experience developing solar projects abroad, where favorable government legislation has led to dramatic increases in solar output. New US firms that lack the

expertise of firms from overseas will have a hard time navigating how to start a firm in this industry.

The relative remoteness of solar power facilities from major demand centers also acts as a barrier to entry. Buying and leasing land in remote areas is a high risk for firms that have not generated solar power before. Additionally, transmission costs might be too high for a firm to undertake the initial capital spending associated with the solar project.

Basis of Competitioncontinued

operate around the clock and in all seasons to base-load power, provide only limited competition to solar power.

Solar electricity producers also compete with other energy sources, such as gas. This competition is particularly marked in applications such as space heating and water heating. Factors such as the availability of natural gas via a reticulated system and the relative prices of electricity and

gas tend to determine the type of energy chosen.

Weather and climate are a basis of competition for solar producers. If an area does not have as much sunlight, the amount of energy created by the solar technology might not be enough to warrant the project. As a result, firms tend to locate in regions with significant sunlight and favorable weather conditions.

Barriers to Entry checklist Level

Competition MediumConcentration LowLife Cycle Stage GrowthCapital Intensity HighTechnology Change MediumRegulation & Policy HeavyIndustry Assistance High


Level & Trend Barriers to Entry in this industry are High and Decreasing



Industry Globalization

The Solar Power industry has a medium level of globalization. The majority of industry participants are also based in other countries, where favorable legislation for renewable energy created a boom for solar energy. Spain and Germany are two notable examples of countries where solar power firms have flourished. These firms have brought or are bringing their expertise to the US in pursuit of a growing solar energy market. However, new firms that

are entering the industry tend to be US-based, which has only marginally counteracted the trend of overseas companies dominating the industry landscape. The net effect over the past five years has been that foreign firms still command a strong hand in this industry. Over the next five years, this dominance is set to change as US firms increasingly seek to enter the industry. US producers do not trade solar energy internationally.

Level & Trend Globalization in this industry is Medium and the trend is Steady


Player Performance NextEra Energy Inc. is a leading clean-energy company headquartered in Juno Beach, FL. The green-energy giant has nearly 42,500 megawatts of electricity-generating capacity and employs more than 13,900 people in 26 states and four Canadian provinces. NextEra’s main subsidiaries are NextEra Energy Resources, one of the largest solar-energy generators in North America, and Florida Power & Light Company (FPL), an electricity utility firm. NextEra’s most significant source of renewable energy is wind, and the company currently owns and operates about 17.0% of the installed base of US wind-power-production capacity. However, the company plans to ramp up production of solar-power generation over the next five years, as the prevailing low price of silicon decreases production costs. In 2013, NextEra generated $15.1 billion in total revenue.

NextEra has 477 megawatts of solar-power-generating capacity as of

December 2013, most of which is operated by its subsidiary, NextEra Energy Resources. The company co-owns and operates seven solar plants in California’s Mojave Desert; collectively, these comprise one of the world’s largest solar sites. In October 2009, NextEra commissioned the 25-megawatt DeSoto Next Generation Solar Energy Center, one of the largest solar photovoltaic power plants in the United States during the time. In April 2010, FPL commissioned its Space Coast Next Generation Solar Energy Center, a 10-megawatt solar photovoltaic facility at NASA’s Kennedy Space Center. FPL’s Martin Next Generation Solar Energy Center, the world’s first hybrid solar-thermal facility to connect to an existing fossil fuel plant, was completed in late 2010. This project is producing about 75.0 megawatts of solar power.

In June 2012, NextEra acquired the Blythe project, a 1,000-megawatt solar

Major CompaniesNextEra Energy Inc. | Other Companies

88.0%Other

NextEra Energy Inc. 12.0%SOURCE: WWW.IBISWORLD.COM

Major players(Market share)

NextEra Energy Inc. Market share: 12.0%

NextEra Energy Resources (US solar segment) – fi nancial performance*

YearRevenue

($ million) (% change)Net Income

($ million) (% change)

2009 4.7 N/C 0.8 N/C

2010 7.7 63.8 1.6 100.0

2011 9.2 19.5 2.0 25.0

2012 17.1 85.9 3.9 95.0

2013 35.3 106.4 8.5 117.9

2014 59.0 67.1 13.6 60.0

*EstimatesSOURCE: ANNUAL REPORT AND IBISWORLD


Major Companies

Other Companies The other companies in this industry produce revenue from solar-power generation by selling it directly to utilities, wholesale electricity providers and retail electricity users. Various entities, including utility companies and government agencies, have approved funding for new solar power plants. Once these systems become fully operational, new prominent players will likely emerge. The other players below have significant projects being built and are likely to become major players once the projects are completed.

Sempra EnergyEstimated market share: 4.9%Sempra Energy, based in San Diego, CA, is an energy-services company with more than 17,000 employees worldwide. It provides a wide spectrum of value-added electric and natural-gas products and services to a diverse range of customers, operating in both regulated and unregulated energy markets. Sempra Generation (SG) is the most relevant business segment for this industry. SG develops, owns and operates natural-gas power plants, wind farms and solar-

Player Performancecontinued

project located in Riverside County, CA. In 2013, the company revised the plan by shrinking the project by more than half of its initial target and swapped the design from concentrated solar thermal to PV technology due to the sliding prices of panels. Throughout 2013, NextEra added 125 megawatts of capacity to the Genesis solar-thermal project and 550 megawatts of capacity to the Desert Sunlight solar PV project in California. In October 2013, First Solar Inc. announced that it entered into an agreement with NextEra to construct a 250-megawatt solar power plant in southern California. The project, named the McCoy Solar Energy Project, is set to commence construction in late 2014. These expansions will secure NextEra’s position in the Solar Power industry in the next five years.

Financial performanceNextEra Energy Resources’ industry-relevant data is estimated, as the company does not release revenue figures generated specifically from solar-energy operations. Only a small portion of NextEra Energy Resources’ revenue and profit can be attributed to solar-power

generation; solar power accounts for less than 1.0% of the electricity generated by the business. Nevertheless, solar power is a priority for the company and it has secured the rights for large projects in solar-friendly states such as California.

In the five years to 2014, NextEra’s solar-power-generation revenue is expected to increase at an annualized 65.9% to $59.0 million, including growth of 67.1% in 2014 alone. NextEra entered the Solar Power industry in 2009, and has since secured its position as the industry’s top player. The high revenue growth during the past five years is in line with the industry as a whole, which is currently in the growth phase of its life cycle. During the past five years, tax credits and government grants encouraged the expansion of the company’s solar projects, particularly in California. In addition to government assistance, declining silicon prices led to a drop in the purchasing cost of PV panels. This allowed for solid profit gains; in the five years to 2014, industry-relevant profit is estimated to have increased at an annualized 76.2% to $13.6 million.


Major Companies

Other Companiescontinued

energy facilities. It currently owns and operates solar facilities with more than 565 megawatts of solar energy, including the Copper Mountain Solar 1, Copper Mountain Solar 2 and the Mesquite Solar 1 plants. In December 2011, the California Public Utilities Commission approved Pacific Gas and Electric Company’s 25-year contract to purchase 150 megawatts of renewable power from SG’s Copper Mountain Solar 2 project in Boulder City, NV. The first 92 megawatts of solar panels at Copper Mountain Solar 2 were installed in late 2012 (in the process of obtaining Eligible Renewable Energy Resource certification), with the remaining 58 megawatts slated for completion by 2015. Solar energy represents 6.7% of SG’s total generation capacity. In 2014, Sempra Energy is expected to generate $24.1 million in industry-relevant revenue.

SunEdison Inc.Estimated market share: 3.3%MEMC Electronic Materials Inc., a US-based solar wafer manufacturer, acquired SunEdison Inc. in 2009, signaling the company’s entry into the solar-power-generation industry. SunEdison is headquartered in Belmont, CA and operates solar projects in North

America and Asia, with plans to expand into South America and Africa. In the United States, SunEdison has completed 16 projects in Texas, Nevada, Arizona, California, Delaware and North Carolina. Additionally, SunEdison operates in solar-electricity generation through solar-power service agreements in Massachusetts, Maryland, New Jersey, California, Ohio and Colorado. In 2014, SunEdison is expected to generate $16.2 million in industry-relevant revenue.

Iberdrola Renewables LLCEstimated market share: 2.3%Iberdrola Renewables (IR) is a renewable energy owner and operator, and is currently generating power from about 40 renewable energy projects. IR is a member of a group of companies headed by Iberdrola SA, the company’s largest shareholder. Iberdrola SA is based in Spain and employs more than 33,000 people. IR currently operates about 50 megawatts of solar energy in the United States, primarily located in the southwest region. IR’s renewable portfolio is highly concentrated in wind power, making it a strong competitor in the Wind Power industry (IBISWorld report 22111d). In 2014, IR is projected to generate $11.3 million in industry-relevant revenue.


Capital Intensity Solar power generation is a capital-intensive process and the efficiency with which capital is employed has a major influence on the cost of energy generation. As such, initial as well as ongoing capital costs tend to be high among industry operators. For every dollar spent on wages, solar power generators are expected to spend about $2.19 on capital instruments. The industry’s generating facilities, concentrating solar plants and photovoltaic cells, have a long economic life, although high initial investments are required. Because of this, depreciation as a share of revenue has consistently been high in this industry, and currently makes up the largest segment of the industry’s cost structure. Nevertheless, labor continues to be an important factor for

solar energy generators: in 2014, wages are expected to account for 13.2% of industry revenue.

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

r Int

ensi

veCapital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Coal & Natural Gas PowerAluminum ManufacturingSteel Framing

Nuclear Power

Solar Panel Manufacturing

Solar Power

Capital intensity

3.0

0.0

0.5

1.0

1.5

2.0

2.5

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Solar PowerUtilitiesEconomy

Level The level of capital intensity is High


Operating Conditions

Revenue Volatility The Solar Power industry has a very high level of revenue volatility. Although the market for electricity is relatively stable, the installation of solar-generating capacity is expanding strongly. Favorable government incentives are pushing growth rates up significantly. Since

certain government incentives expire and only provide a subsidy for a specified amount of time, revenue jumps will occur in response. Also, a drop in silicon prices has substantially aided the increase in solar project completions as many firms were able to put their products out at lower costs.

Technology& Systems

Most technological progress in this industry comes from solar-panel manufacturers, and the industry is working to make them more cost competitive with other types of energy-generating technology. The solar-generation firm chooses the appropriate technology for the project, which could range from PV panels to concentrating solar power technology. Firms in this industry are able to use technology that converts sunlight into energy more effectively, thereby reducing the cost of generating energy.

Technological change in this industry can be measured by the efficiency with regard to turning sunshine into energy. Concentrating solar power (CSP) devices use direct heat from the sun, concentrating it (often in large curved dishes) to produce heat at useful temperatures. This technology has

progressed significantly over the past five years, but is currently being outpaced by increasingly lower-priced PV panels. Firms have been using different ways to concentrate solar power on a surface to create heat and eventually electricity. New methods have paved the way for higher conversion efficiencies. Photovoltaic devices use semi-conducting materials to convert sunlight directly into electricity. Additionally, silicon wafers is a newer technology and accounts for almost half the cost of today’s solar photovoltaic (PV) panels.

Other technological upgrades were implemented by Abengoa Solar; these advances include superheated solar towers and parabolic trough technologies. Both additions allow the company to increasing the efficiency of converting solar energy into electricity and consequently bring down its costs.

Level The level of Technology Change is Medium

Level The level of Volatility is Very High


Volatility vs Growth

Reve

nue

vola

tility

* (%

)

1000

100

10

1

0.1

Five year annualized revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale

Solar Power

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.



Regulation & Policy Increasing levels of regulation and policy are generally beneficial for the Solar Power industry. More than 30 US states and territories have renewable electricity standards (also called renewable portfolio standards or RPS) that require electric providers to gradually increase the amount of renewable, typically non-hydroelectric energy sources in their power supplies. Target levels for renewable energy vary from 7.5% in Florida to 40.0% in Hawaii, but most commonly are about 20.0%.

For example, Washington’s clean energy initiative requires electricity providers to generate 10.0% of their power from renewable energy sources by 2020. In February 2007, Minnesota lifted its existing renewable requirements for its largest electricity generator in the state, Xcel Energy, from 19.0% by 2015 to 30.0% by 2020, and placed a 25.0% by 2025 requirement on all other electricity providers. Several other states, including Arizona, California, Nevada, New Jersey, Pennsylvania, Wisconsin,

New Mexico and Colorado have also increased or accelerated their standards. Eighteen of the states with renewable electricity standards have a solar or distributed generation carve-out and five provide extra credits for solar or distributed generation.

Most states with RPS programs have associated renewable energy certificate (REC) trading programs. RECs provide a mechanism to track the amount of renewable power being sold and to reward eligible power producers. Energy supply companies are required to redeem RECs equal to their obligation under the RPS program. A credit is issued for each unit of renewable power produced and can be sold to energy supply companies, either in conjunction with the underlying power or separately. Depending on the program, RECs can be banked (for use in future years) or borrowed (to meet current year commitments). There is a great deal of variety among the states in the handling and functioning of RECs. The various proposals for a federal RPS program have not come to fruition.

Revenue Volatilitycontinued

Furthermore, the prices of other types of energy-generating commodities influence industry revenue. The higher the volatility of these commodities, the

more likely electricity-generation firms will use solar power. As a result, revenue volatility can occur from fluctuations of other energy generating technologies.

Level & Trend The level of Regulation is Heavy and the trend is Steady



Industry Assistance The Solar Power industry is not protected by either tariffs or non-tariff barriers. However, it does receive considerable industry assistance. The American Recovery and Reinvestment Act of 2009 provided funding for energy efficiency and renewable energy programs, including $8.5 billion to subsidize loans for renewable energy projects, $2.0 billion for advanced battery systems and $13.0 billion in tax credits for renewable energy production.

The Energy Policy Act of 2005 also provides some incentives for electricity from renewable sources. Section 206 of the act established a rebate program for renewable energy. The installation of renewable energy systems in dwellings or small businesses attracts a 25.0% rebate of spending on qualifying equipment, or $3,000, whichever is less. According to the legislation, renewable energy sources include energy derived from solar, geothermal, biomass and wind for non-business residential purposes, as well as any other form of renewable energy that the Secretary of Energy specifies by regulation for the purpose of heating or cooling a dwelling or providing hot water or electricity for use within a dwelling. Annual funding for this program authorized in the Act started at $150.0 million for fiscal year 2006 and ended with $250.0 million for fiscal year 2010.

ITCThe federal government provides investment tax credits (ITC) for

renewable energy. This credit is available for eligible renewable energy put in service before December 31, 2016. Solar is included among the renewable energy technologies covered in the tax credit and receives a 30.0% tax credit. The ARRA has amended the ITC to allow industry operators to receive a grant equal to the tax credit if the construction solar plant started in 2009 or 2010. Cash grants are more attractive because these would cut down the cost of investment directly before the project has started. As a result, the risk of the project is lessened.

Renewable energy production incentiveDesigned to complement the production tax credit (PTC), which is available for other technologies besides solar, this incentive provides a production credit equal to a 10-year, 1.5-cents per kilowatt-hour inflation-adjusted production for solar projects. It also provides the credit for other entities besides those that pay corporation tax, as required by the PTC. However, the incentive is subject to the availability of funds in the program. If the funds run out during a certain year, then the production credit must be addressed the next year.

Several states provide incentives for renewable energy technologies. For example, the California Public Utilities Commission and the Wisconsin Public Service Commission have consistently developed state energy plans that favor the use of renewables.

Level & Trend The level of Industry Assistance is High and the trend is Increasing


Key StatisticsRevenue

($m)

Industry Value Added

($m)Establish-

ments Enterprises Employment Exports ImportsWages ($m)

Domestic Demand

Electric Power Consumption

(Billion kilowatt hours)2005 19.3 17.2 53 51 100 -- -- 7.3 N/A 3,811.02006 19.0 17.3 57 55 120 -- -- 7.5 N/A 3,817.02007 22.8 20.9 60 58 140 -- -- 9.4 N/A 3,890.02008 33.7 28.3 63 61 190 -- -- 11.6 N/A 3,865.02009 34.6 29.3 67 65 250 -- -- 11.9 N/A 3,724.02010 46.4 34.9 70 68 295 -- -- 12.5 N/A 3,886.02011 68.7 53.4 73 71 340 -- -- 19.6 N/A 3,883.02012 160.7 103.6 80 78 385 -- -- 35.0 N/A 3,823.02013 258.5 165.3 87 85 420 -- -- 50.0 N/A 3,845.02014 491.9 291.3 95 91 486 -- -- 65.0 N/A 3,904.02015 586.2 321.6 101 98 532 -- -- 73.7 N/A 3,951.02016 638.0 402.7 107 105 560 -- -- 78.7 N/A 4,001.02017 672.7 407.0 116 111 587 -- -- 83.0 N/A 4,047.02018 696.0 424.8 122 115 629 -- -- 88.7 N/A 4,101.02019 710.0 433.5 126 117 667 -- -- 93.5 N/A 4,152.3Sector Rank 10/10 10/10 10/10 8/10 10/10 N/A N/A 10/10 N/A N/AEconomy Rank 1248/1324 1166/1324 1187/1323 1144/1323 1313/1324 N/A N/A 1270/1324 N/A N/A

IVA/Revenue (%)

Imports/Demand

(%)

Exports/Revenue

(%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2005 89.12 N/A N/A 193.00 37.82 1.89 73,000.00 0.002006 91.05 N/A N/A 158.33 39.47 2.11 62,500.00 0.002007 91.67 N/A N/A 162.86 41.23 2.33 67,142.86 0.002008 83.98 N/A N/A 177.37 34.42 3.02 61,052.63 0.002009 84.68 N/A N/A 138.40 34.39 3.73 47,600.00 0.002010 75.22 N/A N/A 157.29 26.94 4.21 42,372.88 0.002011 77.73 N/A N/A 202.06 28.53 4.66 57,647.06 0.002012 64.47 N/A N/A 417.40 21.78 4.81 90,909.09 0.002013 63.95 N/A N/A 615.48 19.34 4.83 119,047.62 0.002014 59.22 N/A N/A 1,012.14 13.21 5.12 133,744.86 0.002015 54.86 N/A N/A 1,101.88 12.57 5.27 138,533.83 0.002016 63.12 N/A N/A 1,139.29 12.34 5.23 140,535.71 0.002017 60.50 N/A N/A 1,146.00 12.34 5.06 141,396.93 0.002018 61.03 N/A N/A 1,106.52 12.74 5.16 141,017.49 0.002019 61.06 N/A N/A 1,064.47 13.17 5.29 140,179.91 0.00Sector Rank 2/10 N/A N/A 5/10 5/10 9/10 1/10 10/10Economy Rank 132/1324 N/A N/A 115/1324 892/1324 967/1323 33/1324 1166/1324

Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data.

Revenue (%)

Industry Value Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)

Electric Power Consumption

(%)2006 -1.6 0.6 7.5 7.8 20.0 N/A N/A 2.7 N/A 0.22007 20.0 20.8 5.3 5.5 16.7 N/A N/A 25.3 N/A 1.92008 47.8 35.4 5.0 5.2 35.7 N/A N/A 23.4 N/A -0.62009 2.7 3.5 6.3 6.6 31.6 N/A N/A 2.6 N/A -3.62010 34.1 19.1 4.5 4.6 18.0 N/A N/A 5.0 N/A 4.42011 48.1 53.0 4.3 4.4 15.3 N/A N/A 56.8 N/A -0.12012 133.9 94.0 9.6 9.9 13.2 N/A N/A 78.6 N/A -1.52013 60.9 59.6 8.8 9.0 9.1 N/A N/A 42.9 N/A 0.62014 90.3 76.2 9.2 7.1 15.7 N/A N/A 30.0 N/A 1.52015 19.2 10.4 6.3 7.7 9.5 N/A N/A 13.4 N/A 1.22016 8.8 25.2 5.9 7.1 5.3 N/A N/A 6.8 N/A 1.32017 5.4 1.1 8.4 5.7 4.8 N/A N/A 5.5 N/A 1.12018 3.5 4.4 5.2 3.6 7.2 N/A N/A 6.9 N/A 1.3

2019 2.0 2.0 3.3 1.7 6.0 N/A N/A 5.4 N/A 1.3Sector Rank 1/10 1/10 1/10 1/10 1/10 N/A N/A 1/10 N/A N/AEconomy Rank 2/1324 4/1324 50/1323 77/1323 25/1324 N/A N/A 9/1324 N/A N/A

Annual Change

Key Ratios

Industry Data



Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

Industry Jargon

IBISWorld Glossary

CONCENTRATING SOLAR POWER (CSP) A technology that uses mirrors to focus sunlight on a surface to create energy.

INTERMEDIATE POWER Electricity from sources that can be switched on or off to meet seasonal demand.

PHOTOVOLTAIC CELL A specialized semiconductor diode that converts sunlight into electricity.

RENEWABLES All types of renewable energy.

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