Can sustainability make solar more competitive?

With solar manufacturers fighting for survival the world over, this might seem like exactly the wrong time to talk about sustainability. Companies that haven’t filed for bankruptcy, closed or laid off employees are bleeding money, reducing or even shutting production and doing everything they can to cut costs.
“I don’t think they can afford to worry about sustainability now,” says Jenny Chase, Manager of Solar Insight at Bloomberg New Energy Finance. She adds, jokingly: “I know how they can have less emissions – they can make fewer modules.” But that’s only true if you assume that sustainability detracts, instead of adds, to the bottom line. And that, according to some industry insiders, simply isn’t true. At least not always.
“A lot of the initiatives we’ve undertaken as an industry to deal with sustainability issues actually pay for themselves,” says Rhone Resch, President of the Solar Energy Industries Association. “This is smart business. For those companies who are resisting sustainability initiatives, it’s due to a lack of understanding of the real economics behind them as opposed to anything else.” The Solar Energy Industries Association (SEIA) has seen interest in sustainability take off in the last few years.Driven by its members, sustainability has become one of the association’s top priorities, says John Smirnow, SEIA’s Vice President of trade and competitiveness.
In 2012, SEIA’s Environment, Health and Safety Committee, established in 2009, introduced a solar industry code of conduct that includes standards for environmental impacts, labor practices, worker health and safety and more. The association already has eight signatories, which together represent more than 50% of the solar panels in the U.S.: Dow Solar, SunPower, Suntech Power, Trina Solar, Yingli Solar, SunEdison, PV Recycling and Gehrlicher Solar America.
Smirnow expects to see further advances next quarter, when the signatories will begin reporting on a number of key performance indicators, such as water and electricity consumption, recycling, worker training and installer and electrical safety. SEIA is also discussing new commitments with companies that it hopes to add to its list, and afterward hopes to also get signatories’ help in pushing the commitment to their supply chains. “Once they agree to go to their suppliers and encourage them to also become signatories, I think we will see – this year – a significant expansion of companies that sign on to the solar commitment,” Smirnow says.
Meanwhile, SEIA’s PV recycling working group has been studying recycling programs in other industries and is now putting together broad policy recommendations to expand PV recycling programs. “It’s something that is going to be a big deal in the future, and we think now is the time to start working on recycling,” Smirnow says.
Smirnow emphasized that the push toward sustainability didn’t come from SEIA, but from solar companies that see a competitive value. “The industry is really asking us to take a leadership role and help them drive sustainability across the industry,” he says. “They’re lowering costs by recycling, higher efficiencies and beneficial reuse. Folks are very much seeing there’s a business case for adhering to a high set of sustainability principles.”

Bottom-line benefits

Take SunPower, which became the first solar company to release a sustainability report in 2011. CEO Tom Werner says the company’s sustainability efforts have unquestionably helped its bottom line. The company is working out just how much right now, as part of its second sustainability report expected later this year. “We do have dedicated [sustainability] resources – in fact, we spend incremental money – but we more than make up for that,” Werner says. “The synergies of sustainability and cost effectiveness are extremely high. We don’t see sustainability as its incremental cost; we see it as cost reduction.” He rattled off some examples: When SunPower decided to manufacture locally, it not only reduced its carbon footprint from shipping, but also cut its logistics costs. When it found ways to cut out materials in production, it again reduced its carbon footprint while also making its products more cost effective. And when it reduced its waste through reuse and recycling, as well as by reducing or eliminating packaging materials – in some cases asking installers to put packaging back into the shipping container and sending it back to the factory for reuse – it also started buying less packaging and, even considering the additional logistics of getting the packaging back, spending less on shipping.
Then there’s SunPower’s employee-led green team, which has driven more efficient lighting and energy-saving measures, fewer disposable dishes or silverware, more recycling and even composting. “The green team’s impact on the company is present everywhere,” Werner says. “It’s not like we have a choice; our employees started demanding it. Our employees are a big reason we’re doing this.” It makes sense, he says, that people who work in renewables tend to care about the environment. And that leads to another big benefit of sustainability: employee engagement and retention.
“We see a huge correlation between people doing this for a purpose and those that stay,” he says. “Around 80% of our employee base is purpose driven; they say that would be a priority. And there’s a huge economic benefit as well, of course, because employee turnover is a huge cost.” Trina Solar and SolarWorld, which ranked among the top three (with SunPower) most sustainable companies on the Silicon Valley Toxics Plan’s solar scorecard last year, also say they have saved money through sustainability. Trina says it has reduced its water and electricity consumption per megawatt of manufacturing, saving natural resources and cutting manufacturing costs.
Meanwhile, SolarWorld has been reusing and recycling more in its own operations – including composting food scraps from its cafeteria – to reduce its overall waste and save money on dumping fees. One example: New tools come in big wooden crates. Instead of taking those crates to the landfill and paying a fee for tossing it, SolarWorld now brings those crates to a center in Portland that resells the material. SolarWorld has also boosted the efficiency of its panels with weekly power-output gains, says Ben Santarris, the company’s head of corporate communications and sustainability for the Americas. That has both sustainability benefits (using fewer materials to produce more energy equals a lower carbon footprint) and lowers its cost per watt. “The culture of increasing your efficiency is no different from increasing your sustainability, so whenever we can reduce power, water, power, chemical use or waste of all kinds, we’re doing it,” says Santarris.
Of course, sustainability is hardly a panacea. After all, SunPower isn’t making money. Neither is Trina Solar or SolarWorld. No manufacturers are making a profit in the current business environment, analysts confirmed. Even though solar panel prices rose slightly this year, they remain below cost, with more supply than demand.

The trade dispute

Some, such as SolarWorld, blame China. In an argument backed up by the United States and European Union, which have imposed tariffs on Chinese solar panels, Santarris says the Chinese government is using subsidies to undercut global manufacturers in their own markets and drive them out of business. Government policies led Chinese producers to grow manufacturing capacity to more than twice the total world demand, export nearly everything from their 60 gigawatts of annual production capacity and price it below cost to seize market share, he says.
He calls this the biggest sustainability issue in solar today. “It’s not a sustainable proposition: You’re bringing raw materials to China, then using some of the world’s dirtiest energy mixes to produce in a low-transparency, low-regulation environment with low standards in safety, labor, environmental and civil rights, then shipping that production back to markets where the raw materials originated,” Santarris says. “The whole concept is unsustainable and anticompetitive. By eliminating the competition, putting other companies out of business, the industry loses some of its ability to innovate and to outperform. We’re replacing higher-standard production with higher labor and environmental protections with lower-standard production, lower labor and environmental protections.” But wait a second. Some Chinese companies certainly are taking sustainability measures, too. Aside from ranking No. 1 on the SVTP Solar Scorecard, Trina Solar released a 2011 sustainability report, established (and has maintained) an environment, health and safety (EHS) management system, reduced its consumption of natural resources and chemicals and its generation of waste. In an email signed only “Trina Solar management,” the company says it has also allocated “substantial resources” annually for environmental protection and occupational health and safety, and actively encourages its employees and suppliers to participate in public charities and contribute to the community.
Trina’s not alone. Yingli Solar filed its first sustainability report in May. And before its financial troubles, Suntech Power – whose main subsidiary, Wuxi Suntech, filed for bankruptcy in March – worked with an outside consultant on a sustainability program and sustainability report, Smirnow says.
Santarris argues, however, that there’s no way to know how truthful the Chinese sustainability reports are. “You can’t have accountability because you can’t have transparency,” he says. “Nothing about this is sustainable. The problem is not that they’re Chinese, but that they have an unaccountable system with low transparency. A lack of transparency equals a lack of accountability.” Meanwhile, Trina Solar’s response implies that – from its point of view – it’s not the Chinese subsidies, but the tariffs, that are causing the problems: “Even though the solar industry has seen a difficult operating environment, due to supply-demand imbalance and trade protectionist policies, Trina Solar is committed to building a foundation for the global reduction of carbon emissions through providing cleaner energy solutions.”

Covering the cost of sustainability

Regardless of who’s at fault, the current economics make it challenging to put costlier sustainability initiatives in place, even if they’d ultimately generate a payback.
As Mike Bernier, a senior manager at Ernst & Young, put it: “There’s a large spectrum from very low cost and high return – something as simple as changing the lights in the factory, which always has a huge payback and pays for itself quickly – or the obvious low-hanging fruit, to things that get more expensive, with diminishing returns,” Bernier says. “The big question is where is the breaking point at which I’ve now made my product so expensive people don’t want it, versus more efficient so it’s more attractive. A lot of the baseline sustainability stuff, I think, has been tapped.” That means that many solar companies are now at the point where, to make progress on sustainability, they’ll need to reach for higher-hanging fruit, such as reformulating their products. Those initiatives can cost more money, a difficult sell in difficult times. “There’s always a business case for sustainability, but you have to be careful with things that raise your price,” Bernier says. “You can make a zero-emission product, but if it costs three times as much, you might not sell anything. I’m not sure where the balance is with solar.” Right now, the balance for manufacturers seems to be tipped toward cutting costs, period, to survive until prices rise again. For example, buying locally saves shipping costs and reduces related carbon emissions. But in cases where SolarWorld can save more money – through economies of scale – by buying globally instead of locally, for example, it’s doing it, Santarris says. “Per watt cost is everything, and it’s the mandate of everyone in the organization to get the per watt cost down for their area,” he says. “If you’re under pressure, you’re not going to have the capital to do everything you need to do, such as [solar panel] recycling, in which we were a leader in 2003.” Roger Ballentine, President of environmental and energy consulting firm Green Strategies, says it’s true that some companies could be in cash-flow situations where it doesn’t make sense to do something sustainable – like energy-efficiency upgrades – at this point in time, even if the company understands the mid-term and long-term benefits. But there’s a huge suite of processes that might come under the umbrella of sustainability, he adds, and he’s never found a company that couldn’t do at least some aspects of them at any time.
“I reject completely the idea that a sustainability program, writ large, is a luxury only for boom times,” he says. “It’s always a good time to look at whether you can optimize operations, add value and increase revenue, increase employee retention and engagement, etc. Some aspects of sustainability do cost money and are things to do in more robust times, but it’s not an on and off proposition – something you do or don’t do. Some initiatives have different paybacks, but, in general, sustainability is going to increase competitiveness in the mid to long term. Otherwise, you’re not doing it right.”

Pressure to be more efficient

Perhaps ironically, the competition with Chinese manufacturers has probably pushed solar companies elsewhere to become more sustainable, SolarWorld’s Santarris says. “Up to a point, the so-called competitive pressure that we face puts pressure on us to be more efficient. And anything that causes you to be more efficient causes you to be more sustainable – less labor, less material, recycling and repurposing – and also causes you to save money. Up to a point that’s good. But after that point, it’s only destructive and limits what people can invest or do.” This dynamic won’t reward sustainability in the long run, because, ultimately, economics can trump sustainability, he says. In other words, many installers and customers are likely to buy the cheapest solar panels, regardless of whether they were made sustainably in a transparent regulatory environment or not. If buyers only buy the cheapest panels, those coming from China, other companies around the world will go out of business, leaving more market share supplied by places with less transparency – and leading to less knowledge about what goes into the panels, he argues.

Defining sustainability

Dan Bedell, Executive Vice President of Marketing at Principal Solar, backs up the idea that sustainability factors such as transparency rank low on the list of priorities for solar buyers. Right now, he says, the main selection criteria are price and availability (i.e. “What are the cheapest solar panels available in two weeks, when my project is scheduled to be installed?”). He sees that changing, with sustainability increasingly being factored into decision making.
His definition of sustainability, though, is the biggest bang of the buck. “People buy modules based on a combination of how much energy it will produce and how much it costs; they want the most energy at the lowest price,” he says. “But that’s also the sustainability factor.” For Bedell, the most important sustainability component of a solar power system is how much energy it produces. “Any time you install solar, there are molecules of another combustible – coal, natural gas – that are not being burned. Clearly that’s the thing solar’s banking on from a sustainability standpoint – for every solar panel installed, that’s less coal atoms being burned. The flipside is how much energy it takes to manufacture and ship solar modules. In my opinion, sustainability is primarily the pollution that doesn’t happen.” And that raises another point of contention: What does sustainability even mean in solar?
The definitions of those in the industry are surprisingly varied. The SEIA, of course, has adopted its own definition with its code of conduct. “A lot of folks who are in the industry are in it to be environmentally friendly, and they realize that just installing solar panels doesn’t make the industry sustainable,” Smirnow says. “For solar to be truly sustainable, we have to be stewards of the environment, we have to be ethical and we have to be thinking long-term.” Ballentine of Green Strategies warns against confusing sustainability – which also includes transparency, corporate governance and social responsibility issues – with environmental friendliness.
“Sustainability is a business metric,” he says. “It’s like comparing price-to-earnings ratios; we’re evolving to a standard set of sustainability metrics. It doesn’t mean that one company is necessarily greener or better for the environment than others. In solar, the industry is producing the golden child, in terms of the environment, and some think that should be enough. I don’t think that should be enough. If sustainability is going to be a universally applicable business discipline, it needs to apply to everyone. We should be very consistent in how we evaluate companies in terms of sustainability metrics, regardless of what industry they’re in.” In other words, Ballentine doesn’t think solar should get a free pass in sustainability just because it’s a green product.

Squeezed by sustainability?

One could argue that, compared to other industries, in regard to sustainability, solar has it rough. Failing to operate sustainably may carry a higher risk for solar companies than for other industries, consultants say.
Many solar customers care about the environment, so solar companies risk losing customers if they’re “outed” as being less sustainable. “If solar is not considered all that green, it’s a risk for the industry as a whole,” Bernier of Ernst & Young says. And because the public expects solar to be sustainable, any transgressions tend to attract more publicity. As Anna Clark, President of sustainability consultant EarthPeople, puts it: “It’s like being the preacher’s kid – everyone’s looking at you. People really are looking for excuses not to use green products; they love to have one more reason why they are right not to pay more for green products. So anything perceived as inauthentic gets jumped on.” On the other hand, solar companies are unlikely to attract more customers – or much of a premium – for being greener than their competitors.
Bernier of Ernst & Young compares solar to organic foods. “Everyone kind of gets the concept, ‘Oh, that’s green.’ Then there the question: How sustainable is it?,” he explains. “There’s a narrow band of people who really understand how to do a cradle-to-cradle assessment and all of the things that go into that. With solar, I think everyone assumes it’s green and I don’t know if they necessarily want the greenest panels. I’ve heard people talk about reliability, price and the way it looks from the street. I don’t think I’veever heard a client say, ‘How green is it?’” That suggests, from a marketing perspective, that the upside of sustainability may be low.
EarthPeople’s Clark disagrees. While being more sustainable than your competitors may not be enough to sell you more panels today, she thinks sustainability already is a competitive advantage – and could play a bigger role in differentiating some companies from the pack in the future.
Because solar is still a relatively young industry, and the movement of sustainability within solar is even newer, it makes sense to get out in front early, she says.
“It’s still a new frontier,” she says. “People are still not embracing this opportunity to stand out from their competitors. Everybody needs to find a way to distinguish their brand – it’s no different with green companies – and choosing sustainability gives you the benefits of good PR and stakeholder engagement, as well as resource conservation benefits.” Furthermore, the solar industry is still working out how it will practice and report sustainability, so solar PV companies have the opportunity to help create the standards that will ultimately affect them.

Sustainability’s importance grows

Whatever the challenges and disagreements, it’s clear that sustainability is becoming increasingly important to solar companies.
Solar companies are much more aware of sustainability today than they were in the past, Bernier says. The rhetoric is certainly there.
From SunPower: “We want to change the world and also at the same time build a great company, and sustainability helps us do both,” Werner says. “We need to practice what we preach, and we think it’s a great business practice as well – great economics. It’s very much at the core of how we run our company. We want to be a leader, and we want other companies to see this and adopt it as well.”
From SolarWorld: “For us, sustainability is the mission,” Santarris says. “It’s not a side issue; it’s the whole point.”
“Sustainability will be a growing issue for all companies, and I think all companies and all industries have to figure out how they’re going to handle it,” says Bernier. “Solar’s going through the process of figuring that out, but whether you’re making food, clothing, cars or solar panels, sustainability is becoming more of an issue to the general public, and you have to figure out how to handle this.”
Ultimately, everyone agrees that sustainability is key to the survival of – not just a few companies – but the industry as a whole. And the industry has plenty of work to do.