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April 10, 2012
Solar Industry Maturing Despite Lack of Subsidies
    by Robert Kropp

A report from As You Sow details examples of best practice in environmental, social, and corporate governance considerations by solar companies, and provides a benchmark for investors to track sustainable developments in the industry.

Last week, Republicans in the US Senate blocked the passage of a modest bill introduced by Sen. Robert Menendez of New Jersey that would have ended federal subsidies for the nation's five largest oil companies. While the bill received 51 votes in favor, procedural hurdles required 60 votes for passage.

"Last year the Big 5 oil companies took $2 billion of your money and saw their profits shoot up to $137 billion. An impressive 75 percent increase in profits," Menendez said. "Did they use that extra money or our subsidies to produce more oil? No, they didn't. Despite the fact that overall US oil production is higher now than it has been in eight years, last year these five companies actually produced 4 percent less oil."

As You Sow is an organization that seeks to increase corporate accountability. It advocates on behalf of the interests of shareowners, and not for public policy. Yet even a cursory reading of Clean & Green: Best Practices in Photovoltaics, its new report, paints a picture of a rapidly maturing industry primed for greater private investment. If the playing field were leveled, the solar industry would likely be ready to participate in the transition to a low-carbon economy.

The report was authored by Amy Galland, As You Sow's Research Director. She told, "We wanted to give clear information about the overall environmental benefits of solar compared to fossil fuels, to clear up misconceptions about risks in solar manufacturing, and provide a baseline; primarily to investors, but also to consumers, so they know what companies are doing to responsibly produce solar panels."

"What would investors be concerned with, in terms of companies using good ESG (environmental, social, and corporate governance) practices?" Galland continued. "Many solar companies are included in responsible investment portfolios just because they're solar companies. But just because you make these things, it doesn't give you a pass. As companies grow, they will be screened as well."

While As You Sow does not advocate for specific policy positions, its report is clear as to why solar and other renewable energy sources have not made greater inroads. "Today, wide-scale adoption of renewable sources of energy in the United States is limited by a lack of policy support for its development and the challenges of competing in a marketplace where its competition — fossil fuels — is given a head start with significant and on-going support in the form of subsidies and tax incentives," the report states.

Furthermore, the report continues, "There are two ways to plot our energy future — one that utilizes the least expensive resources first, and another that begins investing in new technologies now and leaves non-renewable, fossil resources in the earth for future generations."

Solar is still a relatively young industry—"These companies are actually building the machines on which their products get built," Galland observed—and As You Sow's report provides a primer of sorts for understanding the several technologies—both crystalline silicon and thin film—currently vying for market share. Most of the report's pages, in fact, detail the science behind the technologies, an important subject for investors to consider as they decide which solar firms to add to their portfolios.

Setting aside the obvious clean technology advantages of solar and other renewable energy sources, the report reveals that the ESG concerns for investors are similar to those of traditional manufacturing industries: toxic chemicals, energy use, water use, supply chains, and recycling. Additionally, sustainability reporting will have to become an industry standard for ESG risks and opportunities to be effectively evaluated.

In each of these areas, some solar firms have already begun to establish examples of best practice. Cadmium telluride is used in thin-film solar cells manufactured by First Solar and other companies, and "there has been much concern because cadmium is a highly toxic material and a carcinogen," the report found. However, the report continues, "There is less cadmium in a residential solar array than usually found in batteries inside the house."

"There's awareness that there are toxic chemicals," Galland told, "And companies are doing research to reduce the toxic chemicals that they use."

To respond more effectively to the environmental and social concerns of investors, solar firms should establish management systems that provide accountability for achieving best practice. A number of companies have established worker health and safety committees, and Suntech has implemented key performance indicators (KPIs) for environmental health and safety.

SunPower has linked executive compensation to environmental health and safety (EHS) performance.

As for water use, Galland observed, "There's significantly less water used in generating solar than in fossil fuels." Nevertheless, "Water is a location-specific resource susceptible to hydrogeological patterns as well as droughts," according to the report. "Between 2006 and 2010, Suntech reduced its water use by 51% per MW by recycling discharged water and supplying it to its HVAC systems."

Best practices have already been established for recycling of panels by companies like First Solar, which has "a prefunded trust so that if the company goes under, there are directors who will manage the recovery, which is free to the customer," Galland said. And a number of companies are requiring that vendors in their supply chains agree to codes of conduct regarding working conditions in their factories.

To a large extent, energy use by solar companies is dependent upon where manufacturing facilities are located. "Making solar panels using electricity in the US or in China relies significantly on fossil fuels," the report reveals. But companies like REC are siting their factories in regions where they can access relatively clean power sources such as hydroelectric and natural gas.

Additionally, "We see now that companies like First Solar are putting panels on their manufacturing facilities and not just on their offices," Galland said. "They're using more responsible energy inputs."

The report does an impressive job of bringing together data on ESG considerations from a number of sources. But for investors to access such information without duplicating the legwork of As You Sow, sustainability reporting will have to become a standard for the solar industry. The report found that SunPower, Suntech, and Trina Solar publish corporate social responsibility (CSR) reports, while Q-Cells and SolarWorld publish integrated reports.

"It is important that these reports not only describe company programs and successes," the report states, "But also provide goals, milestones, and progress towards those goals and highlight current challenges and how the company is addressing them."

"In its first sustainability report, SunPower really went out on a limb by setting goals and acknowledging challenges," Galland said. Not only did SunPower report a significant decrease in CO2 emissions from its operations between 2007 and 2010; it also committed to reducing its overall carbon emissions by 50% by 2016.

"Companies are often not only meeting but outperforming standards set for emissions, are reducing water use and reusing water on their own initiatives, and are participating in voluntary international programs related to worker safety," the report concluded. "Increased disclosure — on financial statements, in CSR reports, and in stakeholder engagements — will continue to build confidence among investors and consumers in a company's performance, products, and future."

Despite Republican intransigence over eliminating subsidies for fossil fuel industries, the issue is far from settled. President Obama said in his State of the Union address in January, "We have subsidized oil companies for a century. That's long enough. It's time to end the taxpayer giveaways to an industry that's rarely been more profitable, and double-down on a clean energy industry that's never been more promising."

Senator Bernie Sanders of Vermont intends to submit a bill this month that would eliminate subsidies for all fossil fuel companies.


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