Solar PV Research & Development: Who is Footing the Bill?

David Feldman's picture

Research and development (R&D) has led to improved performance, lower costs, and greater technological diversity in the solar industry, but there is still a large gap between the theoretical maximum efficiency of a solar generating system and what is currently available in the marketplace.  Traditionally, government has played a major role in funding R&D in the early stages of technology development. Now that solar is maturing as an industry, how much money is being spent on R&D and where is the money coming from?

I performed an analysis to estimate the total global solar R&D funding levels. I made the assumption that the primary funders of R&D are: governments, commercial scale photovoltaic module/cell manufacturers, and pre-commercial scale start-up solar companies funded through venture capital and private equity (VC & PE). See the end of the blog for details on the methodology. The following two graphs summarize the results.

Graph 1: Estimated Global Solar R&D Funding

Estimated Global Solar R&D Funding

Graph 1 shows the global investment in solar technology R&D by category. In 2011, an estimated $2.2 billion will be spent globally on solar R&D. One-third of those funds will come from governments.

 

Graph 2: Estimated U.S. Solar R&D Funding

Graph of Estimated U.S. Solar R&D Funding

Graph 2 shows U.S. funding for solar technology R&D by category in the same way. In 2011, an estimated $1.1 billion will be spent in the United States on solar R&D, representing half of total investment worldwide. Given that there are market segments in the solar industry not covered by this analysis (such as inverter or solar panel encapsulate manufacturers), these numbers probably represent the lower end of the spectrum.

Despite the noncomprehensive nature of this analysis, there are several trends in the reported data. Globally there is a fairly even split between government, existing businesses, and VC&PE expenditures. However, in the United States, a greater share of investment comes from private capital markets. In addition, more company funds go to R&D as a percent of total expenditures. For example, 22% of the U.S.-based company First Solar's operating expenses went to R&D in 2010. This differs from the top module/cell manufacturers in China (Suntech, Yingli, Trina, JA Solar) in which only 10% to 13% went to R&D in 2010. One possible explanation for this is that newer, cutting-edge technologies like thin-film modules represent a larger part of the U.S. solar industry than in China, which focuses on more established solar technologies like crystalline silicon cells.

The large amount of solar R&D funds coming from the United States must all be put into perspective with regards to other expenditures in the solar industry.

Graph 3: Manufacturing vs. VC&PE Investment by Region

Graph of Manufacturing vs. VC&PE Investment by Region

Graph 3 shows data collected from Bloomberg New Energy Finance comparing the amount of VC&PE investment to the amount of funds spent building solar manufacturing facilities in different regions of the world. Historically, the United States has spent a larger percentage of public and private resources on developing solar technologies; however, other regions of the world have spent more total funds supporting the growth of the solar manufacturing sector.

From graphs 1 and 2 one can see that a lot of funds go to solar R&D; a large percentage of which comes from public and private sources in the United States. From graph 3 one can see that although the United States deploys a lot of money to early stage solar companies, other regions spend much more building factories to produce solar equipment. While the U.S. United States is a clear leader in solar technology innovation, it remains unclear if it can turn these innovations into a larger share of global manufacturing?

 

A Note on Methodology:
In the government sector, information on solar funding levels came from the U.S. Department of Energy and from information collected by the International Energy Agency . Financial filings were collected on 11 of the top 15 module/cell manufacturers which reported R&D expenses over the past six years (for underlying data see SEC filings on corporate websites from the following companies: Suntech Power, JA Solar, First Solar, Yingli Green Energy, Trina Solar, Gintech, Motech, Canadian Solar, Hanwha-Solar One, REC Solar, SunPower). These numbers were extrapolated to include the PV module/cell industry as a whole, based on total module production in 2010. While this misses a lot of the value chain of solar (i.e., from inverters to polysilicon), much of the industry research has focused on the cell/modules and the companies are most likely to operate exclusively in the solar industry. Bloomberg New Energy Finance tracks VC & PE in the solar space. Data was first culled to remove project developers. Then the investments were segmented into early, mid, and late stage funding. Through research of financial filings from companies who have transitioned from early development to large-scale deployment in the solar sector, I determined that early stage companies spend a significantly higher percentage of their funds on R&D than later stage companies. I estimated that 60% of the operating expenses go to R&D in early stages, 35% for mid stage, and 20% for late stage development, while existing industry spends 10-15%. Assuming that funds raised go to operating expenses, the segmented investments of VC&PE were multiplied by their percentages to arrive at a funding level.