With the real estate market in ruins, a full-blown recession laying waste to corporate spending and oil at less than half its 2008 peak, the solar industry that boomed from 2004 to 2007 has recently seen its fortunes reversed. So makers of photovoltaic power cells and their suppliers had reason to cheer when the House passed a global warming bill on June 26. The American Clean Energy and Security Act of 2009 comes loaded with programs designed to boost the nation's use of renewable energy -- and as a result, say analysts at Deutsche Bank, solar orders could grow at close to 30% for the next decade.
At the heart of the new law is a mandate to have the U.S. derive 20% of its electricity from renewable sources by 2020, compared with around 6% today. While some of that can come from energy efficiency measures and other clean sources such as biofuel and wind power, photovoltaics will likely benefit, writes Steve O'Rourke, who follows the industry for Deutsche Bank
The bill would also introduce a cap-and-trade system that penalizes power generators who don't use renewables, while crediting those that do, allowing both sides to swap credits in lieu of paying fines. Solar would get an extra boost because small, site-specific power generators--a solar array on a building's roof, for example--would get triple the credits.
One overall effect of the bill would be higher electricity rates, which would make solar power more competitive with grid electricity, which currently costs, in general, far less than solar. A move toward electric vehicles, which the bill encourages, could also make electricity more expensive and solar more attractive.
That could result in growth of 27% a year for the next decade, in terms of installed solar capacity, says O'Rourke. The industry has grown at 40% a year for 10 years but Deutsche Bank forecasts it will shrink this year as the recession hampers spending.
Who stands to benefit the most? The current leading makers of solar cells in the U.S., including First Solar ( FSLR - news -people ), Evergreen Solar ( ESLR - news - people ) andSunPower ( SPWR - news - people ). Applied Materials (AMAT - news - people ), create the machines that make solar cells while MEMC Electronic Materials ( WFR - news -people ) produces the ultra-pure silicon wafers that absorb sunlight and turn it into electricity. All have seen their share prices fall precipitously in the last year.
There are some major obstacles for solar power to overcome, warns O'Rourke in his report. First, the bill barely made it through the House, passing by a margin of seven votes; the Senate looks likely to make changes to the bill, especially to the contentious cap-and-trade system. Then there's the labyrinth of state laws and tax credits that could play a bigger role in some places than any nationwide legislation.
In some states that have, or are contemplating, even stricter requirements than the federal government, the impact could be minimal in light of local politics, O'Rourke notes. California is thinking of requiring a third of its power to come from green sources. But other states have no mandates in place and the federal rules could send solar orders soaring there.
Finally, solar power is still a nascent industry, despite decades of booms and busts, and remains highly dependent on subsidies from governments and enthusiasm from investors to develop more efficient products.