Solar's bright promise: some corporate second thoughts
Despite the rising price of oil, the solar industry has been like a revolving door: There have been frequent entries and exits. "It's been a pretty tough business," says William J. Heidrich, vice-president for technical and product development at Revere Solar, a subsidiary of Revere Copper & Brass Inc.
This observation was confirmed again late last month when Exxon Corporation announced that it had washed its hands of its solar flat-plate collector business, Daystar, by selling it to American Solar King Corporation for $2.2 million. Exxon is not the only company to duck out of the business, however. PPG Industries, for example, got out in 1979 and Chamberlain Manufacturing also decided to drop the business. "Every year as much as 25 percent of the industry gets out," says A. Louis Shrier, President of Exxon's solar Thermal Systems, a part of the business Exxon kept, but he adds that "another 20 percent gets in." Overall, he concludes, "fewer firms are left in the business each year."
Not only have fewer been left, but they have fewer dollars in the bank. "If there are people who are indicating they are making money, they are few and far between," Mr. Heidrich says. "This is still an emerging industry where the product itself is changing, the markets are growing, and the ways of getting the product to market are being developed."
Until recently, the industry has also been marked by a lot of "mom and pop" of operations. According to a survey done by Battelle Institute's Columbus Laboratories last year, 40 percent of the companies in the business had 10 or fewer employees and only 20 percent had more than 400. But industry observers are not certain that the smaller companies are going to survive. Joseph Dawson, a spokesman for Grumman Corporation's energy division, points out that a major problem the industry faces is changing government regulations.
For example, warranty regulations vary from state to state. These requirements are unpopular with some of the industry. In New York State, a three-year warranty on commercial, residential, agricultural, and industrial applications is required. Mr. Dawson says, however, that "as a seller you don't want to give a three-year warranty right away. You want to see if the product works . . . some applications would not have been done if we had to abide by that requirement."
In California, the state with the largest solar industry, the state Public utilities Commission wants a five-year full warranty. Mr. Dawson says that when the manufacturers objected the commission suggested that the industry "postpone profits for a couple of years." Thus, he concludes, "only the mom-and-pops with a substantial base will survive."
The larger companies are beset with problems, too. Take Daystar, Exxon's subsidiary. Begun seven years ago by the energy giant, it never broke into the black, although Mr. Shrier says, "It progressively lost less money and would have broken into the black in the next four years." He says Exxon discovered that the flat-plate market, which is involved primarily in hot water heating devices for residences, did not require very sophisticated technology, but did require a large manufacturing and marketing staff. Industry sources say Exxon plowed well over $10 million into the business. (It still hasn't decided on how large a write-off to take on the business, Mr. Shrier says, since it is still working with the numbers.)
Brian Pardo, president of American Solar King, says one of Daystar's problems was the size of its staff. "You can't run a small company like you would Exxon, " he says, noting that Exxon had staffed the company with what he considers excessive overhead.
He says Daystar had a staff of 110 people, "but we expect to employ only 50." American Solar King, for example, has cut the research-and-development staff in half, and plans to buy its absorber plates instead of making them. Overhead will likewise be pared: Daystar had four or five employee- relations people, for example, and people who reported back to Exxon. Administrative overhead will be cut. With these cutbacks, Mr. Pardo says, "we expect to come out of the chute in a profitable sense, assuming our sales projections can be met."
In buying Daystar, American Solar King became the largest producer in the medium-temperature thermal systems business. Combined sales in 1980 would have been $6 million. In the last six months, however, sales soared 49 percent, Mr. Pardo says. He predicts that a normal level of growth will be 30 to 50 percent on a compounded basis. Eventually, he maintains, sales could climb to $4 billion to $60 billion annually.
But growth for the industry has not been consistent. In April 1977, the industry came to a standstill after then-President Carter's energy speech. Sophisticated buyers decided to hold off buying equipment until they could see whether congress passed the Carter energy package, especially the tax credits for solar installation. As the energy debated dragged on, sales slumped. Business picked up again once the energy bill passed.
A second downturn came in May or June of last year when interest rates peaked. At the same time, California began talking about a five-year warranty. Now, with the price of oil decontrolled, and with talk about decontrolling natural gas, the industry is hoping for a strong year.