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BP Looks Outside for Solar Cells in Bid to Drive Down Its Costs

by Russell Gold, Wall Street Journal, April 10, 2009

In a bid to drive down costs, BP Solar, a subsidiary of oil giant BP PLC, says it will increasingly rely on third-party suppliers to build solar cells and modules.  The decision last month to close a manufacturing facility outside Madrid and partially close another near Baltimore was “designed to get us out of manufacturing that is not competitive,” says Rayed Fezzani, chief executive of BP Solar. He said BP would contract with companies to supply the material, which would still carry BP’s warranty and brand name. More than 600 BP workers were laid off in the plant closings.

The move, says Mr. Fezzani, was about “the economics of getting solar as cheap as possible.” He says he is optimistic that by 2015, solar power won’t require any government support in “a big chunk of the United States” because falling costs will make it competitive with conventional electricity sources.

The global economic downturn has increased pressure on solar manufacturers and installers to lower prices in order to remain affordable during the recession. In addition, BP Solar is facing pressure from rival companies such as First Solar Inc., as well as Chinese and Indian manufacturers, to lower costs.

Sanjay Shrestha, a senior alternative energy analyst at Lazard Capital Markets, called the plant closings “a very smart move on the company’s part.” It allows BP to shed lower-margin manufacturing and focus on engineering and building large utility-scale solar facilities. “I see them becoming a significant player on a project-execution level essentially to help expand the market on a global basis, including the U.S.,” said Mr. Shrestha.

Mr. Fezzani said he expects rapid growth in solar sales to the utility sector, which he thinks will grow more quickly than either residential or commercial sectors. Utilities are building large-scale solar installations to deliver electricity to customers and prepare for government mandated renewable portfolio standards.

“We see utility scale solar growing very rapidly, particularly in the U.S. We see large commercial scale which has been growing very steadily, continuing to grow. It has a lot of legs in it.” he says. He says BP recently signed a still-undisclosed deal to install 60 megawatts of solar-power generation on a commercial customer’s roofs.

Growth in the utility sector is being aided by the new federal investment tax credit and cash grants, which he believes will spur large-scale installations more than the build-out of the residential solar market.