Solar Operating Margins Compared to Other Industries

November 19th, 2011 by Zachary Shahan

Update: as this post by Christian Rolseund of Solar Server shows, operating margins vary greatly within the solar industry, and they have varied greatly this year due to falling demand from policy changes or policy uncertainty and oversupply — while some larger PV companies had operating margins of 10% (Trina Solar), 14% (Yingli), and 18% (First Solar) in the first half of 2011, the average for the top six PV cell and module manufacturers in the world was 8.4% in the first quarter of 2011 and -15.9% in the second quarter (or 11.7% and 0.3% when leaving Germany’s struggling Q-Cells out). However, even in the second quarter of 2011, some companies thrived — JinkoSolar had an 18% operating margin, “Wacker Chemie AG reported a 47% operating margin from its polysilicon division,” and “REC’s polysilicon division reported a 55% operating margin.” First Solar’s third-quarter operating margin is now reported to be 22%.

Compare these numbers to those in the lists below and they don’t fare too badly.

In addition to the original list (still below), I’ve found and added a list for operating margins as of January 2011. However, while 2008 was an exceptional year for some industries (i.e. airlines and real estate), 2011 has also been an exceptional year for solar.

What’s the bottom line? It’s still what it was originally — while some companies are getting quite hurt or killed off by maturation of the industry and temporary oversupply, there are others that are doing fine; and while global solar demand weakened with changing or uncertain policies, solar power is expected to grow tremendously in coming years and numerous companies will see great profits from that.

Fortune/CNN 2009 list of industry operating margins:

After-tax Operating Margins (EBIT(1-t)/ Sales) by Industry

R.E.I.T.: 138.72%
Canadian Energy: 33.51%
Natural Gas (Div.): 32.41%
Petroleum (Producing): 32.05%
Maritime: 30.96%
Telecom. Services: 28.64%
Telecom. Utility: 26.67%
Precious Metals: 25.01%
Railroad: 24.7%
Water Utility: 24.33%
Drug: 23.85%
Oilfield Svcs/Equip.: 23.32%
Metals & Mining (Div.): 22.33%
Property Management: 22.07%
Cable TV: 21.19%
Oil/Gas Distribution: 20.98%
Financial Svcs. (Div.): 20.57%
Computer Software/Svcs: 19.61%
Securities Brokerage: 19.56%
Electric Utility (West): 19.23%
Electric Utility (East): 18.99%
Coal: 18.89%
Electric Util. (Central): 18.55%
Semiconductor: 18.35%
Diversified Co.: 17.08%
Information Services: 16.37%
Beverage: 16.12%
Tobacco: 15.7%
Household Products: 15.54%
Internet: 15.52%
Power: 15.44%
Entertainment: 15.41%
Biotechnology: 15.1%
Steel (Integrated): 15.05%
Total Market: 14.84%
Pipeline MLPs: 14.78%
Wireless Networking: 14.73%
Chemical (Basic): 14.35%
Environmental: 14.29%
Recreation: 14.1%
Building Materials: 13.86%
Restaurant: 13.45%
Hotel/Gaming: 13.37%
Funeral Services: 13.17%
Chemical (Diversified): 13.12%
Publishing: 12.72%
Electrical Equipment: 12.66%
Paper/Forest Products: 12.31%
Metal Fabricating: 11.91%
Educational Services: 11.77%
Precision Instrument: 11.77%
Natural Gas Utility: 11.26%
Packaging & Container: 10.66%
Computers/Peripherals: 10.57%
Chemical (Specialty): 10.52%
Machinery: 10.1%
Healthcare Information: 10.01%
Telecom. Equipment: 9.1%
Medical Supplies: 9.02%
Petroleum (Integrated): 8.91%
Toiletries/Cosmetics: 8.81%
Apparel: 8.7%
Shoe: 8.66%
Utility (Foreign): 8.62%
Newspaper: 8.25%
E-Commerce: 8.15%
Aerospace/Defense: 8.02%
Food Processing: 7.81%
Advertising: 7.7%
Semiconductor Equip: 7.18%
Industrial Services: 7.14%
Heavy Truck/Equip Makers: 6.7%
Automotive: 6.66%
Retail Building Supply: 6.49%
Entertainment Tech: 6.38%
Medical Services: 6.13%
Trucking: 6.09%
Furn/Home Furnishings: 5.98%
Retail (Special Lines): 5.86%
Air Transport: 5.83%
Auto Parts: 5.79%
Office Equip/Supplies: 5.75%
Electronics: 5.62%
Foreign Electronics: 5.38%
Retail Automotive: 5.07%
Engineering & Const: 4.58%
Retail Store: 4.41%
Pharmacy Services: 4.32%
Retail/Wholesale Food: 3.63%
Steel (General): 3.01%
Human Resources: 1.83%
Homebuilding: -17.12%
Public/Private Equity: -83.38%

The bottom line message: there may be a “shakeout” in the solar industry in the months and years to come and many companies may not make it, but that doesn’t mean the industry is collapsing — the industry is maturing. The solar industry is the fastest-growing industry in the U.S., growing approximately 10 times faster than the U.S. economy as a whole! Globally, the industry is booming as well. Margins are coming down (for now, at least), but sales volume is going up.

“Yes, narrowing margins are making life difficult for smaller, higher cost producers,” Garvin Jabusch of Alt Energy Stocks writes. “But this is and has always been a standard part of the evolution of any industry from niche to growth to mainstream.”

Demand for solar is increasing. Costs are dropping. And competition is rising (as well as collaboration). Good luck to all those trying to make a living in this industry with what they hope will be the next best product, but, clearly, there can’t be 1000 bests.

Let me know if I’m missing something here — this is an area of the industry I don’t normally delve into.

Profit fluctuation image via shutterstock

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Tags: solar energy industry profit, solar energy industry profit margin, solar energy profit margin, solar energy profits, solar profit margins, solar profits

About the Author

Zachary Shahan spends most of his time here on CleanTechnica as the director/chief editor. Otherwise, he's probably enthusiastically fulfilling his duties as the director/editor of Solar Love, EV Obsession, Planetsave, or Bikocity. Zach is recognized globally as a solar energy, electric car, and wind energy expert. If you would like him to speak at a related conference or event, connect with him via social media. You can connect with Zach on any popular social networking site you like. Links to all of his main social media profiles are on ZacharyShahan.com.

Anonymous

Looks like this article got some interest from people who are knowledgeable about the financial aspects of solar manufacturing. I’d love it if one/some of you would contribute periodic pieces about how the solar business is doing.

Something that I ran into today. Apparently panels were selling for about $4/watt in early 2008 and now Chinese panels are selling for $1.15/watt. That’s an amazing price drop. It suggests that we should break $3/watt installed soon and that means electricity for under $0.09/kWh in the sun belt.

http://www.greentechmedia.com/articles/read/Solar-Module-Pricing-vs.-Analyst-Estimates/

It looks to me that more shakeups are coming.

First, there’s NREL’s Optical Cavity Furnace which promises to lower process costs, speed processing time and raise efficiency perhaps 25%. A big jump in efficiency would mean major drops in balance of system costs (racks, labor, etc.).

http://www.nrel.gov/news/features/feature_detail.cfm/feature_id=1629

Then GT Advanced Technologies has new furnace approach and a new way to make ‘exotic’ silicon at an affordable price. They’re talking a 30% increase in efficiency and a much better process of silicon into wafers.

http://www.technologyreview.com/energy/39157/page1/http://www.technologyreview.com/energy/39157/page1/

We might be only a few years away from installed solar at $2/watt.

OK, knowledgeable people. How about stepping up and keeping the rest of us up to speed?
Anonymous

Thanks a lot! Very useful comment. I knew I was dipping my toe into an area I don’t have that much knowledge on, but love learning everything I have for doing so.
Anonymous

Thanks! Shoot me an email at zach@importantmedia.org to discuss.
Anonymous

Thanks, Christian. I’ve updated the post using some of the information from your piece. Nice one!
Anonymous

That’s a very informative article Christian.

Might you be interested in writing up a more general summary article for this site? Something for a more general readership.

And, do you see polysilicon prices holding as high as they are or is there now enough competition in the market to bring down margins?
- Anonymous
  
  Thank you Bob. I am not an expert on polysilicon, and am using the same public information that we all can access. Polysilicon prices have fallen considerably, but the biggest producers, several of whom are sold out for the next three years, have a lot of padding to absorb price declines. Smaller companies may be in a different situation.
  
  Also, keep in mind that those margins are 2Q numbers – they may have fallen in Q3. My point is that these segments of the larger companies were doing fine while the wafer, cell and module producers crashed.
  
  As for writing something for this site, please contact me at christian_roselund@solarserver.com to discuss this further.
  - Anonymous
    
    Christian, that email didn’t seem to work. Feel free to email me at zach@importantmedia.org — I’d love to have you contribute a piece or more if you’re interested.
    
    Thanks
http://twitter.com/sustainandy Andreas Hutterli

Zach please compare apples with apples and in which year they were collected. 2008 was exceptionel. Real estate and airline margins aren’t below zero in general.
On the other hand, why you selected Canadien Solar? Is that a representative company? I would prefer some average numbers of the solar industry.
The amazing growth rates must be financed. That is the main reason why the margin were higer than in industries with no or slower growth.
But I still like the article because it shows that there are economical reasons why solar has and will become a cheaper energy source. We will see how margins, growth and demand will affect each other.
- Anonymous
  
  I’ve updated by adding a list of operating margins from January 2011 — I’m not finding more recent compiled somewhere. And, as I note above, while 2008 was an exceptional year for those industries, 2011 is for solar.
  
  Have also added more info on operating margins for numerous industry leaders. I’m not aware of the overall average for the industry, sorry.
Nodisclose

I think you’re confusing operating margin and gross margin. That list is operating margin.
- Anonymous
  
  All margins above should be operating margins now (i think they were before, but removed Canadian Solar’s numbers from Alt Energy Stocks and input more useful info).