Sale of Arco Unit Casts Shadow on Future of Solar Energy Ventures
After 12 years and $200 million, Atlantic Richfield Co. is giving up on its solar energy venture much as it might give up on a dry hole after unsuccessfully drilling for oil.
The Los Angeles oil and gas giant last month acknowledged publicly that it wanted to sell its money-losing Arco Solar subsidiary in Camarillo. Once projected by its executives to reach $500 million a year in sales by 1995, the subsidiary is so insignificant today that its $30 million in annual revenue is matched every 15 hours by its parent company.
Arco is saying little about its decision but said the solar unit, which makes photovoltaic cells that turn sunlight into electricity, no longer fits in the company’s plans. Since 1985, the $18-billion-a-year company has aggressively pruned away businesses unrelated to its oil, gas, chemical and coal operations.
In addition, solar energy’s prospects are uncertain. A barrel of oil sells for less than $19 today, a far cry from the $50 and more that was widely projected when companies such as Arco plunged into solar ventures more than a decade ago in search of alternative energy sources. Former Arco Solar executives estimate that the subsidiary in recent years has lost as much as $15 million annually.
“Solar is a valid and interesting concept, and you don’t walk away from something like that lightly. But I think with the way things developed, they are making the right move,” retired Arco Chairman Robert O. Anderson said last week.
Charles R. Imbrecht, chairman of the California Energy Commission, said he believes that Arco Solar will be bought by a group led by James H. Caldwell Jr., a former Arco Solar president who is trying to line up investors. Imbrecht added that Arco may even retain a stake in Arco Solar of about 25% as an investment and that the unit is likely to retain Arco’s name to help with marketing.
Arco’s failure to make its solar venture work shows once again that deep pockets don’t necessarily mean a big corporation can make a small entrepreneurial venture pay off.
“When a large company tries to get into what essentially is a small business, there are just basic differences that I think inherently create some confusion,” Anderson said.
The solar company was founded in 1975 by engineer J. W. (Bill) Yerkes and a group of investors that included his mother and an aunt. He sold it to Arco two years later for about $300,000.
During most of the time that Arco ran it, Arco Solar was unstable and inefficient. Its corporate headquarters shifted five times. By 1983, the operation employed nearly 700 people with only $10 million in sales. Six men headed Arco Solar in the 12 years since Arco bought it--three in the first three years.
“The company was screwed up within two years after they bought it,” said Yerkes, who served as one of Arco Solar’s presidents and now is an executive with Boeing Co. “We went from making cells for $10 a watt and selling them for $15 to making cells for $32 a watt and selling them for $5.”
Science writer and author Sandra Blakeslee, who worked in public affairs for Arco Solar in the early 1980s, said middle managers were routinely moved in and out of jobs. One marketing executive, she recalled, had more than a dozen business cards pinned to his bulletin board, each showing different titles he once held at Arco Solar.
“Things were always off balance in terms of knowing what was going to happen next. You’d find out every few months you had a new boss. There was constant reshuffling,” Blakeslee said.
Became a Leader
It was Anderson who moved Arco into solar energy in the wake of the 1970s oil shortages. President Jimmy Carter encouraged oil companies then to develop alternative energy sources, equating the effort with a wartime fight.
For a time things looked promising. Arco Solar became the world’s leader in developing and selling photovoltaic cells, which are thin silicon wafers. The company today has about 20% of the $150-million-a-year worldwide market for photovoltaic cells, the largest share of the market, according to Strategies Unlimited, a high-technology market research firm in Mountain View, Calif.
Arco executives tirelessly promoted the operation. They once parked a solar-equipped recreational vehicle near the steps of the Capitol in Washington to get the attention of the media and members of Congress, who made calls using a solar-powered telephone. Even as plunging energy prices caused other oil companies to scrap solar projects, Arco stood by its unit and was lauded as model corporate citizen that spurned short-term profit for long-term investments.
Arco Solar’s prospective sale has raised concerns that without a major oil company and its deep pockets to support solar research, it will hinder critical developments in the solar field.
“A company like Arco Solar would have a tough time surviving as a small operation,” said Robert Steele, a senior staff associate with Strategies Unlimited.
But Arco Solar President Charles F. Gay disagrees. He said new markets, such as using solar to charge batteries in cars and recreational vehicles, are opening for Arco Solar and that the company is making progress in cutting manufacturing costs.
“I’m not worried about not having a sugar daddy to see us through. We are at the stage where we have developed some good markets for our products,” Gay said.
Fears about the Arco Solar sale contrast sharply with fears by many in the early 1970s that oil companies would try to quash solar development because it threatened the oil business. Consultants and executives believe that Arco Solar’s prospective sale is a clear sign that solar may not develop as a significant commercial business the rest of the century.
The market is small. Solar has become used largely in remote locations such as microwave transmitting stations, call boxes, navigational buoys or in remote areas in underdeveloped nations.
Tax Credits Expired
Domestically, most government-funded solar projects have ended. Nearly all of the tax credits created by the Carter Administration to encourage solar expired in 1985.
And the technology remains expensive for most consumers. According to distributors of solar energy systems, converting a three-bedroom home in Southern California to solar energy can cost about $20,000. Homeowners might not recover their costs in lower power bills for 15 to 20 years.
Anderson adds that solar is limited because it requires so much space for panels. To generate as much electricity as an average power plant would require placing panels over several square miles, he said.
But prospective Arco Solar owner Caldwell remains upbeat about the promise of solar technology. “If I couldn’t convince people that this is a good investment and that they couldn’t get a return on their investment, I wouldn’t be doing what I’m doing,” Caldwell said.
People familiar with the sale add that likely investors will include domestic utilities. Although foreign companies are unlikely to buy Arco Solar outright, they said, some may invest. Arco Solar has a joint venture agreement with Showa Shell in Japan.
Caldwell and others who are optimistic about Arco Solar’s future are counting on development of its “thin film” technology. Arco Solar now makes photovoltaic cells by growing crystalline silicon modules in a lab, which are cut like a chunk of salami into wafers as thick as three $1 bills. Those wafers are sliced into four-inch-wide squares with rounded corners and mounted onto panels. Sunlight is absorbed and converted into electrical charges that are sent through thin wires.
The new thin-film technology involves coating glass with materials, a procedure that is much cheaper because it involves lower costs for materials and labor. One method involves coating the glass with a silicon and hydrogen mixture. Arco Solar believes that a semiconductor material with copper will be a highly efficient coating.
Gay, who has worked for Arco Solar for 11 years, believes that because of these developments, Arco Solar is only about two years away from profitability. “We are are ready to leave home and go out into the world and earn our way,” he said.
