Last year – 2008 — was the biggest year in the history of solar, to many observers and industry insiders 2009, so far, seems like a brutal hangover from all that exuberance. It is so bad that some gleeful voices sniping from the sidelines are prognosticating the death of the solar energy sector itself; the pain is real — by some measures 2009 has been the worst year in the young solar Photovoltaic (PV) sectors history. In fact, global revenue for panels is expected to drop by nearly 20 percent in 2009, as oversupply causes prices to drop, according to iSuppli Corp. a globally respected market research firm with expertise in the semiconductor and solar PV sectors.
What we are seeing now is the result of the unprecedented ramp up of production capacity fueled in part by the entry of many new players into the solar PV production space drawn by the explosive growth rates of the last eight years. This pile on of new supply was bound to lead to a period of oversupply and in fact it has. Already in 2008 oversupply was an issue and it has only worsened in 2009.
This natural cyclical build up of capacity – outstripping demand (at the production and market pricing points) – has been made more severe and more painful in 2009 because it has been coupled with the after effects of the most severe financial crash in most people’s memory. Solar is a very capital intensive market – and it requires the capital up front. It is front loaded in terms of capital expenditures – recouping investments over the long term as it churns out electricity without needing to purchase fossil fuels. 2009 was the perfect storm… a very large over supply of modules hit the market beginning in 2008 and continuing in 2009, just as the financial crisis dried up venture and other capital funding markets.
Market Predictions
iSuppli predicts that the 2009 PV market will shrink to $12.9 billion down from $15.9 billion in 2008 as prices for modules collapse down to the $2.50 to $2.75 per watt range, from $4.20 per watt. It is this collapse in solar module prices that is driving the overall collapse in revenue and is literally killing off the weaker suppliers, with many of them on life support and in increasing danger of going under.
To put this in some perspective, even with the drop in revenue 2009 will see more GW of new added PV capacity than any year before it, including in 2008. In fact – iSuppli has projected that 4.2GW of additional capacity will be added in 2009, up from 3.8GW in 2008. This is a respectable increase of almost 10%.. In this same period, however, production capacity has increased by a whopping 62% to 11.1GW in 2009 up from 7.7 GW of production capacity in 2008. It does not take a rocket scientist to see how this has lead to a price collapse.
Dr. Henning Wicht, senior director and principal analyst, photovoltaics for iSuppli made the following observation, “Due to the political impetus to save fossil energy resources, both for carbon dioxide emissions and to prepare the future energy infrastructure, solar demand has been booming. Attractive margins and excellent long-term prospects have caused of flood of new competitors to enter the PV market, spurring oversupply throughout the value chain, from the essential raw material polysilicon to complete solar panels. Economies of scale matter in the solar industry. Aiming for the lowest production costs by using large-scale manufacturing, companies have expanded their production from year to year. But the race to larger manufacturing scale comes to an end when the production is not sold anymore.”
Who Is Being Hit Hardest and Whom Is Doing Better
The report goes on to state that almost all crystalline silicon suppliers will be hard hit by a sharp drop off in revenues through 2009. Most of them will post losses for the year. Newer entrants into the market that have invested heavily in new module and wafer production facilities will be especially hard hit as is to be expected as the large oversupply causes a price collapse for these commodities.
Fully integrated solar companies that are more able to reduce margins – spreading them out over a large value chain – will fare better.
Some companies, such as SunPower, that have established a good brand and a reputation for quality will do better. SunPower, Sharp and Q-Cell will also benefit from having invested in installation firms. This should help them maintain higher than average pricing in 2009.
Could 2009 Ironically Be Seen as the Year of the Rise of First Solar
Some solar PV manufacturing firms, most notably First Solar are not only riding this perfect storm out, but are in fact doing quite well out of it and rapidly increasing their market share.
First Solar may be on its way to grabbing for the first time the leadership mantle as the world’s largest manufacturer of solar PV modules eclipsing its more established rivals Suntech, Sharp Electronics and Q-Cells (each of which has between a 7 and 9% market share) iSuppli has predicted that First Solar will grab a 13% market share in 2009.
First Solar is advantaged by being a low cost producer and has achieved the milestone of beating the $1 per watt figure. For more on this story see our article: Cost to Produce Solar Cells Brought Below $1 per Watt
Outlook for 2010 and Beyond
In the second half of 2010, PV panel revenue is widely expected to return to the past pattern of strong growth as the demand picture improves, some weak players are eliminated and the drop in prices hits bottom. The current PV module oversupply glut will work its way out and as this happens profit margins will improve for the surviving players.
iSuppli predicts panel revenue will rebound in 2010 and rise to $17.8 billion, up 38.2 percent from 2009 and predicts that revenue will rise by another 11.1 percent in 2011 and by 29.1 percent in 2012.
