Oversupply of Photovoltaic Modules Weakens Solar Market, Says iSuppli

Dec 25, 2008 08:00 Nikkei Electronics Asia

Bringing an end to eight consecutive years of growth, global revenue for photovoltaic (PV) panels is expected to fall nearly 20% in 2009, as a massive oversupply causes prices to drop, according to iSuppli Corp.

Worldwide revenue from shipments of panels is expected to decline to US$12.9 billion in 2009, down 19.1% from US$15.9 billion in 2008. The research firms said a drop of this magnitude has not occurred in the last 10 years and likely has never happened in the entire history of the solar industry.

iSuppli said the plunge in revenue will come despite an 9.6% rise in gigawatt (GW) installations of solar panels in 2009, growing to 4.2GW for the year, up from 3.8GW in 2008. However, 11.1GW worth of panels will be produced in 2009, up 62% from 7.7GW in 2008. This means that supply will exceed demand by 168% in 2009, up from 102% in 2008. With the gap between supply and demand rising to such a level, pricing and market revenue will drop in 2009.

Dr Henning Wicht, senior director and principal analyst, photovoltaics for iSuppli, said the supply and demand were already unbalanced in 2008 with 100% more modules produced than installed. "The short-term boost in demand from Spain and Germany kept installation companies busy and solar orders and module prices high. But this boom is over. In 2009, average prices for panels for new installation contracts will collapse to the US$2.5 to US$2.75 per watt range by the end of 2009, down from the current level of US$4.2 per watt. The average price for the year will be US$3.1 per watt."

According to iSuppli, ironically, the oversupply and resulting pricing and revenue declines are the consequence of the overwhelming success of the solar industry.

"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," Wicht observed. "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.

Virtually all crystalline silicon solar cell and panel suppliers are expected to feel the impact of the revenue plunge. These companies will suffer significant declines in revenue in 2009, iSuppli predicts. Most will see their inventories balloon, and virtually all of them will post losses and negative cash flow for the year.

The research firm believes that in the second half of 2010, PV panel revenue is set to return to strong growth as the demand picture improves, some weak players are eliminated and price declines slow. By this time, demand will be fueled by additional installation capacity, improved rates of internal rates of return due to low panel prices and renewed and extended government incentives to combat the economic slowdown.

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