Sunday, April 19, 2009

A Stronger, More Efficient Photovoltaic Industry

Semiconductor International, April 17, 2009

The economic turmoil of the PV market in 2009 could actually turn into a more mature and orderly supply chain for the worldwide solar industry when growth returns, iSuppli predicts.

What does not kill me makes me stronger. Although 19th century German philosopher Nietzsche probably did not have our global photovoltaics (PV) market in mind when he penned those words, they are nonetheless applicable, according to the latest report from iSuppli Corp. (El Segundo, Calif.). The economic turmoil of the PV market in 2009 could actually turn into a more mature and orderly supply chain for the worldwide solar industry when growth returns, the market researcher said today.

Worldwide installations of PV systems are expected to drop 32% this year, down to 3.5 GW from 5.2 GW in 2008. With the average price per solar watt declining by 12% in 2009, global revenue generated by PV system installations will plunge 40.2% -- from $30.5B in 2008 to $18.2B in 2009.

“For years, the PV industry enjoyed vigorous double-digit annual growth in the 40% range, spurring a Wild West mentality among market participants,” said Henning Wicht, senior director and principal analyst for iSuppli. “An ever-rising flood of market participants attempted to capitalize on this growth, all hoping to claim a 10% share of market revenue by throwing more production capacity into the market. This overproduction situation, along with a decline in demand, will lead to the sharp, unprecedented fall in PV industry revenue in 2009.”

However, the 2009 PV downturn, like the PC shakeout of the mid-1980s, is likely to change the current market paradigm, cutting down on industry excesses and leading to a more mature market in 2010 and beyond, according to iSuppli’s analysis. “The number of new suppliers entering and competing in the PV supply chain will decelerate and the rate of new capacity additions will slow, bringing a better balance between supply and demand in the future,” Wicht said.

The Spain effect

Perhaps the most significant factor in PV’s slowdown this year was the government-imposed cap on feed-in tariffs in Spain, leading directly to a sharp decline in expected PV installations. Spain accounted for 50% of the world’s PV installations in 2008, caused in part by an artificial demand surge as Spain’s government prepared to lower the cap for feed-in tariffs to 500 MW. This set a well-defined deadline for growth in the Spanish market in 2009 and 2010.

Although the Spanish situation is spurring a surge in excess inventory and falling prices for solar cells and systems, this will not stimulate sufficient demand to compensate for the lost sales in 2009. Even new and upgraded incentives for solar installations from the United States and Japan — and attractive investment conditions in France, Italy, the Czech Republic, Greece and other countries — cannot compensate for the fall-out in Spain this year, iSuppli reported. The Spanish impact will continue into 2010, restraining global revenue growth to 29.2% for the year.

Of course, the PV market has not been immune to the economic woes and credit crunch faced on a global scale. “Power production investors and commercial entities are at least partially dependent upon debt financing,” Wicht noted. “Starting in the first quarter of 2009, many large and medium solar-installation projects went on hold as they awaited a thaw in bank credit flows.”

The market turnaround

The PV market is expected to turn back around after 2010, when the fundamental drivers of PV demand will reassert themselves, iSuppli said. Revenues are forecast to increase 57.8% in 2011, with similar growth rates in 2012 and 2013.

“PV remains attractive because it continues to demonstrate a favorable return on investment,” Wicht said. “Furthermore, government incentives in the form of above-market feed-in tariffs and tax breaks will remain in place, making the ROI equations viable through 2012. Cost reductions will lead to attractive ROI and payback periods even without governmental help after 2012.”

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