Thursday, December 18, 2008

Clouds over the Solar Power Industry

Clouds over the Solar Power Industry

If the recent five-year boom in solar energy marked the birth of a global industry, the next half-decade should be its coming of age. But like most adolescents, solar is experiencing growing pains. The economic crisis has weakened demand for everything from polysilicon to rooftop panels, just as manufacturers have spent billions expanding production. The overcapacity has caused prices to plummet and left the industry financially exposed. A number of companies—especially startups—may not survive a shakeout that could last 18 months or longer.

The causes of the downturn are complex and interrelated. As the price of oil plunged from its peak last summer, solar and other forms of renewable energy became relatively less cost-competitive—dampening demand from industrial, commercial, and residential customers. At the same time, the credit squeeze has made it harder for customers, whether power companies or energy-conscious homeowners, to finance solar projects. Some also are holding back in anticipation that solar equipment prices will fall even further.

Consider the story of Peng Xiaofeng, chairman of China's LDK Solar (LDK), a maker of solar wafers. During a recent trip to Europe, he toured major solar projects that have been, in some cases, on the drawing boards for two to three years. "They're all delayed," Peng says."I don't think they'll be ready [even] in 2010 or 2011."

Trimmed Subsidies

The industry impact has been swift. After increasing at roughly 50% annually every year since 2004, the overall market for new solar installations could slow to just 15% growth in 2009, according to analyst estimates. Retail prices for photovoltaic (PV) panels may fall by as much as one-third in 2009 because of a continued glut. Adding to the gloom: Spain and Germany, the world's top two markets for PV panels, have recently trimmed the subsidies they offered to jump-start local industries. "We're moving from a seller's to a buyer's market," says Adel El Gammal, secretary general of the European Photovoltaic Industry Assn. (EPIA).

Shares in major solar players reflect the brutal turn of events. The Claymore/MAC Global Solar Energy Index (TAN) has dropped 71% since its launch on Apr. 15 this year, and some leading companies have fared even worse. China's SunTech (STP)—founded in 2001 and now the world's largest manufacturer by revenue of PV cells, the basic building-block of panels that convert sunlight to electricity—has seen its stock plunge almost 90% since the start of 2008. Shares in Germany's Q-Cells (QCEG.DE), the global leader in PV cells by volume, have fallen more than 80% over the same period.

Despite this carnage, industry observers remain bullish on solar's longer-term prospects. As the price of panels drops in the next 12 to 18 months, solar power will become more attractive compared with other forms of energy. Consolidation among companies in the industry—especially as weaker players drop out or get acquired—also should lower costs and improve profitability.

All told, figures energy consultancy Navigants (NCI), the total amount of electricity produced worldwide via solar should soar from 3 gigawatts this year to 15 GW in 2012, the equivalent of 19 coal-fired power plants. Beyond the immediate period, says the EPIA's El Gammal, "the fundamentals are intact. There's no option but a very fast growth rate."

  • Will Demand for Solar Homes Pick Up?
  • No comments: