Bringing an end to eight consecutive years of growth, global revenue for Photovoltaic (PV) panels is expected to plunge by nearly 20 percent in 2009, as a massive oversupply causes prices to drop, according to iSuppli Corp. Worldwide revenue from shipments of panels will decline to $12.9 billion in 2009, down 19.1 percent from $15.9 billion in 2008. A drop of this magnitude has not occurred in the last 10 years and likely has not happened in the entire history of the solar industry.
The plunge in revenue will come despite an 9.6 percent 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 percent from 7.7GW in 2008. This means that supply will exceed demand by 168 percent in 2009, up from 102 percent in 2008. With the gap between supply and demand rising to such a level, pricing and market revenue will drop in 2009.
“Supply and demand were already unbalanced in 2008 with 100 percent more modules produced than installed,” said Dr. Henning Wicht, senior director and principal analyst, photovoltaics for iSuppli. “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 $2.50 to $2.75 per watt range by the end of 2009, down from the current level of $4.20 per watt. The average price for the year will be $3.10 per watt.”
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.
“Newer Chinese and Taiwanese suppliers will be hit particularly hard because they have invested heavily in both PV panel, cell and wafer production, areas where massive oversupply is expected,” Wicht said.
Solar panel suppliers that are fully integrated, i.e. those that produce their own raw materials and components, are expected to suffer less severe losses than their non-integrated competitors. Such integrated companies are better able to reduce margins over a large value chain and thus still remain competitive. Some, like First Solar and REC Solar Inc. may even be able to use their cost structure and capacity to generate profitable gross margins in 2009, even at rock-bottom pricing of $2.50 per watt.
Another company likely to weather the solar storm better than its competitors is SunPower, which has succeeded in creating a successful high-quality panel brand. SunPower, along with Sharp and Q-Cells, also have invested in installation firms, which should help them maintain higher-than-average pricing in 2009.
The sun also rises
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.
iSuppli predicts panel revenue will rebound in 2010 and rise to $17.8 billion, up 38.2 percent from 2009. Revenue will rise by another 11.1 percent in 2011 and by 29.1 percent in 2012.
In another ironic twist, the market in 2009 may achieve unexpected upside if pricing declines even more than expected. When panel prices drop to between $2.50 and $2.85 per Watt, which is close to the production cost of mainstream crystalline panels, then an additional 20 percent would be installed in 2009. This phenomenon of upside demand elasticity will be limited by the capacity of installers to ramp up. In this case, market revenue could rise by 15.7 percent in 2009.
About iSuppli Corporation
iSuppli Corporation is the global leader in technology value chain research and advisory services. iSuppli provides market intelligence services for the EMS, OEM and supplier communities in addition to servicing consumer electronics and media concerns. Services afforded by iSuppli range from electronic component research to device-specific application market forecasts, from teardown analysis to consumer electronics and from display device and systems research to multimedia content and services.