Solar revenue to shrink as price drops outpace growth

A prototype sun tracking solar panel made by Concentrix Solar collects energy from its location at the University of California San Diego February 10, 2011.

LOS ANGELES (Reuters) - Solar industry revenue will shrink before it begins to rise again because dramatic price declines on solar panels will outweigh corresponding volume increases, according to a new report by Lux Research.

Revenue in the solar power industry is expected to slip to $56.9 billion in 2012 from $64.4 billion in 2010, Lux said in a report released on Thursday.

It will recover to $65.4 billion by 2016, the firm said.

Cuts to government incentives for solar power in top markets like Italy and Germany have led to an oversupply of solar panels in the market, and prices on panels have dropped sharply this year. As the price on the subsidy-dependent clean power source falls, however, demand is expected to grow substantially.

According to Lux, solar industry volume is expected to grow15.5 percent a year, to 37.5 gigawatts in 2016 from 15.8 GW in 2010.

Generous government subsidies in Germany and other European nations have fueled the industry's rapid growth in recent years. In the next five years, however, cutbacks in those incentives will pave the way for other markets -- including the United States, China, Japan and India -- to emerge as big players in solar.

"Demand will shift to Asia and North America and the solar market will grow in terms of megawatts installed, but revenues will stay flat as price declines outpace volume growth," Lux said.

(Reporting by Nichola Groom; editing by Gunna Dickson)