(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON Jan 9 A glut in solar power will
drive yet more bankruptcies this year among panel producers
after a brutal 2011, but falls in equipment prices will slow and
leading firms may recover as spare capacity goes to the wall.
At the heart of solar power problems is a chronic
over-capacity now almost double demand.
As growth has slowed the sector is losing its lustre:
initial industry and analyst estimates suggest the market rose
by less than 5 percent last year, compared with a more than
doubling in 2010.
Such pessimistic estimates may yet be usurped by a surprise
late surge in world leading market Germany, whose industry body
on Saturday reported demand last year was about a quarter higher
But a sharp slowdown in global demand growth is clear and
the sector outlook will depend on new markets, in a shift away
from the core western players, Germany, France, Spain, Italy,
California and the Czech Republic, as these trim support.
Emerging markets in North America, China and Australia all
grew in 2011, while demand exploded twenty-fold in India (to 400
megawatts), according to Goldman Sachs analysis.
India has a target to install as much solar power
cumulatively by 2022 as the whole world achieved last year.
The global sector may still earn subsidies but on a smaller
scale as prices fall and demand shifts to sunnier countries
where the economics stack up better than Germany.
Over-capacity will sow the seeds of a future revival, as an
inventory glut tips equipment prices in a downward and rather
destructive spiral towards competitiveness with fossil fuels,
leaving a trail of failed companies in its wake.
Early industry forecasts suggest global solar installations
were almost flat in 2011, at about 20-21 gigawatts (GW) from
about 19 GW in 2010, a sharp slowdown in percentage terms
compared with previous years.
Such demand is still impressive, however, and belies the
small contribution of solar to world power generation at less
than 1 percent of global capacity.
Twenty gigawatts represents about 10 percent of added global
power generation last year, underlining the pace of a marginal
shift towards renewable energy.
Slowing demand growth, nevertheless, has added to a glut
across the sector, where capacity will be twice utilisation this
year according to Goldman Sachs:
"A significant portion of existing capacity is uneconomic
and will likely be shut down," its analysts said in a clean
energy report published last month.
Stalled demand growth sent prices for solar panels, or
modules, crashing 40 percent in 2011, crushing margins, halving
share returns and driving bankruptices, including most
notoriously that of U.S.-based Solyndra, after it had won
generous U.S. loan guarantees.
A bright spot for 2012 will be a much slower price slide, at
about 5 percent, as uncompetitive companies and capacity go to
Module makers are guarded over sale prices after declines
ushered in more brutal competition.
But leading Chinese manufacturer Yingli said it was
now selling at an average of $0.97 per watt, and saw only
moderate falls to about $0.90 by year-end 2012. A typical
roof-top installation may have a capacity of about 2,500 watts.
By contrast Yingli prices fell 40 percent last year, from
$1.70-$1.75 per watt in January 2011.
"We are seeing a certain level of pricing stabilization,"
said Matthew Li, associate director of investor relations.
A longed-for "grid parity" where solar can match gas, coal
and nuclear without fickle government support is still a
long-term project outside niche markets, however, not least
because continuing credit market tightness hinders a technology
dependent on upfront capital.
Leading U.S. producer First Solar says it's now
focused on "utility-scale" projects in unsubsidised markets,
heralding a new strategy after the departure of its former chief
The goal depends among other things on competitive project
finance, where the company's strong balance sheet helps.
First Solar sees a slow trajectory of cost cuts in 2012 but
accelerating gains in efficiency to convert sunlight into
It doesn't comment on module prices, but said it was
targeting total (so-called levelised) costs of electricity
(LCOE) of $0.10-0.14 per kilowatt hour in the long-term.
That's compared with LCOE estimates for the cheapest gas
plants now of around $0.10 per KWh or less.
First Solar says it can already in 2012 generate solar power
at $0.12-0.15 per KWh in Saudi Arabia, as an example of an ideal
location with the most sunlight.
($1 = 0.6460 British pounds)
(Reporting by Gerard Wynn; editing by Keiron Henderson)