SAN FRANCISCO (Reuters) - Demand for solar panels still exceeds supply despite a global financial crisis, allowing solar power company Suntech Power Holdings Co Ltd to keep 2009 price declines in the range it had previously forecast.
Average selling prices for the Chinese company’s solar modules are still expected to decline between 8 and 10 percent next year, Steven Chan, Suntech’s chief strategy officer, said in an interview at the Reuters Global Environment Summit on Wednesday.
“With the financial crisis, the high demand relative to supply has sort of shrunk a bit,” Chan said. “But we still feel like we are in a situation where there still is more demand than supply of modules.”
Chan’s comments came a day after Goldman Sachs said price drops on solar panels would likely be more dramatic than expected due to tightening credit and a pullback in government solar subsidies in key markets such as Germany and Spain.
Demand for solar power has soared in recent years as increased concerns about climate change has prompted governments to subsidize solar products to make green electricity competitive with that from dirtier sources such as coal and fossil fuels.
This year, however, concerns that a weakening global economy will hamper solar demand and send prices on solar panels tumbling next year have hammered shares of solar companies. Those concerns have intensified amid a global financial crisis, and Suntech shares have slid more than 30 percent in October alone. They were down 2.16 percent, or 54 cents, at $24.47 on the New York Stock Exchange early Wednesday afternoon.
Within the next two months, Chan said, the company should have about 700 megawatts (MW) of its planned 2009 capacity contracted. Suntech has committed to shipping a gigawatt of solar modules next year.
Suntech is expanding aggressively in the United States, which to the industry’s relief last week extended subsidies for solar power by 8 years. The existing tax breaks would have expired at the end of this year.
Suntech hopes to capture a piece of the growing U.S. market for utility-scale solar projects through its recent acquisition of EI Solutions, a California-based commercial solar system integration company.
While Wall Street has raised concerns that the credit crisis will raise borrowing costs for investors in those large-scale solar projects, Chan said lower prices on solar modules should help investors generate the high returns they demand.
“If we can lower our cost of the systems and the modules because our own internal costs are coming down, then we can still sell a competitive offering ... and they can capture the slightly higher return that they want because of the financial crisis,” Chan said.
For utility-scale projects going online in 2010 and beyond, Suntech should be able to capture margins of at least 20 percent, Chan said. Margins in the rest of the company should be higher than and continue to expand that as the company lowers costs by 50 percent in the next three to five years.
Technology advancements and lower costs for its main raw material, polysilicon, will help offset lower selling prices.
“Next year, silicon is going to come down by at least 20 percent relative to this year and that’s significant because silicon accounts for 75 percent of our cost of goods sold,” Chan said.
Solar grade silicon has been in short supply due to the sharp increase in demand for solar power, but prices are expected to retreat industrywide next year as new manufacturing plants come online.
To help mitigate fluctuations in the price of the dollar, Chan said at least a third of Suntech’s 2009 currency exposure is hedged.
To support its growth in the United States, Chan said Suntech would likely build a manufacturing facility in that market within three years. A plant in Europe, where Suntech currently sells most of its products, could be built within the next two years, he said.
(For summit blog: summitnotebook.reuters.com/)
(Additional reporting by Peter Henderson in San Francisco and Matt Daily in New York)
Reporting by Nichola Groom; editing by Gerald E. McCormick, Dave Zimmerman, Richard Chang