While solar energy panel wattage has and will continue to grow at a rate of about 40% per year, I don't see a beautiful sunrise on the eastern horizon. There are 6 issues that I've outlined below:
- With oil at $60 a barrel, who cares about alternative energy? It's a short sighted view, but with the credit market crunch, who can get a loan to build solar plants anyway?
- The high price of oil in the past year was a catalyst for development in other alternative energy sources, not just solar. Advances in wind, geothermal, and hydropower energy are reducing the cost of wind power to a point at which it is becoming competitive with traditional energy sources. Nuclear power plants smaller than a garden shed and able to power 20,000 homes will be on sale within five years, say scientists at Los Alamos, the US government laboratory which developed the first atomic bomb. Among these alternative energy sources, hydropower and nuclear have the lowest carbon footprints (carbon dioxide produced during operation).
- Spain, a huge buyer of solar, reduced its incentive program to aid buyers in 2009. In California, a seemingly green state, Prop. 7 was defeated in the November election with a whopping 65% of the voters saying NO. One reason: electricity consumers would pay 10% above market rates for renewable power forever.
- The spot market price of 6-inch solar-grade wafers have fallen to $9 from a high of $12.50 in September. This bodes poorly for thin film makers and equipment suppliers. The thin film solar panel market and hence the equipment market grew strongly because of the shortage of polysilicon. Now that polysilicon is abundant and lower priced, why make thin film panels with 8% efficiency when you get 16+% efficiency with silicon wafers?
- Utilization is at only 56%. Our analysis of 103 solar manufacturers shows that panel production capacity in 2009 will be 15 GW whereas only 8.3 GW will be sold.
- The dollar has appreciated strongly against the euro by nearly 25%. Germany is the world's largest PV market. US solar companies have had to adjust selling prices to generate sales, reducing profit margins.
The increased production capacity of polysilicon will reduce demand for amorphous silicon thin films with efficiencies of less than 8%. This will impact equipment companies such as Applied Materials (AMAT) in the US and Oerlikon (OERLF.PK) in Europe. It will also affect the gas companies that sell chemicals for deposition of thin film silicon, such as Air Products (APD) and Air Liquide (AIQUY.PK). Tokyo Electron Ltd. (TEL) is entering the market at too late a date to compete. These equipment vendors have been working on developing micromorph structures to get higher efficiencies, but that is a few years away. They could focus on CdTe like First Solar (FSLR), but there is limited supplies of the raw materials. They could work on CIGS, but vacuum techniques are much more expensive than ink-jet printing.
Stock position: None.
