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The solar energy market is at the leading edge of a massive correction, but lower prices will prime the market for recovery and growth, according to Lux Research.

In a new report “Finding the Solar Market’s Nadir,” Lux projects that the available capacity of solar cells and modules will measure twice the demand in 2009, while the overall market could shrink from last year’s $36 billion over 5.5 GW to $29 billion over 5.3 GW this year.

While oversupply in the solar market has been looming for some time, the correction has been more aggressive due to the economic crisis,” according to Ted Sullivan, Senior Analyst at Lux Research, and the report’s lead author. “In order to reduce inventories, suppliers will have slashed their cell and module prices by 25% or more.

While this spells a shakeout in the near term, the price reductions will push solar closer to grid parity and prime the market for recovery and growth.

Lux’s report finds that:

  • Cell and module capacity will overshoot demand by twofold in 2009 to reach 10.4 GW, precipitating a shakeout that will eliminate all but the top players.
  • Silicon availability will become increasingly irrelevant as module players seek to cut inventory. But the resulting price reductions will flatten out by 2011, bringing solar closer to grid parity and enabling the market to grow to $70 billion across 18.5 GW in 2013.
  • As the most readily financeable technology, crystalline silicon will continue to dominate the market this year. But competing thin-film technologies, including amorphous silicon and CdTe, will continue to grow aggressively, and CIGS also stands to gain overall despite expectations of widespread company failure.
  • As the Spanish market dwindles, Germany will again become Europe’s buyer of last resort. The U.S. market growth, meanwhile, will depend heavily on the government stimulus package just signed.
Source: Solar Energy Market Set for Shakeout Before Recovering