Are Clouds Over the Solar Industry Dissipating?

On November 18, 2008, I wrote an article on Seeking Alpha entitled “Six Reasons for Cloudy Skies on the Solar Energy Industry”. All six issues presented cast a partial eclipse of the solar market. Subsequently, a week later I forecast that the solar market would drop from 40% growth to 25% growth in 2009. At that time thoughts of a downturn in the luminous market were considered a heresy and several of my readers’ comments to the article reflected the attitude of the time – up, up, up!

Six months have gone by and it's time to revisit these issues to see if anything has changed from a fundamental standpoint. The original issues presented are repeated, along with an update on the current environment:

1. 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?

Oil is now $70 a barrel and rising, which to me suggests that people will start rethinking alternative energy. But the second point about the credit market crunch remains. Who can get a loan to build a solar plant anyway?

2. 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).

Other alternative energy programs have been affected by the downturn. Most serious was the recent announcement by President Obama that he was terminating the Yucca Mountain nuclear waste depository. This decision gives nuclear power an uncertain future, which may be a benefit to the solar energy.

3. 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.

Spain has not resumed its incentive program and will subsidize just 500 megawatts of solar projects this year, down sharply from 2,400 megawatts in 2008. Mainland China’s stimulus and now Taiwan’s incentives (Ie suspect money coming in from Mainland China) will counter the downturn in Spain and Germany.

4. 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?

The spot market price of 6-inch solar-grade wafers has now dropped to below US$3.50 per unit. Winners are the environment and polysilicon solar manufacturers. Losers are the thin film solar manufacturers unless they can achieve a way of increasing efficiency, such as a thin film nano coating being developed by SolarPA in Pennsylvania.

5. Utilization is at only 56%. My analysis of 103 solar manufacturers shows that panel production capacity in 2009 will be 15 GW whereas only 8.3 GW will be sold.

Utilization has not worsened as solar companies are struggling to sell products and new capacity has been put on hold, particularly in Asia. While polysilicon prices have dropped, solar cell manufacturers are also experiencing a 25% drop in revenues in 2009 from last year. The drop in solar cell prices to below $1.50 per watt is not increasing demand, which I forecast last year.

6. 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.

On November 18, 2008, 1 Euro was equal to US$1.269. On June 15, 2009, 1 Euro was equal to US$1.385, an appreciation in the Euro of 9%. Large, but insignificant in light of the overall economic issues currently facing Europe.

In the past six months we have seen somewhat of a stabilization in the worldwide economies and the share prices of solar companies ramp in recent weeks. In fundamental terms, while there have been changes in these 6 issues, there are no overriding factors to change my forecast of a downturn in the solar industry through 2009 with demand resuming in 2010 back to a 40% growth I projected last year.

Comments

[Ferdinand E...:]

I hope that those clouds are not dissipating. We will probably need a lot more solar energy in order to solve the energy puzzle, but not as much as some people unfortunately think, and I hope that our political masters are clear on that point..

Jun 17 08:35 AM

[jbde:]

Yes - demand will return as ASP's stabilize.
Spot prices are just that - SPOT - suspect price others tout
Cannot buy in volume at spot prices.
When demand comes back and 'spot' prices jump, will that be quoted as indication of wildly high selling prices again?

Low for solar stocks may well have been seen - 'smart' money starts accummulating positions early - that seems to be now. Shorts got squeezed and 'real' buyers should be back in in force on next up move. LDK for example. also JASO, CSIQ.

LDK going into power projects with Q-Cells is certainly an interesting move - create your own demand! Buy around 10 for easy 50% move to above recent highs.

Jun 17 10:27 AM

[User 360099:]

Be carefull with your point 6 : to day's Euro is stronger by 9% against the dollar . This is an advantage for the manufacturers and the Euro buyers.
I am not pessimistic , the clouds passed already.

Jun 17 01:06 PM

[bob will:]

Cheap Chinese-made bare bones electric commuter automobiles will be the world's largest solar market--but using LOW efficiency spray-on-like-paint solar "panels". True functionality only requires slow solar recharging while the car is parked at work for eight hours. For longer trips, a tiny gasoline engine could contiuously charge the batteries. China can easily produce several hundred million basic electric cars. Chinese slave labor at 25 cents per hour (USA dollars) will bankrupt USA and European companies in all types of solar.

Jun 30 12:35 AM