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By Ucilia Wang

SAN FRANCISCO -- Worldwide demand for solar energy equipment is set to drop about 17 percent in 2009, the first time the market has ever experienced a drop in demand, an analyst said Thursday.

Solar cell and panel makers are likely to sell about 4.6 gigawatts this year, compared with about 5.5 gigawatts in 2008, said Paula Mints, principal analyst at Navigant Consulting, at the Solar Energy Investment and Finance Summit in San Francisco.

Germany has been a bright spot in an otherwise dismal global market this year. With a still lucrative feed-in tariff that guarantees high solar electricity pricing, the country will account for about 56 percent of the demand in 2009, Mints said.

"We've vastly oversold in Germany, and they are not too happy about that," Mints said, adding that it's not healthy to have one country accounting for more than half of the global demand.

The German government had expected to see 1.5 gigawatts of new solar installations between Sept. 30, 2008 and Sept. 30, 2009. The country actually saw about 2.34 gigawatts during that time. The political coalition that won the federal election in September may cut the subsidies to rein in growth next year (see Germany Installs 2.34GW, FIT to Decline 9-11%).

The country has historically been a top market, but it has become a particularly attractive target for manufacturers and developers because they couldn't count on another year of explosive growth in Spain.

Spain, which installed more than 2 gigawatts of solar in 2008, or about 44 percent of the world demand, capped its solar incentive program at 500 megawatts in 2009.

Solar companies and project developers have expressed mixed views about what 2010 will bring. Sino-American Silicon Products in Taiwan told Reuters that its sales should increase about 30 percent in 2010. Applied Materials, which sells solar factory equipment, doesn't see clear signs that demand will rise significantly next year (see Applied Materials: Plans for Layoffs, Cautious Outlook on Solar).

Mints cautioned against overly optimistic forecast, noting that political leaders in Germany haven't said specifically how they might modify the incentive program. Solar companies have pinned their hopes on the United States as the next big market, but growth remains at a slow pace.

Global demand for cells/panels could be flat or grow by 10 percent in 2010, Mints said.

The supply still far exceeds demand, and that won't likely to change any time soon. In general, manufacturers are moving ahead with factory expansion plans despite the recession, particularly those who are betting that the U.S. market will grow quickly. Meanwhile, some companies have used only half of their factory capacities this year.

Companies that have announced plans to build new factories in the U.S. include SunPower (SPWRA), Suntech Power (NYSE:STP), Clairvoyant Energy, Suniva. The Solar Energy Industries Association is now lobbying federal lawmakers for more tax incentives for manufacturers (see Solar Industry Lobbies for Manufacturing Tax Credit, Cash Grant).

Manufacturers who began planning for new factories before the financial market fell onto hard times last fall have since opened their factories. Those companies include SolarWorld (OTCPK:SRWRF), Schott Solar and Sanyo (OTC:SANYY).

"There isn't going to be much of a chance of an undersupply in the next few years," said Nathaniel Bullard, solar associate with New Energy Finance, at the conference.

Some manufacturers have already entered the power plant development market to create sales for their products. First Solar (NASDAQ:FSLR) is a good recent example. The Tempe, Ariz.-based company purchased yet-to-be developed projects from OptiSolar for $400 million earlier this year to create demand for its solar panels in the U.S. market.

Source: Solar Market Declines for First Time Ever