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The world economies are inching up out of the quagmire, and oil is at an 18 month high. This is going to have big implications on the solar industry. High oil prices will be an impetus for solar energy and other renewable energies to replace traditional energy.

As the readers of this blog are aware, I have been down on the solar industry for some time, primarily because of the excess capacity of the solar manufacturers and the fact that governments are broke and subsidies are lacking.

I am particularly negative about the amorphous silicon solar cell manufacturers. A tell-tale sign came this week when, after much bashing of Applied Materials (NASDAQ:AMAT) and its amorphous silicon program by Greentech Media, German thin-film solar company Sunfilm has filed for insolvency, affecting some 300 workers at its production lines in Grossroehrsdorf and Thalheim. Applied Materials had intended to capitalize on the rise of the thin-film segment with its SunFab production line, which Sunfilm uses at its production line in Grossroehrsdorf.

Sunfilm claims its business plans have been crippled by Germany’s plans to sharply reduce its solar feed-in tariff, as well as by the emerging dominance of US-based cadmium telluride thin-film maker First Solar (NASDAQ:FSLR).

With polysilicon so cheap, why would someone want to purchase amorphous silicon panels with efficiencies half that of polycrystalline panels, which can now be purchased from China for $1.65 per watt. Solar start-ups a few years ago that purchased turn-key equipment have no IP, and every other customer of the equipment suppliers became an instant competitor selling the same product using the same process and equipment. Companies need to differentiate themselves.

Inventory levels have risen significantly within the solar panel industry even though many marginal and smaller companies are exiting the market. Supply clearly still exceeds demand, and will continue to grow from an average of 71 days in 2008 to 90 days in 2009 (see chart below).

2008

2009

2010

Solar Consumption [MW]

5,625

5,963

7,572

Solar Capacity [MW]

12,899

17,397

23,366

Utilization

43.6%

34.3%

32.4%

Days Inventory

71

90

96

In 2009, our research shows that 5,963 MW of solar power was consumed, but plants worldwide had a capacity of 17,397 MW, bringing utilization levels to 34%. The additional capacity equated to lower profits for the solar panel manufacturers because revenues were expended to build or lease large facilities and purchase more equipment. Other than that, companies don’t have to make the product, and under ideal conditions, only make what they can sell.

Along with the worldwide Great Recession came a drop in demand for solar panels. For 2010, we forecast an increase in solar panel consumption to 7,572 MW. At the same time, new additional capacity will be brought on board, to levels of 23,366 MW. This will bring capacity utilization to 32.4% and reduce inventory to 96 days on average for all of 2010.

Solar power production will reach 16.1 GW in 2012, a compound annual growth rate [CAGR] of 40.7% between 2003 and 2012. according to our report Opportunities in the Solar Market for Crystalline and Thin Film Solar Cells".


Forecast of Solar Module Installation in Megawatts [MW]

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

CAGR

748

1195

1786

2521

3800

5625

5,963

7,572

11,131

16,141

40.7%


If solar is the place to be, material and chemical suppliers to solar manufacturers will see really positive results.

According to our recent analysis, detailed in our latest report “Markets and Strategies for Chemical and Material Suppliers in Niche Markets”, the solar sector was pegged at $2.5 billion in 2009, exclusive of Si wafers. By way of comparison, the chemical and material market for semiconductors was $5.1 billion, according to our reports “Chemicals and Materials for Sub-100 nm IC Manufacturing”, and “CMP Technology: Competition, Products, Markets”.

Companies supplying materials and chemicals include DuPont (NYSE:DD), Ferro (NYSE:FOE), and Air Products (NYSE:APD).

Fast forward to 2012, and the market for solar chemicals and materials will more than double, reaching $5.6 billion. In contrast, the market for the semiconductor sector will only grow to $8.2 billion.

The silicon substrate is another matter. In 2009, 22,282 metric tons of polysilicon were used to make semiconductor wafers while 82,653 metric tons were used to make solar wafers. The value of the silicon wafers for semiconductors was $6.7 billion. The value of silicon wafers for solar was $3.7 billion. A key U.S. supplier is MEMC (WFR).

Author's Disclosure: none

Source: Will Rising Oil Prices Make the Solar Industry Shine?