Falling Module ASPs Could Impact Solar Companies

Jefferies is out with an interesting call, saying they believe that global solar module ASP is set to decline by 15% in 2008E due to the rising percentage of sales to mature and lower priced solar markets. They expect that solar module supply will expand from 2.5 GW in 2007E to 4.6 GW in 2008E. Most of this increased supply is driven by new silicon capacity coming on line in the coming months.

The firm expects that the leading solar markets of Germany, Japan and (to a growing extent) the USA will have to absorb a significant portion of this new supply. These markets already have the lowest module ASPs and are the most price sensitive which will force further price reductions in order to stimulate demand.

Jeffco expects that the pain of this price erosion will be shared unequally throughout the solar value chain. Their base assumption is that a 15% module price decline will lead to a 10% decline in cell prices and a 5% decline in wafer prices while silicon price will be unaffected. Margins will be most affected in the module and cell production segments.

Notablecalls: The consensus estimate for solar module ASP decline for 2008 is around -5%, which certainly makes Jeffco's call an out-of-consensus one. I'm not sure if this call is an outright actionable one, but would not be surprised to see weakness is many of the high-flying solar names in the near term.

Comments

[Buffettz]

This is at odds with the guidence from both Q-Cells and SunTech for 2008 given in their recent conference calls. The both seem to have a strong 2008 order book at or above the same prices as 2007. I think they are closer to the market than this analyst.

[Lee Carlson]

I have to agree w/ Buffettz... Oil and other forms are not getting any cheaper, and wind farms don't work in many places, especially where winds are not averaging above 11-12 MPH. Florida , for example, really doesn't have much wind, except during hurricanes, so Solar is a natural for that state. All forms of energy, nuclear, Hydro, wind, Ocean currents, etc. are not consistant, but the Sun is always shining,..maybe not as much on cloudy days, but, by and large, Solar has to become a very big player in the field of energy !
LC