Unless you’ve been living under a rock, you’ve heard of that there is a huge oversupply of solar panels. To be exact, production capacity for photovoltaic (PV) solar panels this year stands at 59 GW, which is about double the 30 GW expected to sell, according to GTM Research. This is certainly a problem for solar module manufacturers—though there are positive effects of this situation. Such a great oversupply makes one wonder, how did this happen and what does it mean for the industry? (At least I’m pretty curious.)
It’s Europe’s Fault
Why is there such a huge oversupply? Well…subsidies in Europe encouraged solar module manufacturers, particularly Chinese companies, to expand and increase production. Demand for solar equipment remains strong in countries like Germany, the world’s largest market for solar.
But decreasing government subsidies have played their part, so demand may not be as strong as it could be. Also, concerns about Europe’s financial health don’t help. Goldman Sachs Analyst Amy Song also makes another great point:
Supplies will remain robust, as long as China continues to prop up its solar industry with cheap loans, low taxes and free land.
Even with increased demand in some areas, there are still more solar modules produced than will be used.
Plummeting Prices and Consolidating Companies
One positive effect of panel oversupply is that it has made solar more affordable for more poeple. Current solar module prices range from about 70 to 90 cents per megawatt, less than half of the price three years ago. GTM Research predicts this trend will continue, with solar module prices reaching 45 cents by 2015.
The downside to this is that cheap, overstocked panels means tough competition for solar module manufacturers—and things won’t get easier anytime soon. Module manufacturers will have to face rough market conditions for the next several years. GTM predicts about 21 GW of current solar module production will be “retired” by 2015. To do so will mean bankruptcy, consolidation and survival of the fittest.
Solar Stocks are Rising
Now that I brought you down a bit, I’ll be so kind as to share another positive angle to solar panel oversupply. Solar’s new-found affordability has increased its popularity around the globe. In some locations, the cost of solar power has neared grid parity and so has attracted a lot of investment. Japan’s also going to be jonesing for solar equipment because of its new renewable-energy incentive program. The U.S. solar market could also see a 75% growth this year, according to GTM Research and the Solar Energy Industries Association.
According to 2011 figures, investments in solar power accounted for 49% of the $209 billion global renewable energy industry, compared to the once dominant wind sector, which claimed 34%. Biopower, geothermal and small hydro investments made up the remaining 17%.
A recent Associated Press article reported that solar stocks rose after Citibank shared that global solar demand is increasing. Citibank analyst Timothy Arcuri says new demand is developing from countries such as Bahrain, Jordan, Chile, Ukraine, Serbia and Puerto Rico where solar is an option even without subsidies. GlobalData also reports that renewable energy is becoming increasingly important in developing nations across North Africa and Asia. As a readily available and abundant source, solar power is attracting the big money.
Emerging markets are aiming to grow their renewable energy production with an increased presence in the solar sector. UAE and Algeria are focusing their renewable energy efforts in solar power. India’s National Solar Mission will drive investment there. And the Malaysian government has set a renewable energy target of more than 3.14 GW by 2020, with solar power expected to account for one-third of the total capacity.
So some quick equations to recap:
Solar subsidies = increased solar module manufacturing
Phasing out subsidies + financial crisis in Europe + China’s cheap module production = panel oversupply
Panel oversupply = affordable prices = growing solar market = increased investments…Yay!
…………………..= tough competition among manufacturers
Yea, it’s not such a fun time to be a solar module manufacturer. My sympathies go out to those companies. But consolidation is necessary for leaders to emerge and carry the industry. This is part of any growing market, just as with car companies in the U.S. during the early 1900s. It’s a tough game, but necessary for the market’s maturity—and for the long-term success of solar.