It’s no secret that PV module prices have been on a steady downward track. But the reasons behind the drop — as well as what it means for the solar industry — are not as widely understood.
Shayle Kann, managing director, Solar, for GTM Research/Greentech Media, explains the price reductions the market has seen this year have been driven by two markets slowing down — Italy and Germany.
“The first half of the year in both of those markets was much lower than expected in terms of demand, and those two markets together comprised almost two-thirds of the global market last year,” Kann says. “You take the two biggest markets and you [have them fall] way short of expectations at the same time that you have enormous new manufacturing capacity build-up, and you end up with substantial oversupply which led to prices plummeting.”
On the other hand, Paula Mints, director, energy, Navigant and Principal Analyst, Solar Services Program, feels that the main reason for the rapidly falling prices of PV modules is more of the aggressive pricing for share that began back in 2009.
“The PV market began accelerating in the mid-2000s because of the feed-in tariff (FiT) incentive and the grid connected application is 100% incentive-driven,” Mints says. “Some FiTs were overly generous and were constructed without a true understanding of industry behavior. The FiTs overheated the markets and, along with the artificially low prices, governments stepped in to change the incentive and lower the levels. Now we have high capacity, high inventory and prices will be held down indefinitely.”
What’s next?
Mints feels that over the next six to 18 months, prices will stay depressed.
“With current high inventory levels and softer demand, [prices] will be held down at current levels, and there will be reselling at lower levels on the demand side,” she says.
Kann says that demand is picking up again, particularly in Germany — and his firm is expecting to see a very strong fourth quarter there.
“There’s been such a big inventory buildup, that prices have continued to come down, at least thus far this year,” Kann says. “We’re expecting to see some stabilization in the fourth quarter because Germany will be strong again. But then you look at January 2012 and we’re expecting to see prices drop again because Germany has another cut in its FiT expected.”
A bright side—maybe
Some may make the argument that falling module prices only pushes the PVs that much closer to being cost competitive to other energy sources, even without the help of government subsidies. But Mints is quick to downplay that idea.
“What good is cost competitiveness if the price leads to too low margins and potentially, more [plant] closures?” she asks.
And Kann agrees that from the perspective of the manufacturer, what’s going on right now is abysmal.
“But from the perspective of either the project developer or the consumer, it is great, because prices have come down substantially,” Kann says. “It makes financing these projects easier, it makes projects more feasible where they otherwise would have been tight, it means that the sort of business models that are built upon relatively tight financing, like residential solar leasing, that much easier to do. That drives further demand, so I think in terms of opening up the market, it’s great. It just makes it very difficult for anybody to manufacture and sell competitively.” SPW
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