Conditions in the solar sector are deteriorating because of slack demand in key European markets, advisory and research firm Collins Stewart warned.
The much hoped for demand recovery in Germany has not occurred with the strength required to stabilise the market, analyst Dan Ries said after meeting with industry officials at the European Photovoltaic Industry Association (EPIA) conference in Hamburg this week.
German demand has been below expectations all year, but it was believed that the substantial module price declines that have occurred so far in 2011 – from about $1.70W to the $1.12-1.20/W range – would trigger a demand recovery, he said. But indications are that the poor macroeconomic environment, a diminished view of solar, a more challenging financing environment and buyers’ views that prices may be lower if they wait continues to hamper demand, Ries said. Collins Stewart now estimates that Germany may consume only 5GW of modules in calendar year 2011, down from 7.2GW in 2010.
Other European solar markets are also impacted by these factors, with construction said to be extremely difficult to arrange in Italy, the world’s second largest solar market at 4.5GW, Ries said.
Solar panels are everywhere in Germany, but demand in 2011 is sinking (Photocredit)
Germany and Italy are likely to start to start off very slow in 2012 due to feed-in tariff reductions at year end, he added.
Module demand is improving in China, the US and India, but these markets will collectively account for only about 4.3GW or 22% of worldwide demand, he said.
“They are unable to carry the load when the world’s two largest markets are below forecast,” Ries said.
Module prices are continuing to fall and the firm’s forecast of a $1.20/W average sales price (ASP) for the fourth quarter now looks like it may be $0.10/W too high, he said.
“Expectations will have to come down,” Ries said.
China is likely to outperform early demand expectations, but has seen ASPs deteriorate to below the $1.10/W level, which likely provides little to no profits for vendors, he noted.
Meanwhile, polysilicon prices have remained near $50/kg throughout the third quarter, meaning that manufacturers will not be able to reduce their costs significantly in the fourth quarter. Even if polysilicon prices fall sharply in the weeks ahead, companies would not be able to experience the full benefit until the first quarter of 2012 due to inventory levels, Ries said.
“Price declines will pressure margins in 4Q11,” he said. “Vendors of commodity items such as polysilicon, wafers and cells will be impacted more than module vendors, but all segments of the market will suffer due to the poor demand environment.”
But the EPIA put a positive spin on current market conditions.
“For investors interested in the promise of solar power, the time to act is now,” said EPIA president Ingmar Wilhelm. “The important declining costs, the validity of the ecological footprint and new innovative features are creating today’s ideal climate for investment in PV technology, which is on the way to becoming a fully competitive part of the electricity system in the European Union and an increasingly important part of the world’s energy future.”
By. Gloria Gonzalez