NEW YORK -- Executives of some of the world's top photovoltaic manufacturers are preparing for a major shift in their industry.
While they may disagree on how quickly and widely changes will be felt, everyone is aware that shortages they have endured of their primary feedstock material, polysilicon, will soon be a thing of the past. And they worry that if they cannot get production and demand estimates right, they might inadvertently produce a glut of solar panels that could send prices for their products spiraling downward.
Fresh from an industry convention held earlier this month in Valencia, Spain, solar technology companies are growing wary of the prospects for their future business. While growth is a certainty, the Spanish government's announcement just prior to the convention's start that it would move to deeply curtail the volume of new installations for 2009 cast a pall over what was supposed to be a celebration of their success.
Executives are now busy reworking their demand estimates to try to figure out if there will be enough customers for their products over the next couple of years.
"The crucial question in the solar sector is the demand question," said Michael Schmela, editor in chief of the industry-tracking magazine PHOTON International.
Schmela, who moderated a lively panel of company executives who were pondering their future at a clean energy conference that ended here yesterday, believes that demand for new grid installations is slowing down faster than production is expanding. His research suggests that 29 gigawatts of solar capacity will be built worldwide by 2010, up from 15 GW last year.
Shifting government policy in Europe -- with shrinking feed-in tariffs in Germany and less willingness by Spanish authorities to continue subsidizing new installations at high levels -- suggests there may not be enough customers for all those panels, at least not immediately. Germany has been by far the largest market for solar power, with Spain following close behind.
Until recently, the single biggest challenge the industry faced was getting enough polysilicon to feed its tremendous growth. With the market for solar panels expanding at a rapid clip each year, polysilicon makers could barely keep up, and module manufacturers found themselves in stiff competition with each other. Most coped by negotiating long-term supply contracts with polysilicon makers, often agreeing to buy the material at high prices that most companies chose to keep secret from even their shareholders.
Companies still find themselves pressed to negotiate such deals, even with an abundance of polysilicon just on the horizon. "We are really under pressure to sign crystalline contracts," admits Andreas Hänel, chief executive of the German maker Phoenix Solar.
But announcements of new long-term supply contracts are now slowing down. The latest one was an agreement inked by LDK, a top Chinese maker of multicrystalline silicon wafers, to supply Solartech with 550 megawatts' worth over the next five years, announced on Sept. 3.
Such late-coming deals may actually put solar tech companies at a disadvantage, say some executives, since they lock in high prices for the material just at a time when costs are expected to come down.
Manny Hernandez, chief financial officer at SunPower, said his company sees the polysilicon shortage ending by the latter half of 2009. Falling costs and massive competition for new customers mean his company will likely lower its prices by 10 to 15 percent.
"It's all related, or impacted, by this sense that there is going to be an abundance of modules next year," Hernandez said, echoing Schmela's sentiment that the industry may soon manufacture too much new capacity, if not at the dramatic levels predicted by PHOTON International.
If the changes occur as quickly as many suggest, companies could find themselves trapped. The rush to sign long-term supply contracts means many will be forced to purchase raw inputs at relatively high costs and lower prices for their products at the same time. More nimble competitors could easily win out.
Still, other companies are taking a more conservative view. They see some overcapacity coming, but not as quickly or at the levels projected at the more extreme end.
Phoenix's CEO Hänel said he doubts the industry will inadvertently produce 29 gigawatts by 2010. Rather, as European demand slows down, many companies will abandon the expansion plans they have already announced the minute they see prices falling.
"Many of these projects are going to be scrapped," Hänel said. "In our view, there is no doubt about it."
Others concur. German makers, in particular, seem to think their industry is adjusting well and are not rushing in to buy stockpiles of cheaper polysilicon or doubling production even as demand slows. Centrotherm, Phoenix Solar, and other major German photovoltaic makers believe 15 megawatts of new capacity in 2010 is more realistic.
"We still have a very high growth in silicon capacity going on," Centrotherm CEO Josef Haase acknowledged. Nevertheless, he added, "I don't see how it can fill all these factories by 2010."
If they are right, then manufacturers should be able to find the right supply-demand balance to continue doing well. Everyone sees prices coming down, but an oversupply created by PHOTON International's 29 GW estimate would likely set off a major industry-wide restructuring, with weaker companies going under or being absorbed by stronger rivals.
A big question is what the Chinese companies will do. Chinese photovoltaic companies have arguably enjoyed the fastest growth rates in the past couple of years, with many of the better established companies there enjoying production cost advantages that cannot be matched in Europe, Japan or the United States and seeming to easily adapt in the face of raw material shortages. Suntech, the leading Chinese manufacturer, is making headways into the emerging U.S. market and seems keen to begin exporting products to California soon, eventually establishing production facilities there.
And while hopes abound throughout the industry for the promise of major growth in the U.S. market, that is still far from a certainty. The failure of Congress to renew the production tax credits and investment tax credits that fuel renewable energy's growth in the United States is giving many firms pause.
Not all is doom and gloom, however. Solar power's growth in the United States is largely a product of state policy, with California and New Jersey leading the nation in new installations thanks to carefully crafted renewable energy portfolio standards placed on their utilities. Many think Texas, Utah and Nevada will follow suite.
And while most growth in the industry has been dominated by grid-connected systems, whether on rooftops or in solar panel arrays, the so-called off-grid market is growing fast, especially in India where the rising cost of diesel fuel is encouraging solar's creep into the market.
Meanwhile in Europe, Italy is shaping up to be the next big thing just as Germany and Spain taper off. Many executives think growth in Italian demand will more than offset losses elsewhere.
Despite the challenges they face, solar companies seem to continually look for the bright side. Some executives boldly predict that by 2012 their industry will achieve the allusive prize of grid parity -- when solar power becomes cost competitive with coal and natural gas.
But caution is warranted. Weakening demand will push prices down, and companies facing this inevitability would be wise not to overextend themselves, industry experts say.
"It doesn't help us in this sector to just look for the next gold rush," Hänel said.
Advertisement
