Overcapacity and poor margins are out, and profitability is in. That's according to Lux Research, which recently reported that the solar industry is set to recover quickly.
The firm's Solar Systems Intelligence and Solar Components Intelligence teams analyzed solar market economics and industry movement. Among the findings were three main conclusions: Oversupply will end as supply and demand converge, corporations are entering or re-entering the solar business, and the industry is planning ahead.
The oversupply issue will improve partly as a result of changes in China. According to Lux Research, overall module capacity will decrease to 58 GW in 2015. China will transition from being mostly a producer of inexpensive modules to also being a market for those modules, which will help global demand grow from 31 GW in 2012 to 52 GW in 2015. That means there will still be module oversupply, but it will be only 12%, down from 100% in 2012. As a result, module margins will recover up to 10% from their near-zero averages today.
‘China is having a shakeout,’ says Lux Research analyst Matt Feinstein. ‘The government is active in controlling the growing supply that spilled over from the incredible scale-up of a couple of years ago.’
The Chinese government is also involved in the demand side. China is currently in its 12th Five-Year Solar Development Plan, which set a goal of 21 GW of installed capacity nationwide by 2015. Feinstein notes that it helps that the government has been building transmission lines too.
‘When the government calls for it, it is to be so,’ he says.
There is also much growth outside of China. Lux Research indicates that while many companies declared bankruptcy over the past few years, in the more recent past, some large companies are preparing for the solar revival by buying other companies. In April, Switzerland-based ABB purchased inverter manufacturer Power-One, and First Solar purchased cell manufacturer TetraSun. Feinstein also points to Mitsubishi, BASF, Johnson Controls and IBM as companies that have recently made solar-related announcements.
‘We are talking about large corporate strategic investors that are extremely reputable and will bring a good reputation to the industry,’ he says. ‘I don't think we are going to see a lot of startups trying to recycle the same ideas from two or three years ago.’
Companies are taking a holistic perspective, Feinstein says. They are looking not only at photovoltaics, but also thermal, hybrid systems and other technologies.
‘These are moving targets,’ he notes. ‘There is a lot of uncertainty and new technology out there. It's necessary to keep up as much as get ahead.’
Some industry professionals agree that the industry is recovering but not for every company.
‘What I think is going to happen this year is there is going to be a shakeout,’ says Patrick A. Redgate, president and CEO of the installer Ameco Solar Inc. in Paramount, Calif. ‘We are going to see who comes out the other end, and it will be either manufacturers committed to staying with this business or manufacturers who have technology that is superior.’
Redgate, who is also on the board of directors for the California Solar Energy Industries Association, says the industry still has its challenges, including low pricing from competitive energies such as natural gas.
‘Pricing is key,’ he says. ‘The problem is that fossil fuels are so cheap with all the fracking going on.’
The future is bright for installers, though. ‘Right now, 60 percent of the market is residential,’ Redgate says. ‘In the not too distant past, it was utilities trying to meet [renewable portfolio standards] goals, so they were building big solar farms. Everyone is surprised to see residential, but there is better financing, and people's attitudes are better now.’
Phil Vyhanek, president of Solectria Renewables LLC in Lawrence, Mass., says there are regional differences too.
‘North American solar growth has been healthy year over year, and we expect it will continue for the foreseeable future,’ he says. ‘Additional opportunities in both Central America and South America offer exciting growth potential.’
Vyhanek adds that the adoption of solar is still regionalized throughout the U.S. ‘Although it is significantly improved over just three or four years ago, less than 10 states dominate the deployments,’ he says.
Still, the inverter manufacturer remains bullish about solar worldwide. ‘It is cost-effective and becoming more so every day, has diverse installation viability and is an incredibly reliable and predictable form of renewable energy.’
Nora Caley is a Denver-based freelance writer.