Solar Sector’s Center Shifting To China

Reeling from a stormy 2009, the solar market will soon see lopsided supply and demand rush back into parity, according to a new report from Lux Research. Strong demand growth in Asia and the U.S. will push the market to 9.3 GW for $39 billion in 2010, while continued price reductions will open new markets and drive solar to a 26.4 GW market in 2015, for $77 billion in revenue.

Meanwhile, China – to date, a large manufacturer of solar modules and materials, but not yet a large buyer of them – will swing into action and become the world's largest market for solar in 2015.

The report emphasizes, however, that the renewed balance between supply and demand will arrive only after a wave of company failures and lower utilization rates.

Titled ‘Solar's Shakeout: Europe Loses Leadership as China Rises,’ Lux Research's new report analyzes economic competitiveness and other drivers for the industry's six major technologies: crystalline silicon (c-Si), cadmium telluride (CdTe), thin-film silicon (TF-Si), copper indium gallium diselenide (CIGS), high concentrating photovoltaics (HCPV) and concentrating solar power (CSP).

‘We found that solar's short-term pain will enable it to exceed growth expectations over the very long term,’ says Ted Sullivan, a senior analyst for Lux Research and the report's lead author. ‘The volume of solar installations will grow at a 23 percent annual rate from 2010 to 2015, but revenue will grow by just 14 percent, as prices fall due to remaining overcapacity.

‘While current subsidies in China and elsewhere will help soak up some of that capacity, there will be widespread company failures throughout the value chain first,’ he continues.

According to the report, capacity remains well above demand, signaling violent changes ahead. Expect the supply-and-demand curves to move abruptly together over the next few years due to company failures – either through firms folding outright, or becoming ‘zombies’ that still exist on paper but produce little or no product, Lux Research says. Demand will also increase in producing regions such as China, prompted by government subsidies and other factors.

Low-cost c-Si technologies dominate, but thin-film and CSP have a growing role. As financing begins to return to solar this year, c-Si players will continue to use low prices as a weapon against new technologies that do not share its bankability or scale, the report says.

Even so, new technologies such as CSP, CIGS and even HCPV technologies will gain at the margins. The future of thin-film silicon remains more questionable.

Finally, solar adoption will be a multi-decade story, the report says. Although it will not meet outsized expectations in the near term, solar will wildly beat them in the long term – albeit often in unexpected ways.

At its core, solar is an energy and construction industry, not a consumer-oriented one like semiconductors or information technology, Lux Research explains. As a result, its adoption cycle is determined by replacement cycles for residential and commercial roofs – typically 15 years to 20 years – and for natural-gas power plants, up to 30 years.

‘The continuing glut threatens low-quality and high-cost players alike,’ says Sullivan. ‘The decline of firms selling low-quality systems is intuitive, but overcapacity also threatens developed players like Evergreen Solar and Uni-Solar, which have incredibly innovative technologies, but high operating costs and insufficient scale.’

SOURCE: Lux Research

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