Industry-wide solar crisis coming next year –- Thank you China!

NEW TRIPOLI, USA: The solar industry is at a critical stage and 50 percent of the existing solar manufacturers may not survive 2010 according to the report: Opportunities in The Solar Market For Crystalline and Thin Film Solar Cells, published by The Information Network.

“I wrote only a month ago that massive inventory buildup and huge overcapacity were having a serious impact on the solar panel industry and its manufacturers,” noted Dr. Robert Castellano, president of The Information Network. “To reiterate, inventory is averaging 122 days in 2009 versus 71 days in 2008. Capacity utilization (amount of production capacity actually produced) dropped to 27.9 percent in 2009 from 48 percent in 2008.”

For 2010, I “cautiously” anticipated that no new additional capacity will be brought on board, maintaining 2009 levels of 17,551 MW. This would bring capacity utilization to 35.4 percent and reduce inventory to 96 days on average for all of 2010. That ideal scenario is represented in the table below.Source: The Information Network

If solar manufactures went ahead and installed all the capacity planned for 2010, it would even worsen the outcome of the solar industry –- the utilization would decrease further to 26.8 percent and days of inventory would increase to 127 days, as shown in the table.

Now, I am hearing that small solar panel manufacturers in China are planning to bring an additional 1 GW of panels to the market by the end of 2009, which we have learned based on manufacturing equipment purchases. While it represents an increase of less than 5 percent of the planned capacity, there are several implications.

1. China’s solar panel manufacturers, exasperating the situation by adding more capacity, are already dropping prices to $1.80 per watt for polysilicon-based products, which is lower than the $1.85 level we projected back in March for the end of 2009. By way of comparison, the average selling price in Q3 2008 was $4.05 per watt.

2. Because of economies of scale, whereby the more solar panels manufactured, the lower the cost to make them, other manufacturers will increase capacity to their planned 2010 levels in order to compete against the Chinese. We will now reach the last column in the table –- 25.7 percent capacity utilization and 133 days inventory.

3. Average selling prices could drop below $1 per watt in 2010 and $0.50 in 2011.

4. As many as 50 percent of the more than 200 solar manufacturers, mired in red ink with current selling prices above $2.00 per watt, may not survive.