Price erosion ratchets up competition in solar market

EL SEGUNDO, USA: Installations of Photovoltaic (PV) solar systems will soar in 2010, but a steep dive in the prices of solar components means industry competition will intensify, according to iSuppli Corp.

“Global installed watts for PV systems will grow by 64 percent in 2010, reaching 8.3 Gigawatts (GW),” said Henning Wicht, senior director and principal analyst for photovoltaic systems at iSuppli Corp. “This will bring a return to the growth levels seen before the fall of 2008 as the worldwide recession recedes and as new geographies and segments of demand emerge.”

Despite the projected return in demand for this year, the tremendous price erosion that occurred in 2009 continues to squeeze profits. On average, crystalline module prices last year fell by 37.8 percent, solar wafer prices plunged by 50 percent and polysilicon prices crashed by a gut wrenching 80 percent.

This trend will continue in 2010, although at a slower rate. Crystalline module prices will drop by 20 percent, wafer prices will decline by 18.2 percent and polysilicon prices will fall by 56.3 percent.

“The erosion in pricing is bound to change the face of the solar industry,” Wicht said. “The freefall of PV prices represents a permanent ratcheting down of price structures that will transform the industry into a more competitive marketplace.”

Given the enormous downward shift in pricing, one major implication for the industry is that suppliers will need to continue accelerating cost reductions in order to keep up with the price declines and to repair compressed profit margins. When the cost-down programs eventually catch up with the rate of price declines, an overall improvement in the profit picture can be expected, Wicht said.

After suffering losses during much of 2009, PV profits will continue to improve in 2010, following a move into the positive during last year’s fourth quarter. iSuppli also is projecting that prices on average will pop back by more than 10 percent in the final quarter of 2010, despite declines for the entire year.

The figure presents iSuppli’s projection of pricing for various segments of the PV supply chain.Source: iSuppli, USA

The growth of PV installations in 2010 will be led by a newly energized German market, which recovered from sluggish performance in the first half of 2009 to achieve gradual growth in the second half—a trend expected to continue for the first six months of this year.

The German market, however, could stall again by summertime, if the feed-in-tariff (FIT) designed to encourage the adoption of PV systems is trimmed by the Merkel government. The position in the overall PV market held by Germany—which accounted for 50 percent of total worldwide PV installations in 2009—is of such importance that the collective PV demand accruing from other countries will not be sufficient to compensate for a German FIT reduction of 15 percent if that were imposed in mid-2010.

Elsewhere, installations will continue to rise in both the established and the emerging regions, according to iSuppli.

“Several new growth markets will come into play in 2010, the most significant of which are the United States, Italy and latecomer China,” Wicht said. “Together, these three markets will account for 50 percent of the growth projected to occur in 2010.”

The PV space will also feature more players this year, led by South Korea’s Samsung and LG Electronics— already the world’s largest LCD panel makers and possessing vast experience at moving into new areas of operation—as well as Taiwan’s TSMC foundry and US engineering giant Bechtel.

Source: iSuppli, USA