Cutbacks in European PV incentives set stage for reductions in module shipments in 2H’11

SAN FRANCISCO, USA: Following very strong growth of 139 percent in 2010, global solar photovoltaic (PV) demand is off to a weak start in 2011. Preliminary estimates of Q1’11 end-market demand in Germany show it running at less than 50 percent of its Q1’10 level. The gradual price reductions seen so far this year have been insufficient in energizing the market. However, in Q2’11 global demand is still projected to reach 7.4 GW, representing 77 percent Y/Y growth, according to the latest Solarbuzz Quarterly report.

During Q1’11, module manufacturers have been expanding sales channels, taking on a broader range of smaller distributors and brokers in order to both place increased production volumes and obtain better factory gate prices. As a result, total downstream inventories in Europe, and to a lesser extent in the US, have built to unsustainable levels at the end of Q1’11.

By mid-year 2011, the top five European markets will see Feed-in Tariff (FIT) cuts, some as high as 45%. Consequently, Q2’11 demand will be stimulated by the rush to beat mid-year FIT declines, especially in Germany and Italy. There will also be steady growth in other European markets, US, Canada, China, and India.

In 2011, module manufacturers are planning to raise shipments by 55 percent, while full-year demand is projected to increase by just 12 percent. After the demand peak in Q2’11, the industry will face an exceptionally challenging 2H’11, as it addresses a supply/demand imbalance. A period of negative production growth will be necessary to avoid excessive inventory build.

Any major changes to government PV policies as a consequence of the nuclear disaster that has followed the earthquake and tsunami in Japan are not expected to impact demand until 2012. At the same time, the disaster’s impact on the nine major plants engaged in polysilicon, wafer and cell production in Japan so far appear to be minimal.

“2011 will be a challenging year for the industry as it manages a slowdown in the market,” said Craig Stevens, president of Solarbuzz. “Europe will not be the growth engine it has been in recent years, and manufacturers will need to access new markets or be exposed to the risk of rising inventories or production cuts during a period of falling prices.”

By Q4’11, the market share of Chinese, Taiwanese, and other Rest of World (ROW) producers is projected to increase to 74 percent, up from 66 percent in Q4’10. The leading thin film manufacturer, First Solar, and the lowest-cost Asian producers will be the least vulnerable to reductions in shipments during 2H’11, but all manufacturers can expect to face extreme price pressure by the year-end.

The lower cost Chinese and Taiwanese manufacturers will continue to benefit from an increase in outsourcing of production from the major Japanese and Western solar manufacturers.Fig. 1: Solarbuzz Projected Cell Production Market Shares in Q4'11Source: Solarbuzz.