Watch Solar Energy Investment and with it Panel Price Collapse Next Year

The photovoltaic panels market must feel like a roller-coaster for those involved. Excess stocks of PV panels (for converting sunlight directly into electricity) made billions of dollars of losses following the financial crisis of 2008 and endured a unit price slide of 50% in 2009. This year the market came back strongly as customers fought to place orders ahead of a subsidy cut in Germany, the world’s biggest solar market according to a Reuters report.

But now cash strapped Europe is cutting subsidies left right and center as deficit burdened governments seek to cut costs. Subsidizing renewable energy always was a rich boys game and governments from Italy to Spain to the Czech Republic seek to reduce expenditure. At the beginning of July, Reuters said Spain agreed with renewable energy associations to cut subsidies for wind and thermosolar (to make the distinction, thermosolar plants focus the sun’s rays to make steam to drive a generator, while PV panels directly convert sunlight to electricity).

The subsidies have made the country a leading producer of wind and solar power but saddled utilities with billions of euros of debt. The total cost of renewable power subsidies fueled government-backed debt held by the utilities to 6.5 billion euros ($8.48 billion) in 2009 alone. But in the process, Spain became the world’s second-largest solar power. Spain is now slashing premiums paid to PV producers by 45% for new ground-based installations, 25% for new large roof-mounted plants, and 5% for small roof-mounted plants.

Producers are hopeful growing markets like France, United States, India and China will grow from 17% of the world market this year to 30% next, but they would still be dwarfed by Germany which has close to half of the world’s solar power production according to this article on Solar Energy Connection. Part of a conscious decision from 2000 onwards to phase out nuclear power and develop solar up to 2020, even though Germany has just half as many sunny days as Portugal or Spain.

RBC Capital markets analyst Stuart Bush believes there will be a slight drop in PV demand next year, not a crash. At a current 1.92 euros ($2.51), the average price for modules made in Europe has already fallen 27% since last year and analysts expect that trend to continue into next year when prices could fall by up to 40% again. That could make European producers vulnerable to Chinese producers where the cost base is lower and generally sells at a 20% discount to western producers.

The article concludes with three scenarios for next year. The most benign predicts a 15% decline in component prices. The most likely is a 25% decline and the worse case a 40% decline, similar to the falls seen in 2009. Not too many manufacturing industries have to contend with such price volatility, it will be interesting to see how many of today’s players are around five years from now.

–Stuart Burns