Has the Solar Market Finally Bottomed Out?

Predictions about when markets will rebound are notoriously prone to failure. But with that forewarning in mind, I want to pose a question: has the solar market finally bottomed out?

My answer would be no, but we’re getting close. Here’s why. On June 8, analysts over at Barclays Capital increased their estimates for global polysilicon production — the base material used in solar panels. They now expect 2009 levels to hit 90,359 metric tons, an 8.4% increase over previous estimates. Next year, BarCap now predicts production to top 138,563 metric tons, a 13.1% jump from earlier predictions.

The analysts also released global polysilicon demand forecasts, a key measure of market sentiment. A continued lack of short-term project financing means things still don’t look good: In 2009, demand will fall 25% annually to 4,454 MW worldwide. But next year, the figures are expected to rebound to 6,837 MW — a 54% increase over 2009, and well above last year’s number of 5,950 MW, which had been an all-time high.

So what’s leading the protracted resurgence in solar energy?

For one, demand in the world's major markets, particularly Germany and the U.S., is finally starting to pick up. Government backing for green energy has begun to open up project financing. Market participants anecdotally say banks now are willing to stump up cash for the most secure solar energy projects (those with the best sites and most efficient technology).

Another is the latent demand for polysilicon. When the market was at its peak, companies fell over themselves to investment in polysilicon production to tap soaring commodity prices. When the market tanked, prices tumbled -- bad news for polysilicon producers, but good news for companies that could take advantage of cheap polysilicon prices to make their solar equipment less costly. That, combined with technology improvements to increase efficiency, has made solar increasingly cost competitive with the likes of wind. As it has become more competitive, demand from customers also has picked up.

For sure, we're not out of the woods yet. Only last month, European solar companies Q-Cells and Solon both announced first quarter net losses, and made bearish projections for short-term demand.

But after solar energy stocks took a beating last year, appetite for the sector is returning. The share price of First Solar, the Tempe (Ariz.)-based solar energy company, has jumped 20% in the last six months, compared to a 45% drop between June and December, 2008. Even the decline in Q-Cells' stock has slowed since the beginning of the year.

So to the $64 million question: is the worst now behind the solar market? In the short-term (ie: into the third quarter of 2009), demand looks likely to remain subdued. But come the end of the year, the sun (Ed. -- forgive the pun) may finally return to the solar energy sector.

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