Prices for photovoltaic panels that convert sunlight into electricity may fall about 10 percent next year, less than analysts forecast, as European demand increases.
First-quarter prices will drop to an average of $1.65 a watt compared with $1.50 in the previous median estimate of five analysts surveyed by Bloomberg News. Analysts who contributed to the surveys included John Hardy at Gleacher & Co. in Connecticut and Sanjay Shrestha at Lazard Capital Markets. This year, contracts may average $1.80 to $1.85 a watt, they forecast.
Prices have fallen for years as Chinese manufacturers such as Trina Solar Ltd. undercut European producers including Germany’s Solarworld AG. The forecast means $2.55 billion more in global revenue for manufacturers, based on expected sales of 17,000 megawatts of the devices. Sales may total $28 billion next year, calculations show, matching Exxon Mobil Corp.’s planned investment in oil and gas production in 2010.
“There will be price declines in the first half of 2011, though much less severe than last year given a healthier, globally diverse demand situation,” Hardy said in an interview.
That may increase the profit potential of the biggest low- cost producers, from Changzhou-based Trina Solar to First Solar Inc. of Tempe, Arizona, analysts said. Investors have begun to anticipate better earnings for some of the companies.
Trina and Shanghai-based competitor JA Solar Holdings Co. have climbed 28 percent and 26 percent, respectively, in the last month, compared with the 7 percent gain of the 38-member Bloomberg Global Leaders Solar Index in the period. JA Solar rose 12 cents, or 1.6 percent, to $7.30 as of 12:17 p.m. today in Nasdaq Stock Market composite trading.
Developers have rushed to complete solar-energy projects ahead of planned declines in government incentives in Germany and Spain. At the same time, smaller markets expanded in France, the Czech Republic and the U.S. Increased orders will extend to 2011, when the analysts forecast sales to increase 20 percent.
Demand growth in Europe and North America will outpace higher production in Asia, Hardy and Shrestha said.
Evidence of currently reduced supply can be found in inventories and in some order terms.
Solar inventories fell 19 percent in the second quarter to 84 days and shipments “remained strong” in the third quarter, Hardy said.
JA Solar, a China-based manufacturer of solar cells and modules, last week agreed to supply 500 megawatts to customers in 2011 at undisclosed prices. The customers, who weren’t named, prepaid a portion of the contracts, JA Solar said.
“We’re a little surprised by the prepayments,” Paul Clegg at Mizuho Securities USA in New York, said in an interview. “That’s a bullish signal -- it indicates developers are concerned that shortages next year could drive prices higher.”
Spot prices for solar modules in Europe, of about $1.90 per watt, are trading higher than contract prices, indicating that demand continues to outstrip supply, said Dan Ries, an analyst at Collins Stewart in New York. That’s boosted sales from July to August at the six largest Taiwan-based cell makers, he said.
Concerns that sales in Germany, which accounts for about half the global market, will drop next year have faded as developers expand projects in France, Italy and North America.
“Demand in non-German markets appears to be much stronger than investor expectations,” Vishal Shah, an analyst at Barclays Capital in New York, said in a note to clients. “Activity in Germany has picked up over the last two weeks.”
Some analysts tempered their forecasts, saying that governments could change incentives and Asian factories can ramp up new production quickly.
France could set a cap on new solar installations next year that would limit growth in that market, and the Czech Republic can control solar costs and development through its licensing process, said Jenny Chase, head of solar research for Bloomberg New Energy Finance in Zurich.
“While European markets are stronger than we had thought, next year there continues to be a lot of uncertainty,” Chase said in an interview. “Chinese companies can add capacity very quickly to meet demand, which could push prices lower.”