Solar Suppliers Head for First Demand Drop as Subsidy Cut

Solar Suppliers’ First-in-Decade Sales Drop to Feed Glut
Employees assemble photovoltaic panels at Suntech Power Holdings Co.'s factory in Wuxi, Jiangsu Province, China. Photographer: Qilai Shen/Bloomberg

Fewer solar panels will be installed this year as the first drop in more than a decade worsens a glut of the unsold devices that’s already slashed margins at the top five manufacturers, an analyst survey showed.

Homes and businesses will put up 24.8 gigawatts of solar panels worldwide, according to the average of six forecasts compiled by Bloomberg News. That’s equal to the power of about 20 nuclear reactors and down 10 percent from the 27.7 gigawatts added last year. Installations have grown 61 percent a year on average since 1999, Bloomberg New Energy Finance estimates.

The decline would be the first since Germany began offering premium rates for solar power in 2004, opening the way for mass, utility-scale installations. It will exacerbate price-cutting and a surge in inventories that last year forced Solyndra LLC into bankruptcy, prompted SunPower Corp. to seek a buyout and gutted margins at top manufacturers led by Suntech Power Holdings Co. and First Solar Inc.

“Overcapacity has been an overhang for this industry, and with Germany tightening it doesn’t seem like it will ease,” said Amir Rozwadowski, an analyst at Barclays Capital Inc. in New York. “It’s difficult to assess where there’s a significant push-out that would lead to accelerating demand, given the anticipated decline in Europe.”

Germany and Italy, the biggest photovoltaic markets, cut subsidies to curtail a boom last year, helping depress prices for panels by more than 50 percent.

Supply Glut

The capacity of factories to produce photovoltaics may top 38 gigawatts this year, 53 percent more than the median demand forecast, according to New Energy Finance estimates. The London-based research company expects installations to slip this year to 24.6 gigawatts.

That overcapacity dissolved margins of as much as 30 percent that the biggest solar manufacturers enjoyed two years ago. Trina Solar Ltd. said Feb. 23 its gross margin was 7.1 percent in the fourth quarter of 2011, down from 31 percent a year earlier. Suntech, the world’s biggest solar company, said its gross margin fell to 9.9 percent in the most recent quarter from 17 percent.

The Bloomberg Large Solar Index tracking 17 manufacturers lost 68 percent of its value last year, led by drops at Hanwha SolarOne Co. and Renesola Ltd. of China and Conergy AG of Germany. This year, the benchmark has gained 13 percent, led by Renesola and Conergy.

China may double its installations this year, absorbing some of the excess production, according to Suntech and Trina. The two companies in January said they expect the nation to add 4 gigawatts to 5 gigawatts of panels this year compared with 2.2 gigawatts in 2011.

Chinese Demand

That’s led some manufacturers to forecast more deliveries. Trina, China’s third-biggest panel maker, expects shipments to increase by as much as 39 percent to 2.1 gigawatts this year. Yingli Green Energy Holding Co. expects to deliver as much as 2.5 gigawatts of panels this year, up 56 percent from 2011. Suntech said yesterday shipments may reach 2.5 gigawatts, a 19 percent increase.

New solar capacity grew 49 percent in 2011 and more than doubled in 2010, according to New Energy Finance, which estimates the industry’s slowest growth since it started keeping records 13 years ago was a 5 percent gain in 2006.

Without government incentives, even record low prices for solar panels may not be cheap enough to encourage solar farm developers and homeowners to install them in the volumes needed to work through the glut, said Rozwadowski, the most pessimistic analyst in the survey. He expects installations to drop to 20.7 gigawatts.

Incentive to Install

In the U.S., subsidies are disappearing after Solyndra filed for protection from creditors in September, triggering criticism of President Barack Obama, who approved government-backed loans for the company.

While Obama wants to renew tax credits supporting renewable energy, congressional Republicans have criticized support for Solyndra and probed decision-making regarding the loans.

Germany, the biggest solar market, said Feb. 23 that it will reduce the premium rates it pays for solar power on March 9, with more cuts set to come monthly starting in May. Developers installed a record 7.5 gigawatts of panels there last year, more than double the government’s target.

The most optimistic forecast, from Maxim Group LLC, calls for 29.7 gigawatts of solar installations this year. That would be a gain of 7.6 percent. Aaron Chew, a solar analyst at Maxim in New York, said price declines aren’t enough to support a surge in demand early this year.

Possibility for Gains

“It sucks the wind out of the argument that there is going to be a first-quarter demand bubble,” Chew said. “Module prices are probably going to go down this year. How good could conditions be if pricing continues to drop?”

Some manufacturers are already planning for reduced demand this year. First Solar Inc. said Feb. 28 that it’s halting four production lines at its Frankfurt-Oder, Germany, plant for as long as six months. Factory-utilization rates for the largest thin-film solar producer will be 60 percent to 70 percent this year, down from a December forecast of 80 percent, and 2012 production will be 1.5 gigawatts to 1.8 gigawatts of panels.

“Any reduction in demand right now anywhere is the last thing manufacturers want,” said Shayle Kann, an analyst at GTM Research in Boston. “The less exposed you are right now to Germany the better off you are.”

He expects 27.5 gigawatts of panels installed worldwide this year, about the same as in 2011. Goldman Sachs Group Inc. estimates 20.8 gigawatts, while HSBC Holdings Plc forecasts 25.5 gigawatts.

Kann said the industry may be able to count on stronger demand stimulated by the government in Beijing, which has “a vested interest in making those companies thrive.”

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