PV Industry Supply and Demand Update

This is clearly the topic of the day for many of my readers who follow publicly traded solar energy stocks.

Clearly the rush is on to install before subsidies decrease! /Source: Glasstec

The basic facts:

  • The recent government subsidy scheme reduction announcement in Germany and a likely reduction for the overheated Italian market by mid-summer, combined with reductions and subsidy caps in France and other smaller EU programs, have created a rush to initiate and complete projects in 2011—before the new solar subsidy schemes kick in later this year.  Consequently, the PV supply chain is currently in hyper-drive, and there has been a temporary increase in c-Si wafer and cell selling price.
  • Recent manufacturing capacity addition announcements from the top 20 c-Si and thin-film solar energy producers will add another 6GW – 10GW of production capacity in 2011.
  • With global demand seemingly dropping by as much as 50% due to the EU country’s government subsidy reductions, and rapid increases in manufacturing capacity, oversupply is a looming problem in Q4 2011 and into 2012.
  • Demand in 2011 may reach approximately 22 GW, and manufacturing capacity is climbing to approximately 32GW (all module providers). For any industry, this is not a good supply/demand picture.

As I wrote in a previous piece, this situation has many unknowns, is highly fluid and can change rapidly. The three main unknowns are 1) when and how fast does that new PV solar energy manufacturing capacity come on line, 2) how quickly will the overcapacity drive down prices to the point that solar grid parity is achieved in many markets (creating a true market demand signal) and 3) whether countries such as the US, China and India can increase demand sufficiently to reduce the severity of the oversupply.

Solar grid parity looming /Source: Deutsche Bank

There is also much talk about developing nations in Africa and Asia increasing demand. But my recent experience consulting to a few companies targeting these regions doesn’t instill confidence. Aside from the ever-present finance barrier (especially in under-performing economies), the utility grid in most of these locations is incredibly weak or non-existent.  It’s well understood that transmission grids are the PV industry growth limitation in the US but developing nations have an even direr situation with energy infrastructure.

While it is likely that 2012 will see significant industry realignment in price, demand and competitors at the module manufacturing level, this is an industry that has defied doom and gloom predictions many times over the last 10 years. A change in any one of the many PV market variables can have significant positive impact on the supply/demand picture.

For instance, one nation with a significant new subsidy program can change the global supply situation in one quarter or a spike in fossil fuel energy cost can lead to a massive uptake of solar energy in a given locale.

Stay tuned, it should be an interesting 18 months.

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