The End of the PV Industry as We Know It

As the graphic below demonstrates, 2011 could be a very difficult year for the global PV industry.

Or maybe not. In the many years I have been in the PV industry, I have seen numerous supply and demand forecasts for the same year with disaster and euphoria always just around the corner, depending on the analyst. Take 2009 for example.

After the Lehman Brothers debacle and resulting recession, the global PV industry was forecast to have flat or negative growth, experience large M&A activity and many bankruptcies. Actual was about 30% growth, minor M&A and very few bankruptcies. 2010 has been a banner year with over 80% growth which many pundits were forecasting at 10% – 40% growth.

What Was the Forecasted Cost of These Modules vs. Actual?

The little industry with large adversaries and many naysayers keeps chugging along.

But forecasting the PV industry is not for the faint of heart. There is a number of highly unstable, rapidly changing variables including government subsidies and mandates, government trade barriers, cost of fossil fuel energy, cost of solar modules and BOS, land costs, permitting costs, financing costs, supply chain tracking issues (actual capacity vs announced, tolling, product reselling etc.) raw material bottlenecks and many others.

As it is an immature industry, clarity on any of theses issues is difficult and there are no tracking mechanisms as with old established industries. As an example, I recently had a global Fortune 50 client company with a new solar PV division ask me where to find the trading exchange for modules so they could have understand spot pricing and long term contract trends both historical and futures. My response that there isn’t one was met with exasperation and disbelief.

2011 may be difficult. The graph above is ominous especially when you consider that nearly 6.4GW’s of module production is being added this year (2010) and demand may be flattening do to the well-publicized subsidies being reduced in many EU countries. But the doomsday forecasts may be way off.

With the steep declines in the installed cost of large PV systems and the increasing cost of fossil fuel energy in locales

Grid Parity Forecast, Source: Deutsche Bank

whereeconomies are recovering, true market demand signals are being felt in regions with already high cost energy. Consider these 2 facts: the installed cost of solar in favorable locations is delivering energy at $0.15kWh, and the cost of coal is up sharply in therecent weeks. In Germany, the cost of coal and natural and gas is soaring.  Consequently, the PV industry will need less generous subsidies to compete with highly subsidized fossil fuel energy, but the overall result may be more installation activity in regions that many analysts have written off.

Forecasting the tipping point (see graphic above) where increasing fossil fuel energy costs cross a downward PV installed cost line is highly fluid and difficult at best.   But writing off 2011 as a disaster may be a bit premature.

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