Last week, I was very fortunate enough to be able to get into a conversation with Dr. Robert N. Castellano, president of The Information Network, based in New Tripoli, USA. It all started with a column, which he writes regularly in “The Street.” One of the recent colums of Dr. Castellano touched upon –- What could make solar hot again?
This first part will touch upon issues such as six reasons for cloudy solar skies and how to rectify the current oversupply situation in solar cell manufacturing, status of a-Si solar cell makers, crystalline vs. thin film capacity, and impact of prices.
How to rectify the solar cell oversupply?
As I'd asked iSuppli too, in one of my recent posts, I also quizzed Dr. Castellano on whether the previously committed capacity expansions have caused solar cell manufacturing oversupply? Also, why had this happened and how could this be corrected?
He said: “The problem will rectify itself when demand catches up with supply, which will take several years. Until then, suppliers are faced with lower prices and margins. I was the first to point out on March 5 2008, in my blog on Seeking Alpha in an article entitled “Contradictions in the Solar Industry” that “The solar industry is faced with a huge oversupply of solar panels planned for production in 2008, but no one seems to notice… or care. Shares in many solar companies such as Evergreen Solar), First Solar SunPower, and Suntech Power have surged with the booming solar market.”
Six reasons for cloudy solar skies
He added: “On November 18, 2008, in another blog on Seeking Alpha entitled “Six Reasons for Cloudy Skies on the Solar Energy Industry” that the problems in the solar industry were the result of the following:
1. With oil at $60 a barrel, who cares about alternative energy? It is a short sighted view, but with the credit market crunch, who can get a loan to build solar plants anyway?”
2. The high price of oil in the past year was a catalyst for the development in other alternative energy sources, and not just solar! Advances in wind, geothermal and hydropower energy are reducing the cost of wind power to a point at which it is becoming competitive with traditional energy sources. Nuclear power plants -- smaller than a garden shed and able to power 20,000 homes -- will be on sale within five years, say scientists at Los Alamos, the US government laboratory, which developed the first atomic bomb. Among these alternative energy sources, hydropower and nuclear have the lowest carbon footprints (carbon dioxide produced during operation).
3. Spain, a huge buyer of solar, reduced its incentive program to aid buyers in 2009. In California, a seemingly green state, Prop. 7 was defeated in the November election with a whopping 65 percent of the voters saying NO. One reason: electricity consumers would pay 10 percent above the market rates for renewable power forever.
4. The spot market price of six-inch solar-grade wafers have fallen to $9 from a high of $12.50 in September. This bodes poorly for thin film makers and equipment suppliers. The thin film solar panel market and hence, the equipment market grew strongly because of the shortage of polysilicon. Now that polysilicon is abundant and lower priced, why make thin film panels with 8 percent efficiency when you get 16+ percent efficiency with silicon wafers?
5. “Utilization is at only 56 percent. Our analysis of 103 solar manufacturers shows that panel production capacity in 2009 will be 15 GW whereas only 8.3 GW will be sold.
6. The dollar has appreciated strongly against the euro by nearly 25 percent. Germany is the world's largest PV market. US solar companies have had to adjust selling prices to generate sales, reducing profit margins.”
Have companies been overlooking inventory problems?
In this context, weren't the solar companies doing enough to check all of these during the downturn of Q4-08? Even the 71 days to 122 days excess supply or inventory is huge!
Dr. Castellano said: “The solar companies were benefiting from the low price of polysilicon as a result of excess inventory in that sector. They were renegotiating contract prices with the poly suppliers and dropping prices. With money in place, they continued to build capacity well into 2009. All the factors discussed above took everyone by surprise (witness the stock market crash) and the recession has lasted much longer than initially forecast.
Where does this place a-Si solar cell makers?
How is all of this potentially setting the stage for the failure of multiple cell manufacturers, particularly those pursuing a-Si thin film solar cells?
He added that thin film cells are still less expensive to make and companies are working to improve their efficiency. Also, they appear to work at stated efficiency under lower incident light conditions.
“The issue is the economics in a solar farm where they are installed. The installation price is the same as a polycrystalline panel. Since the efficiency is lower and it takes more panels to reach the same wattage as polycrystalline, it also takes more hook-ups and frames during installation.
“If the panels move, there is another factor in the motors to move them. However, the production cost is lower than the polycrystalline panels. Oerlikon, expects its lines will deliver a cost of 70 cents per watt by the end of 2010 and has achieved an initial conversion efficiency of 11 percent, which comes out to about 9.5 percent of stabilized efficiency.”
Crystalline vs. thin film capacity
There is still a huge amount of solar cell manufacturing capacity in crystalline silicon solar cell, rather than thin film. Are there any chances of that starting to change any time soon?
Dr. Castellano said: “Until last year, Germany had been the world's largest solar market thanks to its feed-in tariffs, which require utilities to buy all the solar energy produced at premium, government-set prices. As a result, analysts now expect Germany, which doesn't have an annual cap like the one in Spain, to become the biggest market again in 2009.Germany installed 1.35 gigawatts of solar energy systems in 2008, and it could add another 1.5 gigawatts in 2009.
“Spain took the lead last year, but the government has since reduced the subsidies and capped the amount of energy that could be sold under the subsidy program. The financial market crisis has made it difficult for developers to line up financing for solar power projects. Spain, which added a few gigawatts of solar in 2008 alone, now has a 500-megawatt cap for 2009. All of these forces have led to an oversupply of silicon panels.
“As governments -- Germany and Spain were a driving force – in the solar industry’s run-up, they were a factor in the downturn. Once the recession is over and liquidity returns, they will mitigate the overcapacity, particularly as prices are so low and there is pent-up demand for new installations.”
Impact of Q4 on overall prices and industry
Another aspect worth examining is the overall impact of this (Q4) on overall prices and the industry.
Dr. Castellano said that silicon used to sell for more than $300 per kilogram on the spot market and $150 per kilogram for long-term contracts a few years ago. Silicon prices have since fallen significantly over the past year. In fact, the long-term contract price has dropped about 50 percent, close to the spot market price of $67 per kilogram, or about $0.50 per watt.
“Polysilicon panels are selling at $2.25 to $2.50 per watt from $4.17 in Q2 2008. We expect prices to decline further throughout the remainder of the year,” he noted.
In part 2 of this conversation, I will be discussing additional capacity in solar, new capacity in India, and of course, lessons to learn for the Indian solar industry. Watch this space, folks!