SAN FRANCISCO — Solar cell manufacturers worldwide are currently suffering from the collapse of a bubble that was pricked by the sudden reduction of a government subsidy in Spain.
The result has been a global slump in demand and prices that could help low-cost producers in China and Taiwan take market share away from higher-cost German manufacturers, industry analysts say.
“The situation is ugly for all the producers, but the Germans are being hit especially hard by what has happened to the market because of the conditions in Spain,” said analyst Stefan de Haan with the Munich office of the market research firm iSuppli.
For several years Spain had offered such generous subsidies for solar power installations that the country had become the world's single largest market for solar modules. De Haan estimates that of the 5.4 gigawatts of solar power installed worldwide in 2008, about 2.6 gigawatts went to Spain.
But in September 2008 the Spanish government decided that it could only afford to subsidize 500 megawatts of solar power in 2009, a decision that wiped out nearly 40 percent of the worldwide demand for solar cells and modules. “Orders dried up, inventory began to accumulate and manufacturers began to cut prices almost to the level of costs,” said de Haan, who projects that worldwide solar power installations will fall to roughly four gigawatts in 2009 as a result of the new Spanish policy.
The collapse in demand is likely to shift market share among the world's leading producers, he said.
In 2008, China was the world leader, producing 26 percent of all solar cells, followed by Germany and Japan tied with 18 percent each, and North America at 15 percent, de Haan said. Taiwan accounted for 13 percent of global production in 2008, while the rest of Europe, excluding Germany, accounted for 7 percent, with the remaining 3 percent scattered among the rest of the world, he said.
Industry analyst Paul Maycock, with PV Energy Systems, Inc. in Williamsburg, Virginia, said new factories in China and Taiwan opened just as the change in Spanish policy caused demand to collapse.
“We had this double whammy, with more production coming on line at a time when there was suddenly no place for the product to go,” said Maycock, who has tracked what happened to prices as a result.
Before the Spanish reversal, solar modules had been selling for about $3.75 to $4.00 per watt of electricity generated, before factoring in installation costs, he said.
“Now I'm hearing about Chinese and Taiwanese producers selling at $2.25 a watt or less just to clear inventory,” Maycock said.
In this price-cutting environment, Maycock said, German manufacturers, who have higher labor expenses, will be hard pressed to maintain market share against their lower-cost Asian competitors.
Germany's largest solar manufacturer, Q-Cells, recently said it would lay off 500 workers, or nearly one-fifth of its workforce, and begin producing solar cells at a new factory in Malaysia as part of a cost-cutting campaign to stay even with competitors like the Chinese giant, Suntech. Meanwhile, the leading North American manufacturer, First Solar, may be somewhat insulated from the current slump because it has pioneered a cheaper process for making solar modules, Maycock said.
First Solar uses a thin spray of relatively inexpensive cadmium telluride to turn sunlight into electricity in contrast to the common practice of basing solar cells on more costly silicon. “They can sell for lower prices because their manufacturing costs are lower,” Maycock said, which should allow the company to gain market share even in the slump and keep North America from sinking relative to rival regions.
However world market shares shake out, the current competition should give solar a boost.
“The big issue is when solar becomes economic without the subsidies,” Maycock said, adding that falling prices will help hasten the arrival of a crossover point that remains some years away.