Subsidy Laden to Subsidy Light
Each year since 2008 has brought Forecasts of Doom for Solar power fundamentals — either there’s too much capacity coming or the subsidy adjustments too aggressive. The offsets have included lower interest rates (higher project IRRs), even faster cost/price declines, and new markets. It’s worth noting that the Spanish market (40% of global installations in 2008) has nearly disappeared, Italian demand multiplied 10-fold, and the oldest PV market in the world, Japan, has grown 10 fold. Meanwhile, installed system costs are 20-50% lower.
However, the slow motion train wreck of the uncapped German subsidy program, budget woes throughout Europe, and the near uncompetitiveness of once-great European solar PV manufacturing infrastructure, have finally slowed the engine of demand. Meanwhile, anticipating years of growth, top tier producers continue to expand polysilicon capacity during 2011-2. Newly accelerating Chinese and US activity is not yet large enough to offset the slowing European market, and the next most promising opportunity, India, is still sorting out its renewables program.
The result is that the transition from high to light subsidies, clear since 2009, will continue in 2011-2, as budget issues give way to oversupply throughout the chain. While each step of the conventional PV process has its own supply/demand characteristics, and lower prices may force the closure of higher cost capacity, one analyst forecasts that wafer utilization will fall from 97% (2010) to 55% in 2012 — as growth slows to ‘only’ 25% per year. I do think that the next three new markets will be huge, but they are not ready to take the mantle. The net is a potentially severe compression in pricing and returns for the industry over the next couple years. One exception is the US, where utility-based projects will offer solid returns to First Solar and Sunpower. Longer term, of course, the sooner solar economics fall below conventional power prices, the more opportunity for significant growth (see integrated comments below). And, I believe, as prices fall, the prospects for a major acceleration in Chinese installations are real. Once the Chinese wind manufacturers figured out how to competitively deliver product, domestics installations exploded — 2020 estimates are up to 10x initial forecasts. Well, this week, local press reports suggest that agencies may soon double the 2015 estimate for installed solar PV — and this is the first stage of a much higher commitment to solar, in my view (current plan is 20 GW by 2020, versus 150 GW of wind).