inevitable collapse or cyclical victims?
Solar fundamentals continue to deteriorate, despite increasing project economics. Module prices are about 20% lower than a year ago, and ahead of forecasts that they slip below $1/watt (module) by early 2012. However, for the first time in memory, price elasticity is not helping the sector. As expected, first half demand fell under the weight of reduced Italian and German incentive programs, with little recovery so far in 2H. US and Chinese installations are on track for 50+ percent growth, but may barely offset European declines. Full year 2011 installation (in megawatts) might be flat at best, in the face of ongoing dramatic expansion in silicon and wafer capacity. A recent Barclay’s analysis has cut the five year forecast for solar demand to 8% CAGR, well below 15+% consensus, and even below wind (at 10%). However, a dramatic shift in consumption is underway — as the subsidies of Northern Europe fade, and Southern Europe’s various financial crises slam solar demand, North American, Indian, and Chinese demand continues to grow at high rates, albeit from a small base. India and China appear to be ‘doing it right’ on the incentive front — offering more modest rebates, Dutch auction-type bids for projects/subsidies, and more measured grid hookups. The transition from subsidy to “subsidy-light” and, eventually, free market competition, continues, albeit at a more painful pace than most would have forecast. I think we will see significant consolidation over the next couple years, including more direct involvement by the world’s larger industrial and energy companies, as the solar (and wind) build-out evolves into a systems business, with more value-added in the project development than module manufacture.
The short term fallout – three bankruptcies in the last month (Solyndra, Evergreen, and SpectraWatt) brings comparisons to the collapse of ethanol producers a few years ago. Solyndra has been the poster child, thanks to its massive $535 million DOE loan guarantee, including the potentially political path to this funding, and claims of ‘financial stability’ by its CEO, just two months before the filing. The company claims that rock bottom silicon prices, leading to cheap Chinese modules, was the cause of its demise. But who, in their right mind, would plan, or fund, a venture assuming the $400 (spot) polysilicon prices was ‘forever?’ And today’s poly, in the $50/kg range, is still double the long term price of semiconductor silicon – above reinvestment levels for top tier producers! What of the company’s claim that it could produce modules for a buck a watt, which, with its installation advantage, would be highly competitive today, if they had been able to achieve that target? No, it appears that the company failed on its own technical and, perhaps, management, missteps, not due external factors. This controversy is not going away, and I suspect there is a lot more to learn about how public sector selection of winners. As a reminder, another high profile DOE recipient, Range (cellulosic ethanol) Fuels, shuttered over the summer ($76 million DOE grant). In this context, the unwillingness of government energy programs to seriously consider lower risk opportunities (Natural Gas Vehicles, see above, easier transmission permitting, pipelines from Canada), stands in stark contrast to this Government as Venture Capitalist. Meanwhile, forgotten in the Green Subsidy Debacle, low prices, from whatever source or reason, for solar and wind (or anything for that matter), are good for the customer! Utilities and residents are increasingly able to justify diversified energy sources, and participate in the transition to a more competitive energy infrastructure. And even foreign-made products require local installers — plenty of “green” job opportunities with fewer government programs.