Waiting for Better Solar Alignment

Welcome to the first entry in the Solar Fab Watch Blog!It should be no surprise to readers of this blog that there is a worldwide energy crisis! According to the UN, worldwide energy demand is forecast to increase 60% between 2002 and 2030 driven by emerging economic powers such as China. The incumbent energy sources such as coal, oil and natural gas are all constrained by finite supplies and contribute to global warming. Nuclear Energy can address the global warming issue but suffers from disposal issues around radioactive waste. Renewable energy sources are really still in their infancy providing only 14% of worldwide energy demand in 2002 with the majority coming from Biomass and Hydroelectric. The opportunity for a renewable energy source that is economically competitive and widely deployed is enormous. Solar energy can be utilized to produce electricity and heat in most regions of the world and is rapidly decreasing in cost. Long term, as Solar reaches “grid parity” the market for solar is very large.

2008 saw a near doubling in solar cell production following several years of 50% annual growth. The market opportunity and rapid growth attracted the attention of investors and solar cell capacity has been coming on-stream at a very rapid pace. Unfortunately in the short term economic forces have constrained the adoption rate for solar and a supply and demand disconnect has resulted.

Our company produces a database of solar cell producers worldwide that currently track 204 companies and 273 facilities. According to Solar Buzz there were 6.8GW of solar cells produced in 2008. Our Solar Watch database provides capacity figures for all of the facilities we are tracking and we see a 2008 yearend annual capacity of 16.8GW. If we take the 2007 yearend capacity of 9.0GW and average the two figures to get an average 2008 capacity we see capacity utilization of Solar Cell production facilities of 64% for 2008 up from an estimated 50% in 2007.

With Solar not yet at “Grid Parity” adoption rates are dependent on application constraints and subsidies. The availability of financing for solar projects is also a necessary ingredient in the demand equation. The economic slowdown and financial meltdown that began in mid 2008 has slowed solar adoption. There have also been changes in available subsidies that to-date have reduced demand. We currently expect solar demand to increase by 30% in 2009 versus an increase in capacity of 60%. The resulting solar cell capacity utilization is 41%, a low number for an industry with significant fixed costs.

Based on currently announced capacity expansion plans we are forecasting increases in solar cell production capacity of 33%, 15% and 9% for 2010, 2011 and 2012 respectively, although 2011 and 2012 expansion rates may be understated due to companies not announcing expansion plans that far in advance. We are currently forecasting demand to increase by 40% in 2010 and then recover back to 50% annual growth in 2011 and 2012. The resulting solar cell production utilization is 40%, 48% and 65% in 2010, 2011 and 2012 respectively. Based on this forecast utilization will not exceed 50% again until 2012!

From this analysis we can see that while the long term market opportunity for solar is very large, in the short term market constraints have limited the market growth at the same time that large amount of new capacity have come on-line. The next few years look likely to be difficult ones for solar cell producers until supply and demand become better aligned in 2012.