Doom and Gloom, an Overreaction

Undeniably the solar boom that lasted from 2004 through 2008 brought exciting times to the solar industry. Suddenly — seemingly overnight (though an overnight that took ~35 years) — the industry went from futuristic and too expensive to the here and now. The photovoltaic industry became interesting magazine and newspaper fodder. Demand soared and along with it ideas for technologies, products and business models that would bring down the cost (thus price) of the technology and make it affordable for everyone. After over 30 years of struggling to develop the technology and the industry, these were heady times for all with the caveat that market control switched from buyer to seller, leading to much higher prices for buyers, long-term contracts for all and easy sales for manufacturers of technology.

Driven primarily by the feed-in tariff model of incentives in Europe, optimism reigned and with it forecasts of future demand soared. There seemed to be no way back from success and profit, and no downside to entering as a manufacturer or an investor. The fact that developing technology is complex, time-consuming and expensive, and that the market itself remains incentive-driven and cranky were considered small concerns that could and would be overcome. So what if one market fails? Like magic, a new one would appear to absorb product. After over 30 years of unprofitability, the manufacturing side of the industry began to enjoy positive net income.

Sure, there were some small concerns — a shortage of silicon feedstock led to constraints in the supply of crystalline product and, of course, cell, module and system prices soared. But up-and-coming thin-film technologies would bring lower manufacturing costs, and new capacities of silicon feedstock would ensure that a shortage would never happen again. All in all, from new entrants to industry old timers, the solar juggernaut seemed unstoppable.

Never mind that during this same four years a financial crisis was brewing, bubbling along on lax regulation and risky investments. And, never mind that during the four years of the solar boom the housing (building) market was leveling off and steadily slowing. As the global economic system edged towards crisis (and this crisis was visible if the signs were observed and believed) the solar industry celebrated, believing in its success and disbelieving that it could change almost overnight.

In September 2008 the solar boom slowed, finally coming to a halt as overselling, high levels of inventory, the almost complete closure of the market in Spain and the global financial crisis collided to stall the market for solar. For the solar industry, the two most important factors were a) the loss of Spain and b) stalled debt markets. Other factors included high levels of inventory in an oversold market, the building crisis, the global recession (affordability), high unemployment and others. No other market magically appeared to take the gigawatt volume consumed by Spain during the boom. In 2009, the only gigawatt-level market remaining to the solar industry was Germany.

Enter doom and gloom — come on in, take off your hat and have a seat. At a recent thin-film conference in Japan, sentiments in the room were dour. Capacity expansion plans had been put on hold, and the market was described as difficult by more than one participant. Some, of course, mentioned strong demand in Germany, but there was a significant lowering of volume in terms of optimism.

During the boom, thin-film manufacturers (new entrants and long-time industry participants) were confident that lower manufacturing costs would lead to ensured long-term success. The market reality that price and cost can be disconnected and that market drives price was ignored. Soft demand and high inventory levels leads to lower prices, while strong demand will drive price to the point where the market cries uncle. So it was a surprise when lower priced c-Si began to edge out thin-film sales. With current prices for crystalline (in some cases) at cost, efficiency is once more the name of the game.

Truthfully, times are tough for all with pricing from manufacturers at low profit or unprofitable levels and debt markets still constrained. Moreover, though the recession is easing, global economic uncertainty is constraining consumer buying — particularly for durable goods. Finally, since it is an important point, the market for solar is driven by incentives and will be for some time — the current low prices will not last.

Unpleasant current market conditions aside, the solar industry is unlikely to sink into another 30 years of unprofitability (though 2009 and perhaps 2010 will be painful). During the boom, new business models began to emerge on the residential and commercial sides of the market that, when mature, will ease the buying decision and potentially overcome the affordability gap. The various thin-film and c-Si technologies continue to improve, lowering manufacturing costs and increasing conversion efficiency. New markets are struggling to develop incentives that can be controlled (thus avoiding the Spain situation) and still stimulate demand.

The realization that people are destroying their environment appears to be accepted worldwide. The future is strong for solar as long as it sets up systems to manage its markets instead of destroying them (Spain again), continues to invest in technology research and development and matures new business models. Strong growth, such as that experienced during the boom, of ~50% a year are not normal — though, in a start-up industry such as solar they are to be expected. The boom gave the PV industry a gigawatt base from which to continue growing, and it will continue to grow — albeit in 2009 and likely 2010 at a slower rate than previously (in 2009, growth in the PV industry is expected to decline anywhere from 17% to 32 %).

A couple of slower years will give the industry time to shed some of its unprofitable and unsustainable ventures — both technology and business. Meanwhile, the business of creating clean renewable energy and profitable companies that will provide jobs and innovation for years to come will go on — despite the current doom and gloom and despite future booms.