New German Government and First Quarter of 2010 Crucial for Global Solar Industry

01 Oct. 2009 by

The German market is experiencing a late boom in demand in the second half of 2009. This was the conclusion reached from discussions with manufacturers and experts at Solarplaza’s Third Global Demand Conference in Hamburg last week. Despite this upsurge in Germany and other growing markets, 2009 sees the global PV market facing a decline in newly installed power for the first time in its 30 year history. Therefore, one of the topics at the conference was the question as to what might happen to global demand in 2010 and 2011?

In general, expert speakers from the world’s top ten markets who attended the conference were optimistic. Even Spain could report growth again next year following the enormous dip in new installations in 2009. The biggest concern is what might happen in the German market. Most tier one module manufacturers claim to have sold out until the end of 2009 due to unexpectedly high demand from the world’s number one market. This in itself is not an unexpected development given the sharp decline in module and system prices, and the guaranteed attractive feed-in tariff level. The return on investment is in double digits, and investors as well as German home-owners will have little alternative for their money. The reliable, smooth and sustainable feed-in tariff regulation is a big factor in spurring growth. People in Germany can trust this system, and many early adopters have paved the way for new customers. Experts will not be surprised if market volume in Germany in 2009 surpasses 2.5 GW of new installed PV power. That would mean more than 40% growth compared to 2008. Subsequently, the cost for German rate payers will increase substantially over the next 20 years.

This is contributing to experts’ fears. What will happen to the feed-in tariffs after the elections? With the results of the elections, the liberal FDP will join the government coalition, and the party is not the biggest supporter of the FIT. If German manufacturers are facing heavy competition from foreign module manufacturers, and the cost of the German feed-in tariff system continues to rise, where will all the money go? Will this strong German market growth help the German solar industry? Apparently not completely; German companies have faced difficulties, and even Q-Cells has had to restructure its business and lay off hundreds of people. This is a concern addressed by several German manufacturers and politicians. Are German energy rate payers prepared to subsidize development of the global, or maybe more specifically the Japanese and Chinese, PV industry? Should the level of the German feed-in tariff be corrected more drastically to guarantee a more sustainable return on investment and reasonable growth in 2010? Experts believe that the new coalition will discuss the 2009 market results and adjust the feed-in tariff by more than the planned max of 9-10% by 1 January 2010. What this means is that many customers will rush to have a PV system installed before the end of 2009. And subsequently, the traditionally weak first quarter of 2010 might report even worse results if the FIT is decreased by more than 10%.

Similar things could happen in other markets with feed-in tariffs that will be adjusted by the end of this year, e.g. Belgium, which is booming, and the Czech Republic. Overall, the first quarter of 2010 could be challenging for the solar industry and several module manufacturers. Certainly if module prices continue to fall. And this is what experts at Solarplaza’s Global Demand Conference predicted as well. Not only analysts expect crystalline module prices to hit a record low sales price of € 1 per watt. Even some tier one and two manufacturers have claimed that these could be the prices reached in 2010. This low sales price will hit companies with relatively low sales volumes, and will impact those selling modules at much higher prices. With currently declining margins, they will have difficulty sustaining sufficient sales volume and profitable business operations. And among those manufacturers could be German companies that are currently still selling premium brand modules at close to € 2 per watt. With good quality modules coming from China, there will be less reason to justify such a big price difference.

A market survey conducted at the conference showed that on average, experts attending the conference were optimistic about 2010 and 2011. In 2010, they expect the market to grow to 7 gigawatts, and close to 10 gigawatts in 2011. Forecasts made by experts in surveys conducted at previous Global Demand Conferences have been extremely accurate compared with results in practice. This means the market in 2010 will face more sunshine after a cloudy 2009, but some companies could get burned - not by high irradiation, but by low sales prices and margins which are too thin.