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20
July
2012

Solar module price erosion slows in 1H/2012

In a modicum of good news for the battered solar industry, price declines for photovoltaic modules are expected to moderate slightly in 1H/2012 on the strength of renewed demand, according to IHS.
Average market pricing for crystalline solar modules is still expected to fall in the second half, but the decrease will ease slightly to 11 percent compared to a 12 percent drop in the first half of the year, and to an even larger 20 percent plunge in the second half of 2011. Average market pricing in the fourth quarter of 2012 is forecast to decline to €0.57 per watt, down from €0.64 in the second quarter.

“Despite the persistent overcapacity situation that continues to undermine pricing throughout the entire solar supply chain, the PV market is finally showing some signs of improvement,” said Stefan de Haan, principal analyst, photovoltaics for IHS. “Not only is the outlook on 2012 global installations rising continuously, Taiwanese cell makers in June also reported growing demand. Together these factors are helping to bring some stability and slow the pace of price declines.”

The rise in demand for Taiwanese cell makers is one cause accounting for the stabilization of PV cell prices. Earlier in the year, punitive tariffs of 30 percent to 250 percent were imposed on Chinese modules sold in the United States, compelling Chinese manufacturers to look increasingly to external sources—like Taiwan, as well as from South Korea--for obtaining solar cells.

Nevertheless, the price reductions for modules will flow only partially through the solar supply chain. Vertically integrated module manufacturers will benefit from cheaper polysilicon, but pure play module makers should not count on any strong declines in cell prices.

Modules are a key element in creating complete solar systems, consisting of combinations of solar cells, wiring, a frame and glass.

The installation plan

Global installations of PV solar systems In 2012 are expected to reach 30.2 gigawatts (GW), up 9 percent from 27.8 GW in 2011, according to the IHS iSuppli PV Service. In the best-case scenario, installations of 36 GW are possible, representing 30 percent growth.

Robust demand amounting to 7.3GW worth of new installations is expected in Germany this year. Although German installations in 2012 will be down 3 percent from 2011, the decrease is a much smaller setback than many had feared. This comparably strong performance is expected despite the reduction of the government feed-in tariff (FIT) that had incentivized the growth of the German PV market in recent years.

“Recent developments indicate that the German PV market is weaning itself from subsidies more quickly than many had expected,” de Haan said. “Supermarket chains in the country have begun to invest in PV systems with the clear goal of generating electricity for self-consumption. In some of these projects, the cost savings from solar energy are already replacing the FIT as the justification for investment in PV systems.”

Overcapacity overload

Notwithstanding the improvement in market expectations, the fundamental overcapacity situation continues to plague the industry.

IHS iSuppli’s latest projection shows that in 2012, total operational module production capacity will amount to 49.4GW and cell production capacity will equal 43.5GW—both far in excess of the 30.2GW worth of global installations expected this year.

Considering the current consolidation process and the significant upside potential in global demand, IHS expects the overcapacity situation will ease noticeably starting in 2013. The second half of 2013 could mark the beginning of a new investment cycle in the PV industry.
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