THE GOOD THING ABOUT THE RECESSION (IF YOU WANT SOLAR ENERGY

The Effects of the Financial Crisis on Photovoltaics: An Analysis of Changes in Market Forecasts from 2008 to 2009
John E. Bartlett, Robert M. Margolis and Charles E. Jennings, September 2009 (National Renewable Energy Lab)

SUMMARY
Shocking news: Less money has been available to the photovoltaics (PV) industry since the Fall 2008 crash. More shocking news: There’s gambling at Rick’s. (The latter is a Casablanca reference meant to imply that the former is hardly shocking news.)

The financial downturn’s biggest impact on the PV industry has been to make the cost of financing greater and the availability of financing less, primarily for installations rather than manufacturing. The overall result is a drop in solar module and solar system costs. Those are the main findings of The Effects of the Financial Crisis on Photovoltaics: An Analysis of Changes in Market Forecasts from 2008 to 2009, by John E. Bartlett, Robert M. Margolis and Charles E. Jennings of the National Renewable Energy Laboratory (NREL).

From TokDiYel via YouTube

The result of the impacts on installations and manufacturing is that demand for panels has dropped faster than the supply of panels. The result of that is pretty easy to guess: The cost of PV systems is down. The good news is there has probably never been a better time for consumers to go solar.

This was an acceleration of a trend toward more affordable solar foreseen long before the crash and accentuated beyond any expectations by the crash.

Though this is bad news for the solar industry, it's good news for anybody who wants to build a solar installation.

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What happens next? Well, data collected more recently leads the NREL researchers to conclude that prices are falling even faster than they expected.

Does that mean the solar industry downturn will also last longer than expected? Not necessarily. It’s complicated. Lower prices should lead to more demand. More demand should lead to a clearing of inventories and rising prices and that should lead to more activity throughout the sector. But the oversupply is also likely to lead to reduced government incentives, as has already happened in Spain and is all but a done deal in Germany. That means reduced demand, less activity and bigger inventories.

But China and India are just getting started. China alone had more than 50 new solar companies come into the marketplace in the recession year of 2008-09 and India is about to set the biggest solar energy target in the world. Things appear about to get very interesting.

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COMMENTARY
The PV industry is still pretty much a fledgling. Its growth requires significant financing to corporate development and project development.

The development of corporate operations and expansion had, before the crash, been financed by government grants, venture capital, private equity, corporate debt and public equity. Projects required financing for development, construction and operations.

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The impact on PV investment was not equal from every sector and in both corporate and development financing. Though venture capital (VC) and private equity (PrE) are more protected than other investment from a financial crisis, they are not invulnerable:

1- Public equity investment in PV companies went down almost two-thirds from Q4 2007 to Q4 2008. At the same time, VC and PrE investments in PV companies went up more than one-third.
2-Nevertheless, VC and PrE investments in photovoltaic companies went down over 50% from Q4 2008 to Q1 2009.

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Significantly, investment is used over varying time spans by the corporate and project sides of the PV business. VC, PrE and public equity investments can be used over several years to build PV companies. But project finance funds are usually spent quickly on PV systems to take advantage of the best subsidies available before the subsidies decline with the rising volumes they are meant to generate. This explains how interrupted investment directly impacts corporate development more slowly than project development.

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There are also indirect impacts of the recession and the resulting declining investments in both parts of the PV industry.
1-Reduced across-the-board income leads to lower electricity demand, as verified by recent Energy Information Administration (EIA) statistics.
2-Reduced income and associated reduced wealth leads to a reduced inclination among ratepayers and consumers to spend on PV systems when there is only a purely environmental and not economic purpose.
3-Led by natural gas and oil, energy prices have dropped, making PV systems less competitive.
4-On the upside, the financial crisis produced the stimulus bills of late 2008 and early 2009 which created much new public investment in the form of tax credits, rebates, government expenditures and other mechanisms. These will likely create some compensatory demand and supply fluctuations.

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The NREL paper details, as demonstrated by the graphs here included, what was forecast for Q3 2008 and Q1 2009 in polysilicon production and PV (crystalline silicon (c-Si) and thin film) module production. It makes an analysis of regional and global demand forecasts and then of polysilicon, PV modules and PV system price estimates. Using this data, it comes to its conclusions about the impact of the crash on the PV industry and offers a forward-looking perspective.

Specific findings on production include:
1-Changes in estimates of polysilicon production grew larger as the crisis deepened.
2-More polysilicon went to the solar industry and less went to the semiconductor industry as the crisis deepened.
3-Module production going forward remains difficult to predict.
4-For any thin film formula(a-Si, CIGS, CdTe) growth is the forecast. Cadmium Telluride (CdTe) is the likeliest to grow. Thin film could, however, face greater competition from conventional silicon panels. Thin film's lower cost-lower efficiency market advantage would be undercut by less expensive yet still more efficient silicon panels.
5-Although it is clear that production changes will be greater than demand changes, it is not clear that indirect impacts of the financial downturn will accelerate that trend.

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Observations on regional demand:
1-European market share will decrease going forward as its market matures and its incentives drop.
2-North America’s market share will increase as its incentive policies grow. Obama administration efforts as well as British Columbia’s carbon tax and Ontario’s feed-in tariff are indications.
3-South Korea and Japan, with maturing markets, gain market share in the near-term but then lose market share in the European pattern and for the same reasons going forward.
4-Predictions for the rest-of-the-world (ROW) market share (China, India, Australia, the Middle East, etc.) are problematic because it is uncertain how much money will be invested. It is uncertain how the financial crisis will play out and in what time frame recovery will take place.

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Production will dramatically outstrip demand through at least 2010. As a result, module price and installed system prices will continue to drop.

Significant new information emerged between Q1 and Q3 2009. Throughout the PV supply chain, price drops have been greater than predicted.
1-The price for polysilicon at the beginning of the year was $107/kg but dropped to $74/kg in May and $70/kg in August, a price level not previously expected until 2012. It is expected to fall farther.
2-Module price was ~$3.75/W in 2008, was expected to fall to $2.60 by June but fell to $2.40-$3.00 for silicon and $1.70 for thin film. It fell to $1.90-$2.60 for silicon and $1.60 for thin film by mid-August.
3-Very low-priced Chinese silicon modules were the drivers of the oversupply but Japanese, European and North American silicon module supplies are closing the price differences.
4-Thin film prices are not dropping as quickly as silicon module prices, suggesting that thin film growth may not be as great as predicted.

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QUOTES
- From the report’s conclusion: “While the further decline in module prices will increase the returns on investments in PV systems, leading to more installations, the current demand picture is complicated by the uncertain nature of public policies that incentivize PV. For example, the importation of lower-priced Chinese modules generated pre-election opposition in Germany to the level of the country’s feed-in-tariff.43 On the other hand, China and India have both recently announced incentive programs and targets for PV installations, but their near-term impact is unclear.”

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- From the report’s Q3 2009 update: “While the range between Chinese and European module producers has increased in percentage terms, the difference between average c-Si prices and CdTe prices (from First Solar) has narrowed considerably. Given their lower efficiency, CdTe modules need to be priced 25-30 cents below c-Si modules to generate equivalent project returns…The drop in c-Si prices prompted First Solar to institute a rebate program in Germany to maintain its sales growth. With a recently-projected c-Si module price of $1.60 in 2010 (far below the median Q1 2009 estimate of $2.45 for the average module price in 2010), CdTe modules will have to sell around $1.35 next year...This pricing pressure from c-Si modules will be even more intense on a-Si, which is less efficient than CdTe, and on CIGS, being the least established technology. Whether thin film PV will continue to gain market share…is now less probable.”