Mar. 21, 2008 – Surging growth and interest in solar technology has inflated a “bubble” that’s primed to burst within the next two years as supplies of solar modules crossover to outstrip demand, according to a report from Lux Research.

Spurred in large part by government subsidies in Europe and Japan, solar demand has rocketed in recent years, with demand outracing supplies, but the market is now approaching a tipping point where solar module supplies will exceed demand in 2009, causing prices to fall and an industrywide shakeout, particularly for crystalline silicon firms upended by new rival thin-film technologies, notes Lux Research senior analyst Ted Sullivan, in a statement.

The report looks at five solar technologies — crystalline silicon photovoltaics (PV), multi-junction PV, inorganic thin-film PV, organic and Grätzel PV, and solar thermal — and forecasted solar supply and demand through 2012, spanning three application segments and 10 countries. Their findings suggest that the market crossover point for solar modules will happen in 2009, with supplies (9.57GW) outpacing installations (8.96GW), as polysilicon shortages ease, inorganic thin-film PV capacity builds out, and new HCPV and solar thermal technologies gain ground. The oversupply situation will keep worsening into 2010 and last through 2012, the firm projects, reaching 20.3GW of installations vs. 21.2GW of supply.

“By 2010, crystalline silicon PV will be freed from polysilicon supply constraints — but it will immediately be hit with a one-two punch of slackening demand growth and increased competition from new technologies, namely inorganic thin-film PV and solar thermal,” writes Michael LoCascio, senior analyst at Lux Research. “While sales volumes, measured in megawatts, will continue to increase, average sales prices will fall. The result is that revenues for crystalline silicon PV will drop on a year-over-year basis in 2010 for the first time in memory — which will cool the enthusiasm for venture capital funding and IPO events.”

Also, the report notes that government-backed solar subsidies will continue to drive solar demand through 2012, with new markets including China and India introducing plans while early-adopters (Germany, Japan, Spain) see theirs ramping down. The new crop of subsidies will shift supplies and fuel domestic production in these new geographies, the report notes.

Meanwhile, as the supply/demand balance shifts, Lux reports that solar IPOs dropped in 2007, with total funds raised falling 40% to $2.20B. And of the $2.48B worth of solar industry M&A deals since 1995 (41 in all), fully 97% have realized that value 10 years later — but a large part of that was due to “an acquisition spending-spree” by Applied Materials.