by Paula Mints, Navigant Consulting
April 17, 2009 – As the cliché goes, a picture is worth a thousand words. So it is with global solar technology (cells and modules) revenues. During the 12-year period from 1996 through 2008, revenues increased by a compound annual growth rate of 40% from $367 million to $20.4 billion (see Figure 1). Even though the market for solar products was significantly oversold, though, technology revenues increased by 80% in 2008; megawatt sales totaled 5.5GW. Those strong revenues and sales will be remembered fondly at the end of 2009, as demand softens and technology prices continue falling.
Figure 1: Solar industry technology revenues 1996-2008, US $M. Does not including system revenues, or revenues from integrating cells into calculators and watches. (Source: Navigant Consulting)
If 2008 was a party for the industry, 2009 is the morning after. Currently the PV industry is coping with high levels of inventory left over from overselling the 2008 market while a global recession along with a banking, credit, and housing crisis has softened demand for PV systems. Figure 2 offers three forecasts ranging from a recession forecast with negative (-4%) growth to an accelerated forecast with 20% growth. Even these conservative forecasts are viewed by the usually upbeat PV industry as too optimistic.
Figure 2: Solar industry five-year demand forecast, 2003-2013. (Source: Navigant Consulting)
High inventory levels and soft demand are driving prices in 2009. The average module selling price in 2008 was $3.69/Wp, though this average hides a significant range, from <$2.50/Wp for some thin-films to >$5.00/Wp for smaller modules and buyers with little market power. In 2009, average module prices are $2.90/Wp, about 21% off the 2008 average. Again, there are still some higher price modules on the market but they are not moving robustly, and there are modules selling at a significantly lower price/watt.
Given the above forecast and the current average module price, PV industry revenues are likely to fall in 2009, something the industry has not experienced since the bad old profitless days. Given current market conditions — low price and soft demand — the following revenue expectations are not unreasonable to assume:
- Recession forecast: -25% for $15,220-million
- Conservative forecast: -14% for $17,487-million
- Accelerated forecast: -6% for 19,137-million
With current market conditions, the estimate of $19B in 2009 revenues under the accelerated scenario would probably come as a relief.
The industry and its observers should take heart; all forecasts eventually lead north to continued strong demand and sales. Realism, though, requires that the industry expect a least a year, and perhaps two years, of lower prices, sales, and profitability. Simply, the PV industry is entering a short-term period of being demand limited. As for any industry from toothpaste to luxury cars, this period will bring lower prices (perhaps aggressively so) and tighter margins. It will also, out of necessity, accelerate the learning curve to the manufacturing efficiencies that bring lower costs and thus more cushion in profit margins.
Historically, the PV industry has proven more than willing to price aggressively, to near and in some cases below cost. (see Figure 3). While over time the trend is to lower prices, there are also periods of price increases, most notably during the 2004-2008 boom.
Figure 3: Average module selling prices, 1983-2008. (Source: Navigant Consulting)
The PV industry is still maturing, and after a short period will continue experiencing strong growth. Likely, there will be future periods of high pricing, years in which the market will be oversold, and new business models to complement what has always been excellent technology development. The current situation of soft demand after several years of >50% growth in annual sales has to feel like déjà vu to industry participants that lived through the profitless years. But just like the morning after hangover, this too shall pass.
Paula Mints is principal analyst, PV Services Program, and associate director in the energy practice at Navigant Consulting. E-mail: [email protected].