Germany this year is projected to lose its place as the world’s top photovoltaic (PV) market, slipping to No. 2 behind former runner-up Italy, now anticipated to vault to the apex of a fast-growing but price-depressed solar space, according to an IHS iSuppli PV market brief from information and analysis provider IHS.
Solar installations in Germany during 2011 are expected to reach 5.9 gigawatts (GW), with ofﬁcial ﬁgures from the German Grid Agency reporting installations from June to September totaling 2,275 megawatts (MW), better than expected compared to the original IHS iSuppli estimate of 2,194 MW. A mini boom of sorts also materialized in Germany in October, November and December because of low system prices and changing tariffs by the end of this year, which has helped the market in that country, long the world’s dominant solar player.
Nonetheless, Italy this year added more solar capacity than any other country and embarked on a massive installation spree of about 6.9 GW—enough for it to nab ﬁrst place—thanks to attractive tariffs and changing subsidy schemes from Rome. The rankings were reversed last year, with Germany on top at 7.4 GW and Italy in second place with 3.6 GW.
Following in the wake of the two giant European players will be the United States in third place, with 2.7 GW; China in fourth, with 1.7 GW; and a two-way tie for ﬁfth place between Japan and France, each with approximately 1.0 GW of new installations. In all, new global installations this year will reach 23.8 GW, up a robust 34 percent from17.7 GW in 2010.
The change in rankings this year can be attributed to a stalled German market in the ﬁrst half of 2011, with new installations amounting to only 1.7 GW—less than a third of the full year. Artiﬁcially high module prices also reigned in the ﬁrst month, due to surging demand in Italy. Then, when the Italian market paused from March to May, prices dropped day by day, prompting many investors to wait out the market. Only from September onward did installations in Germany seriously pick up again, reaching a rate of 500 to 600 MW in a month that is projected to last until the year-end.
In comparison, installations in Italy after a modest second quarter are estimated to reach a far-more robust 2 GW in each the third and fourth quarter, helping that country jump to the top of the PV market this year.
PV Prices Shake Down in an Intensely Competitive Market
Despite the worldwide increase in new PV installations this year, component prices in the solar supply chain—stretching from wafers to modules—continue to fall. In the third quarter, for instance, large PV systems were being offered in Germany at 1.60 euros—or about $2.13—per watt, down from 1.80 euros; with residential rooftop installations also declining to 1.90 euros, a reduction from 2.20 euros. Among less favorably positioned Tier 2 and Tier 3 suppliers in Germany, desperation selling had driven module prices to levels reaching 0.60 euros per watt.
The weak demand in Europe will lead to further price battles in 2012, with module prices forecast to reach 0.60 euros ($0.80) in February 2012, IHS believes. The primary ﬁeld of contention will be module and polysilicon prices. Already, spot pricing for polysilicon has dropped below $30 per kilogram as of early November, and spot prices of $20 are possible by the March/April time frame given the continuing decline in demand. Meanwhile, module prices will be driven by production costs, with the rapid fall in the cost of silicon expected to pave the way for cheaper modules to be produced.
Given the intense competition in the market and the current oversupply, gross proﬁt margins from wafer to module production will be in the single-digit range. Even best-in-class companies will not be able to escape the pressure on margins, and savvy business plans will need to be adopted by ﬁrms to navigate the crunch, IHS believes. In a recent example, American manufacturer First Solar Inc. already has chosen to postpone the commissioning of a solar plant in Vietnam. Other manufacturers also will have to excel in their operations and increase performance without spending in order to stay proﬁ table.
Still, the overall picture could improve soon. System prices are expected to stabilize in the fourth quarter this year at 1.5 euros per watt for ground and at 1.8 euros for rooftops, due to increasing orders. Worldwide demand also is expected to pick up by April 2012, driven in Germany by a cut in feed-in tariffs expected to occur in June, as well as by supportive local programs coming online in China and the emergence of new markets such as India.
A healthier business environment for the PV industry could well emerge by the ﬁrst half of 2012— but only if demand returns as a reaction to the low system prices on the market.