Solar glut is temporary, demand to catch up by 2012

The oversupply problem plaguing the solar panel industry may be coming to a close. A glut of panels caused prices to plunge this year, calling into question the future of the industry, as well as the individual fortunes of manufacturers. An increase in demand from Germany is helping to consume the excess inventory on the market, according to a new report by research firm iSuppli, which should provide some support to the manufacturers.

Close to half of all solar panels manufactured this year will not be sold in 2009, iSuppli says, and it forecasts that the glut will continue until 2012. In August, the company pegged oversupply at 92% for 2009, but it recently revised the overage rate to 66%.

Among the culprits is the Spanish government, which changed its feed-in tariff policies, leading to a substantial decline in demand for a market that accounted for 50% of worldwide solar panel installations. This triggered buildups throughout the supply chain. Nonetheless, manufacturers continued to construct, making the situation worse.

As the industry adjusts, production is expected to flatten from 2011 through 2013 compared to previous predictions. By the end of 2009, solar panel production will increase by 14.3% to 7.5 Gigawatts, from 6.5GW in 2008. But, only 3.9GW of installations will occur this year. As a result, close to half of all panels will be stored for a rainy (sunny?) day. An expected acceleration of demand after 2012 will absorb the excess inventory and lead to more production.

Despite the current situation, many manufacturers aren't pulling back on supply in order to maintain their market shares. Suntech Power (STP), Sharp (SHCAY) and JA Solar (JASO), according to iSuppli, will continue to grow with the broader photovoltaic industry. Suntech will become the top producer of crystalline cells this year, according to iSuppli predictions, with Sharp, Yingli Green Energy Holding Co (YGE) and JA Solar staying in the top five. Meanwhile, Q-Cells (QCLSF), SunPower (SPWRA) and BP Solar have adjusted their production in the face of softening demand.

Yingli's profit for the past quarter beat expectations, with demand in Europe outpacing supply. Q-Cells expects 2010 to be strong, thanks to cost cutting and an expected increase in demand.

The oversupply situation could be addressed in 2010 because of demand in Germany. According to Henning Wicht, senior director of photovoltaics research at iSuppli, "Solar-panel installations in Germany began surging to record levels in July as prices for photovoltaic systems plunged." He continues, "This phenomenon has boosted the global solar panel business and mitigated the severe oversupply situation that has stung the industry throughout this year."

The situation in the solar panel sector is reminiscent of Internet capacity availability in the late 1990s. There was no shortage of fiber, most of it remaining dark. It just took consumption time to catch up with existing capability. Solar is next, and iSuppli expects the need to expand to capacity – just give it a little time.

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