Solar Energy Market Gets Even Hotter in 2010

What a difference a year makes. Last July, solar panel makers and their suppliers were feeling the strong jab of the recession and wondered whether the young solar industry could survive this downturn. Then, unexpectedly strong demand in Germany and the rest of Europe pulled solar manufacturers out of their decline. In fact, global solar panel shipment in the second quarter of 2010 is up 92% from a year ago, according to a report released by IMS Research Monday.

Solar panel makers shipped 3.7 gigawatts of solar panels in the second quarter and generated $7.1 billion in revenue in the process, IMS says. Chinese companies such as Suntech Power, Trina Solar and Yingli Green Energy are some of the largest manufacturers to benefit from this strong demand. American solar panel makers such as First Solar (FSLR) and SunPower (SPWRA) also have seen a surge in sales.

IMS also has forecast that 14.6 gigawatts of solar electricity generation capacities will likely be added worldwide this year, almost doubling the capacity added in 2009.

The market research data comes as a large solar energy conference opens in San Francisco this week called Intersolar, where manufacturers, project developers, utilities and government officials are gathering to discuss new technologies and market trends, and to sell their goods and services.

"All the suppliers are producing near their maximum capacities, and they are expanding quickly this year," says Sam Wilkinson, an analyst at IMS.

The German Factor

Germany's generous government incentives have played a big part in the growing demand for solar-electric equipment. The country sets solar electricity prices that are higher than prices for power from burning fossil fuels such as coal, and the nation requires utilities to buy all the available solar power for sale. This policy, called feed-in tariff, has become popular in other European countries such as Italy and France, prompting some solar energy advocates to lobby for similar legislation in the U.S.

Germany's feed-in tariff plan calls for a gradual reduction in incentives -- the government believes the incentives should fall as solar energy systems become cheaper. Some of the country's lawmakers began to call for a sharper incentive cut last fall, when voters ushered in a new political coalition whose member parties thought the feed-in tariff was too generous. Their belief was that such government support might not be so critical anymore now that Germany has become the largest solar market in the world.

Fears of a dramatic fall in solar electricity pricing prompted many project developers to act quickly to complete their installations before new policies were put in place. And this rush began toward the end of the year.

"We were surprised by the number of installations that occurred in Germany. It surprised everyone," said Rob Gillette, CEO of First Solar, during a conference call to discuss the company's first-quarter earnings. First Solar was the largest solar panel maker in terms of production last year, according to another market research firm, GTM Research.

Last week, the German parliament agreed to a compromise plan that would reduce the incentives for as much as 13% for certain types of projects.

Looking Ahead

Solar energy projects built in Germany could account for 47% of the global installations in 2010, IMS says. The U.S. could take up 8% of the same pie, Wilkinson says.

The unexpected boost from the German market also showed how unpredictable the solar market can be. Several research firms made 2009 projections that didn't resemble the actual production and installation statistics. But many of them are certain that this year will a blockbuster one for the industry. Back in April, Photon Consulting was projecting 18.8 gigawatts of new installations globally for 2010. Solarbuzz, meanwhile, is forecasting 15.2 gigawatts.

That sense of optimism certainly has showed up in investments into solar technologies: They grabbed the most dollars from private-equity firms during the second quarter of this year.