Solar recession signals end of ‘Wild West’ gold rush

solar-power_1.jpg

This article is part of our special report Solar Power.

A clean-energy recession caused by massive over-capacity in the solar panel market could have unexpected benefits for the nascent renewable industry, industry insiders say.

“There's going to be some contraction and consolidation but I think that will benefit the environment as a lot of the quick shops that were set up to flood the market with panels will not make it through that wave,” Christopher Burghardt, vice president of the First Solar energy firm told EURACTIV.  

“It will lead to a much more mature industry instead of the Wild West growth which we've had in the last years,” he added. “When you have an explosive market somewhere, everybody rushes in and so it’s a gold rush.”

Demand for solar panels has mushroomed in recent years, particularly in Germany and Italy, where sales soared 87% last year.

The EU’s 2020 targets all but guaranteed a market for the panels and, as economies of scale led to a drop in manufacturing costs, prices also began to fall from an average panel price of $1.75 per watt at the beginning of 2011, to a predicted $1.10 by year’s end.

In 2011, there has been a corresponding fall in national subsidies known as "feed-in tariffs," as solar energy approaches market parity with other forms of electricity, so reducing demand.

This in turn has stoked a worldwide solar panel glut, as China entered the clean energy market at the same time, investing a mammoth $30 billion in its solar industry.

The result has been a huge over-supply of solar panels, with annual panel sales in Germany expected to fall by more than 30% and global demand for solar sales by around 10%.

Boom and bust scenario

Speaking at a Eurelectric conference last week, Reinhold Butgereit, the secretary general of the European Photovoltaic Industry Association (EPIA) said that the prospect of retrenchment did not keep him awake at night.

But “the most important thing is to find the most cost-effective and acceptable way of harmonising the [feed-in tariffs] system,” he said.

In America, the boom and bust scenario was highlighted when the Solyndra solar panel factory went bankrupt, and laid off 1,100 workers, after receiving $535 million in federal loan guarantees.

First Solar has also indirectly benefited from $3.073 billion in loan guarantees from the US Department of Energy, $1.46 billion of which was used for loans by a syndicate of lenders including Goldman Sachs, Lending Partners LLC, and Citigroup.

Burghardt said that the guarantees had been a “critical enabler” for First Solar projects, and that the firm was the lowest-cost maker of solar panels.

“The projects we’ve got loan guarantees for are solid,” Burghardt said. “They’ve been commercially vetted by banks and insurance companies. There is no question of the government taking risks, because they are secure.”

And with the cost of solar power dropping, its long-term competitiveness with fossil fuel energy sources can only improve.

Burghardt said that the industry’s current consolidation period would be “a very favourable thing” in the long-term because it would allow production below investment costs, with “risk tolerance” factored in.

China

In the meantime, solar energy enthusiasts note that despite the Solyndra collapse, solar power installations doubled in the US and the sector’s job base grew 6.8% last year, nearly 10 times faster than the economy as a whole.

David Nelson, a senior director at the Climate Policy Initiative told a Brussels policy meeting recently that cost reductions brought on by over-supply could be very positive if more panels were sold on the Chinese domestic market. 

“Only China can soak up a lot of that,” he said, “and if China goes forward it could mean that the [solar industry] shake-out won’t be nearly as large as you might think.”

“The big question really is China,” he added.

Despite its huge promise, solar currently provides less than 1% of energy sold globally, mainly due to its intermittent nature and low intensity. The main reason for this has been difficulties exploiting the resource on a large scale and at a competitive price.

Solar electricity will become attractive when it falls below so-called "grid parity," the point at which renewable energy becomes cost-competitive with conventional sources like fossil fuels.

Favourable regulatory regimes and rapid technological evolution in the industry helped the sector to get onto its feet quickly. But many in the industry now fear that the sudden removal of tariffs, often retroactively as seen in Spain, is damaging future growth prospects, particularly in Europe.

Subscribe to our newsletters

Subscribe

Want to know what's going on in the EU Capitals daily? Subscribe now to our new 9am newsletter.