Solar prices – catching a falling knife

There is hope in the solar industry that panel prices may begin to stabilise early next year – but there’s little reason to believe that ‘hope’ will marry with reality.

SolarBuzz

The air of confusion permeating across the current round of earnings calls in the solar PV industry is not particularly surprising, given the turbulence and negative operating performance by almost all solar PV manufacturers in recent quarters.

Several questions remain somewhat off-bounds however, when it comes to committing to any firm guidance. This includes timelines on margin-recovery, future capex plans, year-end demand (fourth quarter 2012 Asia-Pacific-demand both encouraging and risky) and the one that trumps them all – future average selling price trends.

When overcapacity (and then oversupply) infiltrated both upstream and downstream channels through 2011, the initial speculation was based upon what the solar industry would look like in order to sustain a rebound in prices. This optimism quickly turned to forecasting when (not necessarily how) pricing declines would halt and then stabilise – allowing solar PV manufacturers sufficient breathing space to work on cost-reduction.

The timing of average price stabilisation has been somewhat of a moving target now for 12 months, with the current ‘hope’ that this may occur at the start of 2013. But it is not clear what is driving this new form of optimism, other than the uncertainties related to anti-dumping investigations worldwide.

Supply-and-demand still remains precariously positioned, with offline capacity and underutilisation of existing capacity being used as the control element here to limit upstream oversupply and further price erosion (based on competition to retain supply market-share). Prices can only be stabilised at the manufacturing cost level before balance between supply and demand can be restored.

Rather, there are more alarm bells for first quarter 2013 in the works than reasons for optimism that prices will stabilise then. The historic industry trends highlight a track-record of year-end surges – previously from Europe, and now from Asia-Pacific and especially the domestic Chinese market. And plans from Chinese manufacturers to adjust utilization rates in the second half of 2012 to meet a large spike in fourth quarter 2012 shipments can only come with a high degree of risk.

The threat of upstream inventory build in first quarter 2013 is therefore a strong possibility, and the chances of price stabilisation if this occurs may be remote. Especially if there is a surplus of low-efficiency multi-based c-Si modules produced specifically for the Chinese end-market that subsequently need to be rerouted to any overseas market.

Of course, the silver lining once again is end-market elasticity with emerging markets being stimulated faster than expected on the back of low solar PV module prices. This will certainly help drive overall demand levels during 2013, but will represent new demand based purely on a low-price offering. And as such, it will be cost-reduction therefore that will almost certainly remain the dominant buzzword through 2013.

This article was originally published by SolarBuzz. Republished with permission.

Related Articles