Analysts Say Solar Prices Beginning to Fall

Analysts predict solar-panel prices will falrl next year as the production booms. Meanwhile, public solar companies see their shares fall 5 percent.
by: Jennifer Kho
Bullet Arrow September 15, 2008

As solar stocks fell 5 percent across the board Monday and the Dow Jones industrial average dropped 2.65 percent to 11,119.84, analysts at a Greentech Media conference said solar-panel prices also are on the way down.
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"Two weeks ago in Valencia, we saw a complete unwinding of the solar trade," said Jed Dorscheimer, an analyst with Canaccord Adams, at Greentech Media's Thin-Film Revolution conference in New York City, referring to falling share prices. "While companies attracted people to their booths with attractive women and open bars, the party is coming to an end."

Canaccord Adams expects to see more than 10 percent of erosion in average selling prices in the next two years, he said.

Meanwhile, the Prometheus Institute expects average selling prices for solar panels to fall below $3 per watt by the end of the year, said Travis Bradford, president of the institute.

Prices already have fallen to around $3.60 per watt in the first half of the year, from an average of about $3.70 per watt last year, and those prices are being propped up by the strong Spanish incentive, he said.

Some people bristle at the estimate, citing prices of €3 per watt in Spain, but thin-film solar - which comes with lower prices - now make up more than 10 percent of the global market, he said. First Solar, for example, is selling panels for $2.45 per watt.

Prices will continue to fall as more thin-film solar hits the market, as well as a "massive" increase in polysilicon capacity, Bradford said.

Thin film had already helped boost the solar production more than expected given the "deep-seated" limited growth of polysilicon in 2007, and manufacturers' measures to use silicon more efficiently and to recycle it also played a big role, he said.

The bulk of the thin-film growth came from the United States, which accounted for the majority of the world's thin-film production last year, he said. Thin-film solar made up nearly all of the growth of the U.S. solar industry that year.

"U.S. production on the polysilicon side really didn't grow, if you look at the total," he said. "For better or for worse, thin film is largely a U.S.-backed [effort]."

Of 266.2 megawatts of production in 2007, 161 megawatts came from thin film, with most of that - 129 megawatts - coming from First Solar (NSDQ: FSLR), 28 megawatts coming from United Solar Ovonics and 4 megawatts from Global Solar Energy.

Prometheus expects the amount of polysilicon available for solar to grow from 30,070 tons in 2007 to an estimated 46,084 in 2008, 71,019 in 2009 and a whopping 125,302 in 2012, Bradford said.

Meanwhile, contract prices have begun to level out, he said, reaching a projected $60 per kilogram in 2007, up from $55 per kilogram in 2006, $45 per kilogram in 2005 and $24 per kilogram in 2003.

While chatter around spot prices - for silicon bought immediately, not as part of a longer-term contract - has gotten "ridiculous," reaching $400 per kilogram in Taiwan, th e majority of silicon is being sold under long-term contracts, he said. The prices for most of the silicon being bought today was set in contracts signed in 2005 and 2006, he said.

"Certainly nobody's using $400 a kilogram for their inputs," Bradford said. "If you do a little math on that, if you need about 9 kilograms per watt at $400 per kilogram, you would have to have something like $3.64 of polysilicon per watt of module."

That would mean selling prices would have to be much higher than $3.60 per watt, he said.

"There's no way anyone's using 100 percent spot prices at $400 a kilogram," he said. "They are using a mix of spot and contract prices and getting to an average

Of course, the high spot prices mean the average silicon price, when spot and contract prices are combined, is higher than the $60 per kilogram companies are paying via contracts. Bradford estimates the global average price is probably around $90 to $95 per kilogram.

Nonprice terms in contracts also are becoming less onerous, he said, with either prices that drop over time or some ability to adjust to market conditions if silicon prices fall more than expected.

The cost of new silicon plants varies widely from $5 per kilogram anticipated for Timminco's upgraded metallurgical-grade silicon plant, to $52 per kilogram for an expansion of Hemlock's plant, to $152 per kilogram for a new plant from SilPro.

Prometheus expects manufacturing to reach 10.25 gigawatts of capacity in 2008 and 12 to 15 gigawatts of capacity by 2010, Bradford said.

Of course, the market depends on demand.

Demand in the last year has been driven by a hot Spanish market, a stable German market and expectations of growth in Italy, Greece and California, Bradford said.

The industry is concerned about the uncertainty of the subsidy program in Spain, which is set to expire this month (see Spanish Energy Commission Votes to Shrink Solar Incentives, Solar Firms Struggle to Forecast 2009 and Spain Considers Adding a Solar Gigawatt).

"The 'don't worry' attitude is no longer the attitude of the day," he said.

As more governments add solar-supportive policies, the diversification is going to create a lot more stability and flexibility in the marketplace, especially as prices for panels drop, he said.

Dorsheimer also said the demand side of the equation is the most difficult to predict.

"The silicon shortage really put the solar market back a couple of years," he said, as they created artificial market conditions. "Hopefully this will ... bring prices to where we won't need subsidies for much longer."

About 80 percent of the new entrants and technologies will fail, but the 20 percent that succeed will capture 100 percent of the opportunity, making solar an alluring market in spite of the approximately 30 percent drop in valuations in the past year, he said.

Dorsheimer said he sees the hot 2007 solar fund raising market as an anomaly.

"We're going from a sellers' market to a buyers' market, and that's going to change the type of valuations you will achieve," he said.

The question, he said, is whether valuations will return to 2007 levels.

"In our conclusion, [2007] was a bit of a bubble, similar to the telecom companies," he said. "However, instead of having one of two companies such as Cisco emerge from the telecom industry, we expect we will see several companies emerging."

Dorsheimer added that companies that took on large debts could be especially vulnerable.

"Some of the companies probably won't make it past 2007," he said.

Companies with low costs, high margins, a technological edge and the ability to grow large and to enter other parts of the value chain will have an advantage, he said.

"We are transitioning from a sellers' to a buyers' market," he said.

That transition could pose a significant risk to some companies looking to go public, he added.

Companies such as Miasole and Nanosolar, for example, have raised so much money that they would need multibillion-dollar valuations to generate profits for their original investors (see Nanosolar Confirms $300M Funding).

Dorsheimer said Miasole has either just raised, or is in the process of raising, $220 million on a valuation of $1.2 billion.

VentureWire in July reported the company was about to close $200 million to $220 million with a $1.2 billion valuation, and Greentech Media's Green Light blog last month noted that Miasole is rumored to be raising $200 million, with a valuation above $1 billion.

The company didn't immediately respond to requests for comment, but has declined to comment on speculation about the funding in the past.