Last updated: August 13, 2009 8:31 pm

Solar power

Recession and fall in Spanish demand hit industry

What looked only last year like a shining future for the solar industry has flared into a supernova, incinerating profits and share prices. Demand for photovoltaic panels had been growing at 45 per cent annually from 2000 to 2008, but the industry underwent an aggressive expansion at the wrong time. Finished panel capacity is at about 9,000 megawatts while demand has contracted from about 6,000MW last year to 4,500 in 2009, according to Barclays Capital.

The recession is partly to blame, but so is Spain. Accounting for nearly half of global installations last year, Spanish demand is expected to fall from 2,500MW to about 300MW after subsidies were slashed. China, also the largest panel manufacturer, is picking up some of the slack with hefty green spending.

Not long ago, the bullish case for solar stocks painted 2009 as a banner year. Industry growth had been hampered by tight supply of the raw material polysilicon, causing prices to soar 40-fold between 2001 and 2008. Now there is a surfeit but few takers, even as prices plunge.

Analysts at iSuppli predict the panel glut will not end until 2012. Price wars are leaving high-cost manufacturers exposed. Germany’s Q-Cells fits this category and its shares are off more than 85 per cent from their 2007 peak. Financially weaker manufacturers such as China’s LDK Solar are also stressed, but state-directed lending is keeping them afloat for now, worsening the glut. Energy Conversion Devices of the US has suffered as its film technology became uncompetitive when polysilicon got cheap.

The solar industry’s gold rush mentality and its unhealthy dependence on subsidies are to blame for its travails. The only positive is that private over-investment will make panels cheaper, giving taxpayers who sustain solar power worldwide a better deal.

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