Solar-cell shortage predicted after glut

The solar industry is facing a shortage of photovoltaic panels, reversing a two-year slump triggered by a global glut.

The oversupply pushed prices through the floor, making solar power more competitive and driving up demand. It also dragged dozens of manufacturers into bankruptcy, and slowed capital investment at the survivors. With installations expected to swell as much as 29 percent this year, executives are expecting the first shortfall since 2006.

Scarcity will benefit the biggest manufacturers, including China's Yingli Green Energy Holdings Co. and Trina Solar Ltd. A shortage may slow development outside the top markets in Asia and North America if suppliers favor their largest customers. Shipments to large, utility-scale solar farms may get priority over smaller, rooftop systems, threatening one of the industry's fastest-growing markets.

"The cell and module glut has certainly dried up," said Stefan de Haan, a solar analyst at IHS Inc. "There is no massive overcapacity anymore."

The looming shortage shows the rapid expansion of solar energy. The industry is facing the installation of as much as 52 gigawatts this year and 61 gigawatts in 2015. That's up from 40 gigawatts in 2013, and more than seven times what developers demanded five years ago, according to Bloomberg New Energy Finance.

The industry has about 70 gigawatts of production capacity, New Energy Finance estimates, including a significant amount of older equipment that's not profitable. The supply-demand balance is tighter than those numbers suggest. De Haan estimates capacity at about 59 gigawatts, excluding manufacturing lines that are out of date or obsolete.

Considering only "factories that are meaningful and active," supply and demand is "almost on par," said Luc Grare, senior vice president for the Norwegian panel-maker REC Solar ASA.

The last time supplies were hard to find was in 2006, when the nascent industry installed just 1.5 gigawatts of capacity. The next year, the top Chinese manufacturers raised $1.8 billion selling stock to Wall Street to finance new production capacity.

Chinese manufacturers sold about $5 billion of shares from 2005 to 2010, and wrested control of the market from companies in the U.S., Germany and Japan. The added capacity drove down prices and pushed dozens of manufacturers into bankruptcy. Solar panels sell for 76 cents a watt now, compared with $2.01 at the end of 2010. The price has slipped 12 percent this year.

Nobody is predicting upheaval now. Production capacity this year is "expected to stay more or less flat, but consolidate, with new-build balancing exits," said Jenny Chase, lead solar analyst at New Energy Finance.

Some manufacturers are already expanding. In May, Canadian Solar Inc. began construction on a new cell factory in China, a joint venture with GCL-Poly Energy Holdings Ltd. that will initially have 300 megawatts of annual capacity.

The solar industry is cyclical and near a turning point, said Canadian Solar Chief Executive Officer Shawn Qu. He's expanding now because he anticipates a shortage.

"Every industry goes through cycles," Qu said. "It's inevitable to see a cycle in solar."

Other manufacturers already see a shortfall.

"It would be fair to say our panels are in short supply," said Tom Werner, chief executive officer of SunPower Corp. The San Jose, Calif.- based company's factories are running at full, and it announced in July plans for a new factory that may begin production in 2017 and will be able to make at least 700 megawatts a year. That's more than double the plant it's bringing online next year.

Information for this article was contributed by Stefan Nicola, Feifei Shen, Justin Doom and Marc Roca of Bloomberg News.

Business on 08/20/2014

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