Solar Panel-Price Eclipse Coming

NEW YORK (TheStreet) -- I wrote only a month ago on TheStreet.com that massive inventory buildup and huge overcapacity were having a serious impact on the solar panel industry and its manufacturers.

To reiterate, inventory is averaging 122 days in 2009 vs. 71 days in 2008. Capacity utilization, or the amount of production capacity actually produced, dropped to 27.9% in 2009 from 48% in 2008.

For 2010, I "cautiously" anticipated that no new additional capacity will be brought on board, maintaining 2009 levels of 17,551 megawatts. This would bring capacity utilization to 35.4% and reduce inventory to 96 days, on average, for all of 2010. That ideal scenario is represented in the table below.

If solar manufacturers, such as Energy Conversion Devices(ENER Quote), JA Solar(JASO Quote), LDK Solar(LDK Quote), ReneSola(SOL Quote), Solar Power (SOPW.OB Quote) and Yingli Green Energy(YGE Quote), went ahead and installed all the capacity planned for 2010, it would even worsen the outcome of the solar industry ; Utilization would decrease further to 26.8% and days of inventory would increase to 127 days, as shown in the table.

Now I am hearing that small solar panel manufacturers in China are planning to bring an additional 1 gigawatt of panels to the market by the end of 2009, which we have learned based on manufacturing equipment purchases. While it represents an increase of less than 5% of the planned capacity, there are several implications.

• 1. China's solar panel manufacturers, exasperating the situation by adding more capacity, are already dropping prices to $1.80 a watt for polysilicon-based products, which is lower than the $1.85 level we projected back in March for the end of 2009. By way of comparison, the average selling price in the third quarter of 2008 was $4.05 a watt.
• 2. Because of economies of scale, whereby the more solar panels manufactured the lower the cost to make them, other manufacturers will increase capacity to their planned 2010 levels in order to compete against the Chinese. We will now reach the last column in the table below -- 25.7% capacity utilization and 133 days inventory.
• 3. Average selling prices could drop below $1 a watt in 2010 and 50 cents in 2011.
• 4. As many as 50% of the more than 200 solar manufacturers, mired in red ink with current selling prices above $2 a watt, may not survive.

A Look at the Solar Panel Market Ideal - No capacity increases Planned capacity increases Planned capacity increases + China 2008 2009 2010 2010 2010 Solar Consumption (MW) 5,625 4,894 6,215 6,215 6,215 Solar Capacity (MW) 11,722 17,551 17,551 23,212 24,212 Utilization 48.0% 27.9% 35.4% 26.8% 25.7% Days Inventory 71 122 96 127 133 Source: The Information Network