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Editor's note: Dr. Robert Castellano is an internationally recognized expert in semiconductor, LCD, HDD and solar industries.

NEW TRIPOLI, PA -- Inventory levels are rising significantly within the solar-panel industry, although many marginal and smaller companies are exiting the market. Supply clearly still exceeds demand, and will continue to grow from an average of 71 days in 2008 to 122 days in 2009 (see chart below).

In 2008, our research shows that 5,625 MW of solar power was consumed, but plants worldwide had a capacity of 11,722 MW, bringing utilization levels to 48%. The additional capacity equates to lower profits for the solar-panel manufacturers, as revenues expend to build or lease large facilities and purchase more equipment.

Other than that, companies don't have to make the product, and under ideal conditions, only make what they can sell. This worked fine during the salad days of the past few years, with inventory averaging 71 days in 2008, up from 63 days in 2007.

In fact, inventory escalated in fourth-quarter 2008 with the downturn in the economy. Along with the worldwide Great Recession came a drop in demand for solar panels to 4,894 MW, which we estimate will be sold in 2009. However, even as the recession escalated, additional capacity was brought on board, up to 17,551 MW, resulting in utilization dropping to 27.9%.

For 2010, we forecast an increase in solar panel consumption to 6,215 MW. At the same time, we "cautiously" anticipate that no new additional capacity will be brought on board, maintaining 2009 levels of 17,551 MW. This will bring capacity to 34.5% and reduce inventory to 96 days on average for all of 2010.

I use the word "cautiously" because business conditions dictate economy of scale, and the more solar panels manufactured, the lower the price. Solar manufacturers would use this strategy to make themselves more attractive in the marketplace because of lower manufacturing costs.

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has set the benchmark by bringing production costs down to 93 cents per watt.

I pointed out in a blog in early May how solar manufacturers can differentiate their products, particularly during the economic slowdown that has dropped capacity utilization to below 50%, and most importantly, how it can do that cheaply. Aside from the traditional lingo, such as reduce costs or economies of scale, there is a better way: Increase efficiency.1366 Technologies, is developing a technology that it claims can boost multicrystalline silicon cells from 16% efficiency to 18% efficiency. The company will reduce its cost per watt, by giving the solar cells a rougher texture. The start-up raised $12.4 million in 2008.

Xerocoat developed a coating strategy that increases efficiency by 4%, on not only multicrystalline silicon cells, but thin film cells as well. The company received $3 million in DOE funding in 2009.

Along comes SolarPA, a company I started a few months ago, which has demonstrated increases in efficiency of polycrystalline and silicon solar cells by up to 10% using a proprietary nanomaterial coating. Increasing the efficiency by 10% will automatically increase a 50MW production line to 55MW, reducing material and labor costs.

We are looking for funding and I have been in talks with solar material and equipment manufacturers to partner for further development.

This article was written by Dr. Robert Castellano in New Tripoli, PA.

Robert N. Castellano, Ph.D, is President of The Information Network, a leading consulting and market-research firm for the semiconductor, LCD, HDD and solar industries. Castellano is internationally recognized as one of the leading experts in these areas. He has nearly 25 years of expertise as an industry analyst. Castellano has provided insight on emerging technologies to many business and technical publications, including Business 2.0, BusinessWeek, The Economist, Forbes, Investor's Business Daily, Los Angeles Times Magazine, The New York Times, USA Today and The Wall Street Journal. He is a frequent speaker at conferences and corporate events. He has over 10 years' experience in the field of wafer fabrication at AT&T Bell Laboratories and Stanford University before founding The Information Network in 1985. He has been editor of the peer-reviewed Journal of Active and Passive Electronic Devices since 1985. He is author of the book "Technology Trends in VLSI Manufacturing," published by Gordon and Breach. His book "Solar Cell Processing" was published in 2009 by Old City Publishing. He received his Ph.D. in solid state chemistry from Oxford University.