The structural oversupply of solar modules on the global market has driven down prices for photovoltaic panels at an astonishing pace. And new analysis shows that decline will only continue into 2012.
In 2011, the average selling price for crystalline silicon PV modules was cut in half — falling from $1.80 at the beginning of the year to $0.90 in December, according GTM Research.
With a glut of silicon now on the market, buyers are starting to renegotiate contracts downward. This could help drop the average price for crystalline silicon solar modules to as low as $0.70 a watt. Brett Prior, a senior analyst with GTM Research explains how a ramp-up in silicon production activity in 2011 will impact the market over the coming year:
In 2011, in the polysilicon industry — and the solar supply chain in general — manufacturing outpaced end-use. After a half-decade of silicon demand outstripping supply, the aggressive expansion plans finally overshot. This supply/demand imbalance will push producers to lower contract prices closer to the level of manufacturing costs at $20 per kilogram, and will force higher-cost manufacturers to exit the industry. While the solar market will continue to grow at a 10 percent to 20 percent pace in the coming years, reductions in the amount of silicon used in each module means that end demand for polysilicon will grow at a slower pace. The end result is that the current roster of over 170 polysilicon manufacturers and startups will likely be winnowed down to a dozen survivors by the end of decade.
Great news for the economics of solar projects. Not so great news for smaller, high-cost silicon producers.
Silicon is the most expensive material for conventional solar modules. When the industry faced a shortage of silicon from 2005 through 2008, the prices for solar modules stayed high. Since then, manufacturing processes have evolved to use less silicon, helping drive down the cost of production. (For more on this, see: Anatomy of a Solar PV System: How to Continue “Ferocious Cost Reductions” for Solar Electricity).
The relentless price reductions are likely to open up demand in a variety of new markets in 2012, and stimulate continued development in countries that had been written off due to steep decreases in incentives. (See: Germany Installed 3 GW of Solar PV in December — The U.S. Installed 1.7 GW in All of 2011).
Global solar PV installations for 2011 are expected to tally around 24 GW — up from 17 GW in 2010. With incentive cuts in the U.S., Germany, Italy and the UK, analysts predicted a flat or down year in 2012. But the continued price elasticity in solar PV may make 2012 yet another solid growth year — with some projecting installation of up to 30 GW of PV installations.