By Ross Young, SVP, PV and Displays, IMS Research

The PV market more than recovered in Q3’09, in fact, it reached new highs in quarterly revenues for some layers of the supply chain as shown in Figure 1. In addition, the weak seasonality that many analysts predicted from December through March of 2010 is no longer expected, price reductions are slowing, margins are projected to increase and we are predicting installations will rise by 51% in 2010. As a result, solar stock prices are surging. How did this turnaround happen so quickly?

Figure 1: Q1’08 – Q3’09 PV Supply Chain Revenues

Source: IMS Research’s PV Supply Chain Health Report. Based on the following companies: Applied Materials, Arise Technologies, Bosch Solar, Canadian Solar, Centrotherm, China Sunergy, DelSolar, Energy Conversion Devices, E-Ton Solar, Evergreen Solar, First Solar, GCL-Poly, Gintech, Green Energy Technology, GT Solar, JA Solar, LDK, MEMC, Motech, NSP, Oerlikon, Q-Cells, REC, ReneSola, Roth & Rau, Sanyo, Sharp, Sino-American Silicon, SolarFun, SolarWorld, Spire, SunPower, Suntech, Sunways, Trina Solar and Yingli Green Energy.

The short answer is fear and anxiety over changes to feed-in-tariffs (FiTs) along with lower prices. It seems changes to FiT rates are a catalyst to boost market demand as customers and installers don’t want to miss out on a good thing and often wait until the last minute to make this decision. I know this was the case with my installation. I didn’t contract with my utility until they announced they were changing the amount of the rebate. Even if costs fall further in the future and internal rates of return (IRR) possibly increase, it is better to take advantage of a good thing now than hope for a good thing in the future.

In Germany, where the FiT is set to change in January and there are expectations of additional FiT reductions in the middle of 2010, integrators are rushing to complete installations. In Q3’09, according to Germany’s Federal Grid Agency, 925MWs were installed, a record quarter for any region I believe. Q3’09 results were nearly double Germany’s installations in Q1’09 and Q2’09 combined as shown in Figure 2. Furthermore, sequential growth is expected in Q4’09 causing a growing number of cell and module suppliers to run at full capacity this quarter. Some module suppliers even indicated that their customers were requesting deliveries via air rather than sea to ensure that the installation is completed before the FiT changes. FiT reductions are not only expected in Germany, but in the Czech Republic as well with a growing number of module suppliers pointing to the Czech Republic for growth.

Figure 2: Germany’s Q1’09 – Q3’09 Grid Tied PV Installations

Source: IMS Research’s Weekly PV Supply Chain Report, Germany’s Federal Grid Agency

There is no question that lower system prices were also a factor in the Q3’09 rebound, resulting in higher project returns. Volume weighted average module prices for thin film and c-Si modules fell to 12% Q/Q and 44% Y/Y in Q3’09 to $2.06/W as shown in Figure 3. Crystalline silicon only prices would be about $0.10 higher. Because thin film prices have been falling more slowly than module prices, the blended module ASP decline was slower than cell, module and wafer ASP declines. Cell ASP declines were down around 55% Y/Y, with wafer ASPs down 65% and polysilicon spot prices down 82%. However, the single-digit Q/Q declines in polysilicon ASPs are encouraging from the standpoint that it should lead to greater price stability in the market which should encourage those waiting for further price reductions to buy now.

Figure 3: PV Supply Chain ASPs

Source: IMS Research’s Weekly PV Supply Chain Report

Lower prices have played a key factor in Italy’s growth as it is expected to approach grid parity ahead of other countries due to its location and is also benefitting from an attractive 20-year FiT. Q3’09 installations were larger than Q1 and Q2’09 combined as shown in Figure 3. In 2008, December accounted for over 1/3 of Italy’s annual installations. A similar occurrence in 2009 would enable Italy to exceed 500MWs.

Figure 3: Italy’s Q1’09 – Q3’09 Grid Tied PV Installations

Source: IMS Research’s Weekly PV Supply Chain Report, Italy’s Energy Service Agency

Looking forward to 2010, there are numerous catalysts which should make 2010 a tremendous year for the PV industry consisting of lower prices, impending changes to FiTs and growth in subsidy efforts including

• Germany - As previously discussed, the new government is expected to announce in 1H’10 a lower FiT for at least ground mounted installations that would start in 2H’10, causing rapid Y/Y growth in 1H installations with 2H’10 demand a concern.
• Italy - the FiT is to be lowered once cumulative installations reach 1.2GWs which could happen in 1H’10 resulting in lower FiTs from 2011 and rapid demand growth in 2H’10.
• France – Expected to increase their FIT for BIPV and ground mounted PV by more than 7% in 2010. More than 100 MWs expected in 2009 vs. 46MWs in 2008.
• China - the regulatory and approval processes are expected to be in place to implement their rooftop, power plant and FiT programs resulting in rapid growth.
• Canada - will benefit from the attractive Ontario FiT program which began to implemented in December.
• Japan – FiTs are expected to be introduced although recent adoption of subsidies for residential and non-residential PV has already led to significant growth.
• South Korea – 32% increase in their market cap to 132MWs should lead to a strong year.
• USA - DOE loan guarantees, the continuation of the federal ITC, growing availability of federal land and buildings, state carve-outs and state renewable portfolio standards and other state requirements are expected to lead to rapid growth.
• Lower prices – The oversupply in polysilicon may not improve as most suppliers continue to boost capacity likely resulting in lower polysilicon prices and additional cost and price reduction opportunities for c-Si suppliers which should continue to result in pricing pressure on thin film suppliers.

The strong results in Q3’09 and bright Q4’09 outlook will result in a flat 2009 market in terms of PV installations as shown in Figure 4 after a disastrous 1H’09. Looking forward to 2010, we expect installations to rise 51% to over 8.6 GWs. PV market forecasting requires scenarios due to the impact of changes to FiT and subsidy efforts on demand and we are showing that the market could more than double to nearly 11GWs in 2010 if governments act favorably to PV.

Figure 4: PV Installation Forecast

Source: IMS Research’s Weekly PV Supply Chain Report

In the mid-case in 2010, we expect power plants and large commercial installations to fuel the growth, rising 108% and 75% respectively, as credit becomes looser as shown in Figure 5. Small commercial will remain the leading application in 2010 due to its strong position in the German market, but by 2011, the power plant market will be the single largest application for PV driven by lower prices and rising demand in China and the US. We are also showing 23 different countries with over 50% growth in 2010 with the PV market becoming less dependent on a single market which is essential for its long term health.

For more information on IMS Research’s PV Supply Chain Health Report, please contact SEMI.

Figure 5: PV Installation Forecast by Application

Source: IMS Research’s Weekly PV Supply Chain Report

Fear and Anxiety Over Feed-in Tariffs Accelerate PV Market Recovery