The Solar Industry is Like a Yo-Yo

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Cyclical Like the Sun
For about as long as it has existed, the solar power industry has been going from boom to bust, and vice versa. It is growing fast, and has been for years, but forget about a smooth upward curve: Up close, the trajectory looks like the Alps. But is that such a bad thing?

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Booms & Busts
Many will look at the situation and conclude that solar industry booms are 'good' (like when Germany installed boatloads of solar) and that busts are 'bad' (like right now, when demand from Europe is lower because of economic problems). But I think that's a bit myopic. Booms are good, as long as they don't last too long. If they do, bad things happens, as we've seen in the past 10 years with the excesses of the dot-com boom and the housing bubble.

When booms go on for too long, demand tends to outstrip supply, making prices skyrocket and making solar power less affordable. High prices mean that even sub-par companies that are wasteful and not innovative can make a lot of money and have no trouble raising money in the capital markets. This usually goes on either until prices become so high that demand slows, or until an external factor kills demand (ie. a financial crisis).

When that happens, the most efficient and innovative firms with conservative finances usually survive and still make a profit, but the bloated and wasteful companies that were only making money because prices were insanely high get weeded out (like the dot-com burst, the really good web companies like Google and Amazon survived, but the crappy ones didn't). This is good for society because most of the investments into R&D and infrastructure that were made during boom-time are still paying dividends, but now that supply and demand are better matched, prices can go down a lot, making solar more economically competitive.

First Solar/Promo image

So where are we now? Looks like we're in the 'down' part of the cycle, mostly because of lower demand in Europe:

Despite growth in America and China, global demand for solar sales is expected to grow by less than 10% this year.

That leaves the market seriously oversupplied. In expectation of more roaring growth, the world’s panel-making capacity was tripled over two years, 2010-11, with big investments in mainland China and Taiwan. Much of the excess capacity is being shut down, yet there are already plenty of unwanted panels out there. To avoid being stuck with old stock--a ruinous prospect when prices are falling rapidly--panel-makers are now slashing margins.

Early this year the average panel price was around $1.75 per watt; by the year’s end it could be as low as $1.10. That is less than the cost price for many Western manufacturers and small Asian ones, several of which have already gone bust. [...] “If you’re a solar cellmaker, the world is a cruelly Darwinian place.” (source)

This is certainly bad for individual companies, but the industry as a whole will be stronger during the next phase of hyper-growth, and in the meantime, now's a good opportunity to buy a solar system at a bargain price!

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Tags: Alternative Energy

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