The industry will return to growth only by the second quarter next year.
El Segundo, Calif. (Oct. 30, 2012)—Overcapacity, a decline in pricing as well as slowing growth in key worldwide markets will serve to keep the global photovoltaic (PV) market for solar modules depressed for the rest of the year, with recovery not expected until well in the second half of 2013, according to a new IHS iSuppli PV Integrated market tracker report from information and analytics provider IHS (NYSE: IHS).
Global revenue for the solar module industry comprising both crystalline and thin-film modules fell for the first time this year during the third quarter to $6.63 billion, down 7 percent from $7.14 billion in the second quarter. Prior to the decline, revenue had been up 2 percent in the second quarter from $7.03 billion in the first quarter.
The market is projected to retreat further for a second time this year during the fourth quarter to $6.62 billion, with revenue continuing to trend down throughout the first half of 2013, as shown in the figure below. The industry will return to growth only by the second quarter next year, finally regaining lost ground by the fourth quarter when revenue springs back to an estimated $7.06 billion—just slightly more than when the market started in the first quarter this year.
2012—Markets grow in Q4, but prices won't stabilize
The decline in global solar module revenue could have been much worse, were it not for an installation surge in Germany that drove the overall PV market in the second quarter. As a result, global installations at that time reached 8.2 gigawatts (GW), up 68 percent from 4.9GW the same period a year ago. The spike in demand helped temporarily slow down PV cell and module price declines
Nonetheless, as demand from Europe and the Asian markets—above all in China—cooled during the third quarter, prices came under strong pressure again, particularly in August. In the process, the entire photovoltaic module value chain suffered in the third quarter: wafer prices dipped 11 percent; module prices fell 14 percent; and both cell and polysilicon prices plunged 17 percent.
"After flattening in the third quarter, global installations are forecast to grow slightly in the fourth quarter to 8.7GW, bringing the annual total to more than 31GW, up 11 percent from 28GW in 2011. Even so, IHS does not consider the uptick in demand to be strong enough to prevent further price drops toward the end of the year," commented Stefan de Haan, Principal Analyst at IHS. In addition to persistent overcapacity present in the industry since early 2011, two major trends will drive global prices further down.
"First, demand in the fourth quarter will be fueled by installations in China. But while many delayed solar projects in the country will be implemented during the remainder of the year and help improve global installation figures, China is a low-priced market. As a result, even a strong fourth quarter in China won't induce a recovery in prices," added de Haan.
"Second, Chinese manufacturers are already reducing module shipments to Europe, in response to a European Commission investigation on anti-dumping charges of crystalline modules, cells and wafers originating from China. In exchange for the voluntary reduction of shipments from China, European wholesalers will aim to reduce their dependency on Chinese suppliers in the coming months and balance their portfolio," concluded de Haan. And although IHS does not expect any duties to be implemented in Europe—unlike the U.S. case where similar charges against China have been leveled—uncertainty is expected to arise in the market until final findings are published in December 2013. These developments are likely to increase pricing pressure on Chinese suppliers in Europe.
Given the above two trends, average market pricing for crystalline modules is expected to decline by another 9 percent in the fourth quarter, falling to $0.64 per watt at the end of 2012, down from $0.70 at the end of September.
2013—Suppliers' situation will finally ease
Relief for the PV module market will finally be in sight by 2013, IHS believes. True, the industry will have to go through another two tough quarters at the beginning of next year, but the overcapacity situation will ease in the second half, and the players that remain should return to profitability.
Overall, global installation markets will pick up again after the first six months of 2013 and then continue to improve over the course of the year. Installations are expected to grow 10 percent on an annual basis, with Asian markets—particularly China and Japan—compensating for declining demand from Europe. With capacity expansion finally coming to an end, operational module manufacturing capacity is forecast to reach 51.9GW in 2013. Meanwhile, overcapacity that had built up because of massive investments in 2010 and 2011 will have less dramatic repercussions in 2013 than during this year, even if the issues will continue to be of concern.
All told, the decline in PV module prices afflicting the market will slow down in 2013 and then eventually stop by the second half of the year. By the fourth quarter of 2013, average crystalline module prices are forecast to reach $0.55 per watt, down 14 percent from the same time in 2012, compared to a bigger contraction of 32 percent between the fourth quarter of 2011 to 2012.
Revenues of the module industry that dropped throughout 2012 are predicted to bottom out in the first quarter of next year. From then on a recovery is expected. In Q4 2013 global module revenues are forecast to again surpass the mark of $7 billion. This is still significantly less than in the boom year 2010, when quarterly module revenues exceeded $10 billion in Q3 and Q4. It nevertheless marks the reversal of a trend that will help the most competitive suppliers to noticeably increase their profitability in the second half of 2013.
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