The worst could be over for the solar industry

May 22, 2013 | By Barbara Vergetis Lundin

Although global capital spending this year in the photovoltaics (PV) supply chain is expected to fall to its lowest level since 2006, indications are that the downturn in investment has hit bottom and purchases of equipment may soon rebound. Capital spending among PV companies is set to drop to $2.3 billion in 2013, down 36 percent from $3.6 billion in 2012, according to information and analytics provider IHS. However, capital expenditures are expected to rebound in 2014, rising 30 percent to $3.0 billion.

"Companies across all nodes of the PV business have been lowering utilization rates and letting manufacturing lines go idle for the past year and a half," said Jon-Frederick Campos, a solar analyst at IHS. "PV firms have been doing this in an effort to counter overcapacity and mitigate declines in average selling prices. This phenomenon resulted in a major plunge in spending on new manufacturing equipment in 2012 and so far in 2013. But with prices stabilizing and manufacturing on the rise in some segments of the PV market, signs are appearing that that the drop in capital spending may be coming to an end."

Prior to 2012, the solar industry had been ramping up production, with many companies focused on achieving higher cell and module efficiency. As a result, companies added multiple steps to their manufacturing processes. The move resulted in an increase in capital expenditures, followed by a rise in operational outlay. As overcapacity, the supply glut and a pricing plunge emerged during the last 18 months, companies had to backpedal and reduce their number of manufacturing steps.

According to IHS, the worst seems to be over, as indications are that the downturn in capital spending has bottomed out and spending is expected to return in the near term. The past quarter, for example, saw new manufacturing sites and an increase in production occurring in Latin America, the U.S. and the Asia-Pacific region.

"At some point in the near future, the industry will come full circle," Campos said. "The solar market underwent a boom, and then victimized itself with its own rapid success. But once the dust settles, the industry will come out stronger in its operations, financials and technology. The rest of the year may very well determine which companies will retain significant market share and solidify their place as the industry leaders."

With so much free capacity on the secondary PV markets, equipment suppliers are concerned about the further suspension of equipment purchases. While many companies still doubt that the decline in equipment spending is over, IHS notes that an evolution within the industry will force companies to step up capital expenditures and focus on new technologies to improve efficiency.

"Solar has transitioned from the technology-oriented stage into an energy-focused phase," said Michael Sheppard, senior solar analyst at IHS. "PV companies are eager to serve those customers adapting to new developments such as rebate programs, feed-in tariffs and other solar incentives. The industry, for its part, is reinventing itself and investing in equipment to help customers accommodate these new realities."

Lux Research has similar positive forecasts for the solar industry. The solar crisis will become a boon, as record low prices boost demand, more than doubling the market to 61.7 GW, according to the research firm.

The solar PEV market is poised to emerge from its 2011 crisis to grow to $155 billion in 2018 -- a 10.5 percent compound annual growth rate, Lux Research predicts.

"Manufacturers' nightmare is turning into a long-term boon for the industry. Record low prices pushed gross margins to near zero or below, but they've made solar installations competitive in more markets," said Ed Cahill a Lux Research associate. "Supply and demand will come back into balance in 2015, easing price pressure, returning manufacturers to profitability and restoring the industry to equilibrium."

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