The solar industry is booming but a looming shortage of photovoltaic panels reveals that there is a downside to the industry’s prodigious growth. A glut of photovoltaic panels drove prices down sharply. The oversupply that drove the price decline forced some companies into bankruptcy and slowed capital investment. Now the industry is expecting the first supply shortfall since 2006.
Although there will be huge demand from small scale solar, particularly home based, suppliers may sell most of their supply to big customers. If utility-scale solar farms get priority this will be a serious limiting factor inhibiting the growth of rooftop systems.
The news is not all bad. The fact that production capacity is not keeping up with demand is causing some companies to expand. Companies that are already expanding or planning to expand in the near term include Canadian Solar Inc SunPower Corp. The gap between supply and demand is expected to narrow by the end of 2014 and this is expected
to lead to increased investments in advanced equipment.
The shortage will cause suppliers to prioritize countries like the US and Japan where there is less price competition and more stable pricing. While parts of the developing world like Latin America will be impacted more by the shortages.
In 2006 the solar industry installed 1.5 gigawatts of capacity. To address this demand Chinese manufacturers raised $1.8 billion to finance new production capacity in 2007 and a total of $5 billion shares between 2005 to 2010. In the process China emerged as the market leaders in solar energy. However, the Chinese produced glut of capacity drove down prices and forced dozens of companies into bankruptcy.
Every industry goes through cycles of boom and bust and the solar industry is no different. What makes the solar industry unique is the fact that shortages are unlikely to increase prices. There are a wide range of energy options, so if the price of solar goes up too much, buyers will turn to cheaper alternatives.
© 2014, Richard Matthews. All rights reserved.
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