HardAssetsInvestor

Written by Julian Murdoch  |

September 17, 2009

Solar’s Bright Future

Details

We take a look at the state of the solar power industry. Is the future bright enough for shades?

• Recession bumps and bruises
• The future is China and the U.S.
• Playing the sun

 

The recession wasn't kind to alternative energy—and none felt the pinch as much as the beleaguered solar power industry. The credit crunch really hit the industry hard, killing installation projects around the world and shrinking demand for solar panels. Solar companies watched their stock prices bottom out with the rest of the market—only to keep on falling.

Just look at the recent performance of the S&P 500 vs. the two solar ETFs, the Claymore/MAC Global Solar Energy Index ETF (NYSE Arca:TAN) and the Market Vectors Solar ETF (NYSE Arca:KWT):

 

 

Yikes.

Funding issues, in part, kept solar low, even as the market started to recover. Projects rely on financing and, in many countries, government incentives, but as the recession hit, that easy financing and generous incentives dried up. (It didn't help that oil prices also plummeted, bottoming out below $35/barrel, which caused solar to lose much of its competitive allure.)

Take Spain, for example. Prior to 2009, Spain offered such generous subsidies for solar power installations that some analysts estimate almost 40% of the world's solar modules went to Spain. But by the end of 2008, the Spanish government decided it could no longer fund solar power to that level and cut back drastically on the money available. Consequently, demand sunk, and solar panel inventories around the world swelled.

Naturally, prices have dropped, too. Terry Wang, CFO of Trina Solar Limited (NYSE:TSL) told Reuters during last week's Global Climate and Alternative Energy summit:

 

 

And it's not over yet. As Mr. Wang continued, "We see the trend, and it's going to continue for the second half of this year at least."

It's not all bad news, though. Mr. Wang and others in the industry expect the price decreases to slow during the first half of 2010 and then stabilize in the second half of the year. Adding to the good news, UBS also forecasts that global solar module demand may grow a whopping 76% next year to 10.5 gigawatts, as credit begins to flow again. (To put that number in perspective, roughly 5.4 gigawatts of solar power were installed globally in 2008, before the bottom dropped out of the industry.)

So not only does UBS expect 2010 to be much better than this year, it'll be almost twice as good as 2008. That's a nice recovery story.

Okay, but where will all of that new demand come from? China, of course—and the U.S.

 

Chinese And American Demand

Right now, China and the U.S. both lag behind Europe in terms of solar use: China prefers coal, and we Americans like both oil and coal.

But as the Chinese and American governments roll out climate change initiatives, both countries will need to look elsewhere for their energy needs in order to cut greenhouse gas emissions. (It doesn't hurt that alternative energy projects played prominently in both countries' economic stimulus packages.)

Already there are signs of increasing capacity. According to Steve Chan, chief strategy officer of Suntech Power Holdings, China's solar market is currently around 100 megawatts, but it may rise to 400 megawatts next year. The U.S., on the other hand, will see about 350 megawatts installed this year, and expectations are that figure will triple in 2010.