Firing in the Solar Industry

Solar panel prices have crashed to 40 cents/watt internationally and even lower prices in some places. For example in India you can get a solar panel at 36 cents/watt. This is a huge and massive cut and have led the margins of even the largest players come down to a single digit at the gross margin level, while their operating and net margins have become negative. Solar panel prices are not expected to go down more, given that they have already fallen far more than expected. I expect many of the Chiense Tier 2 and 3 players to either permanently or temporarily shut down their production as the prices have gone below the variable cost of production.

Compare Solar prices from just a monthe ago.

The sudden and sharp fall in solar panel prices are now leading to cut in prices across the value chain with solar cell prices falling to 20 cents/watt, while wafer prices have crashed to just 13 cent/watt. These prices were around 30 cents/watt and 21 cents/watt a year ago, showing a 30-40% cut in prices. Many of the component manufacturers are now deep in the red as they were during the severe oversupply situation in 2012, when everyone was bleeding. The same situation has occurred now with many of the players expanding capacity in 2015 as the industry was relatively stable. A sharp slowdown in China has made people desperate and selling at any price, just to let their home fires burning.

While many people expect big bankruptcies I am not sure, since the Chinese government does not really let any company die but keeps them running as zombies. Suntech and LDK which were the biggest casualties last time may have gone bankrupt, but others bought their factories and are still running them. Global overcapacity has been the norm for the solar industry for the last 5 years and a 5-10% reduction in solar panel prices is nothing new, but the sharp and sudden 20% fall in price in just a couple of months has shaken even the biggest players.

Also read Why a proposed drastic cut in Chinese Solar Tariffs could trigger Market recovery in the Solar Industry

While a sharp increase in consolidation will help the entire industry, I don’t think that will occur unless the Chinese government changes its policies drastically. This will not happen unless there is a major credit crisis or some huge systematic issue. The big fall in prices has already made many companies fire workers. Sunpower has closed in Phillipines operations while Solarworld fired all its temporary workers in Germany.

After USA and Germany, a company in Malaysia TS Solartech has also fired workers as they reduce production to cope with the sharp fall in demand. The industry as a whole will recover given the continuous improvement in solar economics vis a vis other forms of energy.

Some 100 workers of a solar cell manufacturing factory demonstrated in front of the plant today, demanding for fair compensation after they were retrenched.

Spokesman Mohd Azwan Ali, 38, said their rights have been abused as they were given notice of less than 24 hours. He said they were informed by SMS on Monday evening not to show up for the night shift that day. “The company is supposed to issue at least a one-month notice to us so we can prepare ourselves by finding other jobs. “Now this has put us in a bind as most of us are the primary bread winners for our families,” he told reporters outside TS Solartech Sdn Bhd in the Penang Science Park here.

Mohd Azwan, who worked for three months with the factory, claimed the compensation offered was between RM300 to RM500 for contract employees. He described the amount as “unfair” and urged the company to provide suitable compensation for those affected. Nor Amirah Ahmad, 24, meanwhile expressed her anger over the way the issue was handled and her sudden loss of income. “I have to support my family and pay off my student loans,” she said adding she was offered RM7,000 in compensation for her seven months of work.

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