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August 22, 2012The price crash for solar panels seem to be never ending with the latest solar module prices ending at around 72c/watt for normal crystalline solar panels. Note this solar panel price equates to the COGs of the best in class lowest solar panel manufacturers like Trina Solar. This implies that the whole industry is losing money since the lowest cost solar panel manufacturer is selling at a 0% GM. Note while the Q212 gross margins of the Chinese solar panel manufacturers were in the high single digits, this is expected to come down to low single digits / negative margins.
The solar industry pain has been prolonged as insolvent solar companies like LDK, Suntech are kept propped up by the Chinese Government and its banks. These days there is no pretense of free market competition with the Xinyu local Government paying back an installment of LDK’s loans. There are rumors that LDK has already been taken over by state institutions as it does not have a snowball’s chance in hell of servicing its massive debt. Even GCL Poly which is the the lowest cost polysilicon manufacturer reported a loss and this is only expected to increase with spot poly prices going down by a further 5-10% to $18/kg. Note most polysilicon manufacturers produce poly at $25-30/kg which implies that the GM has now become a negative 30% for the producers at the current price level.
Note unlike big solar panel companies like Q-Cells, none of the major polysilicon companies have gone bankrupt though MEMC has shut down almost half of its high cost capacity and LDK is in the ICU.
The bailout is the first from a Chinese local government to a non-state solar company to pay off debt. The solar industry is grappling with a global supply glut that’s curbed prices and trimmed profit margins, hurting the ability of developers to pay off borrowings. LDK’s long-term unsecured loans from the Huarong Trust totaled $79.4 million at the end of 2011, LDK said May 15.
The German demand pull in which created a record breaking 4.3 GW in First Half Demand in 2012 is now over which led to the current solar panel price decline.Huge inventories have also been built up in China (estimate 10 GW) and Europe which will further depress prices like 2011. Germany is expected to further cut feed in tariffs in November given that the 4.3 GW has already exceeded the target of 2.5-3.5 GW for the whole year.With Italy in a precarious fiscal position , European demand will continue to fall from hereon. Though China is expected to install a huge number of megawatts,the price points are barely sustainable given the stiff competition.
The spot price of polysilicon has been falling to US$18-21/kg recently, down 5-10% from US$20-22/kg available in July, due in part to reduced subsidies in Germany, according to industry sources.
This spot price is close to production costs. China-based GCL-Poly recently announced the production cost of polysilicon is US$18/kg. Polysilicon firms from South Korea and Europe have been predicting falling demand for the third quarter and have asked downstream firms to oblige to contracts.
Germany is likely to cut solar incentives again in November because installations in the first half of the year exceeded the annual target of 2.5-3.5GW and reached 4.3GW. The figure also exceeded installations of the same period in 2011. Market watchers have speculated that the government may increase the magnitude of its next cut.
Optimistically, a solar incentive cut in November may drive up September and October installations in Germany. However, solar firm in China and Taiwan may not benefit until inventories in Europe have been cleared out.