European solar cell and module makers may be forced to speed up shifting production to Asia, rattled by rapid price declines and falling market shares.
The once-booming European solar sector is suffering from a massive oversupply of cells and modules that has driven down average selling prices (ASPs) for solar systems, and Asian companies are grabbing market share by slashing costs.
China revealed more details of an incentive program for solar firms last week that could help further cut production costs, already among the world's lowest, and tighten the screws on European rivals.
Thiemo Lang, senior portfolio manager for Zurich-based Sustainable Asset Management, said the only way for Western producers to regain their footing was to build production bases where their Asian competitors are.
It will be tough for Western companies to lower their production costs, he said. They will move aggressively to low-cost production countries.
Already, 2009 is looking like a lost year for the European solar sector. Though Germany is still expected to become the world's biggest market by installation, according to industry association EPIA, weakening demand and tough credit conditions are dashing hopes for a quick industry recovery.
Meanwhile, China has enhanced cash perks for the solar sector, announcing a 50 percent subsidy for investments on solar power projects.
In March, the Chinese government said it would pay 20 yuan ($2.90) a watt of solar systems fixed to roofs and which have a capacity of more than 50 kilowatt peak (kwp).
China accounted for about a third of the market for global cell production in 2008, while Europe's share declined to 25.6 percent last year, according to a survey by German industry publication Photon.
WAITING FOR THE SUN
In addition, Chinese module makers now have a market share of about 50 percent in Germany from zero a year ago, a UBS report said.
Chinese firms cut prices by about 25 percent in the second quarter from the first quarter, according to the report. On average, Chinese modules sell for 1.4 euros a watt, nearly 30 percent cheaper than those sold by European companies.
Chinese manufacturers' costs are about 90 U.S. cents to $1 per watt of generating capacity, or cost per watt excluding polysilicon cost, analysts said.
China's market share has grown steadily and will continue to grow. Chinese players produce at lower prices and Europe's industry has to address this, said SES Research analyst Karsten von Blumenthal.
Q-Cells, the world's biggest maker of solar cells and one of those European companies that had to set up a production site in Asia, scrapped its 2009 outlook this month due to pricing pressure.
German cell maker Ersol recently also had to slash its 2009 forecast. It holds a minority stake in Chinese Shanghai Electric Solar Energy, a module maker.
Others will follow suit in setting up production abroad, analysts said.
Norway's Renewable Energy Corp, for instance, which makes wafers and silicon for the industry but also cells and modules, is in the process of setting up a plant in Singapore, with start-up expected in the first quarter of 2010.
While European players are slashing production and outlooks, Chinese peers such as LDK Solar Co, Suntech Power Holdings Co and Yingli Green Energy are raising capital to support capacity expansion. LDK recently raised its shipment guidance.
Chinese companies, including Trina Solar have been able to cut prices aggressively because they buy polysilicon, a raw material for solar modules, from the spot market and also because of low labor and production costs.
This contrasts with European players who are often tied to very long-term material supply contracts.
The story has always been cost and reliability. Solar production will continue to migrate from the West to Asia to gain cost-competitiveness, and Asian producers will continue to make headway on these fronts. Chinese solar producers, in particular, have been ahead of the curve in terms of these matrices, said Peter Tsao, Deutsche Bank's head of technology, media and telecom banking, Asia Pacific.