Clean energy: Solarâ€™s mini down cycle
The solar industry finds itself in a mini down cycle as demand temporarily softens and prices and margins plunge. With costs becoming competitive, the technology is slowly transitioning to a subsidy-free market, writes Norbert Rücker, Head Macro & Commodity Research, Julius Baer
The solar industry finds itself in a temporary down cycle. With Solarworld filing for insolvency last week, Germany lost another once leading supplier, revealing how harsh the business conditions are these days. Following a record amount of installations last year, global demand for solar panels and solar power plants softens this year in part due to the Chinese back-scaling support. Meanwhile, ongoing capacity expansions put pressure on prices and margins across the industry value chain. The pending tax reform in the United States creates additional uncertainty but the risks are low as renewables subsidies enjoy bipartisan support. Today’s industry down cycle differs from the downturn in 2011 to which many established players fell victim. The industry has matured and thanks to continued technology progress and ever falling costs, solar power becomes a subsidy independent and competitive solution across most parts of the market. Today, utility scale solar plants built in the United States can competitively sell electricity even without governmental support. We see global installations trending sideways around 60 to 70 gigawatts over the coming years as installation rates have reached saturation levels in many markets. With profitability challenged and sentiment depressed, we see the competitively positioned companies slowly emerging as the long-term winners.