Cheaper solar seen spurring demand, hitting producers

By Nichola Groom - Analysis

LOS ANGELES (Reuters) - A dramatic fall in the price of solar panels has made the clean power source a better deal than ever before, but solar manufacturers' profits have dwindled thanks to that rapid decline and many may not survive to see solar bargains evolve into booming customer demand.

Skyrocketing demand for solar power was a bright spot in the global economy for much of last year until a pullback in solar subsidies in Spain and frozen credit markets dried up access to project financing choked off demand, sending panel supplies soaring and prices into a free fall.

In turn, solar companies including China's JA Solar Holdings Co Ltd, LDK Solar Co Ltd and Canadian Solar Inc have cut their production forecasts for the year.

Lower prices led Germany's Q-Cells to cut its 2009 sales outlook twice, while Solon SE withdrew its forecast. It has also meant lower profit margins for many, including China's Suntech Power Holdings Co Ltd, China Sunergy Co Ltd, Trina Solar Ltd, and U.S. installer Akeena Solar Inc.

Share prices have followed suit, with many solar stocks having logged losses of more than 50 percent so far in 2009, after dismal performances in 2008.

After hitting $4.20 a watt in the middle of 2008, solar panel prices have slid almost 30 percent to about $3 a watt, with research firm New Energy Finance predicting a further 20 percent drop this year.

That is good news for solar customers, analysts say, as the cost of the renewable energy source approaches that of power generated from dirtier sources such as natural gas and coal.

"It's a great thing," said Barclays Capital analyst Vishal Shah. "The pain that we are seeing in the industry right now is going to manifest into stronger growth in 2010 because prices are so low."