Many Solar Companies Won't Survive the Recession

(MoneyWatch)  It's hard to imagine a solar panel manufacturer having to use every available inch of their warehouse and production facility, clearing space to stack unsold panels all the way to the roof. But that's the picture a new Lux Research report is painting. Demand for solar panels is expected to fall this year, leaving the industry gasping.

The scenario is difficult to believe -- demand for solar power looked like it was on an unstoppable growth trajectory even when the recession first began last year. But now even manufacturers lucky enough keep getting funding for their factories are getting hurt, because the developers who would buy the finished product can't secure project financing.

According to Lux, the market will start growing again next year. Sales in 2008 were for 5.5 gigawatts of capacity; the number is expected to only be slightly lower this year, and slightly higher next. But the speedbump is going to cause some major pain. All but the best-positioned companies will be forced to close, artificially speeding up and harshening the shakeout some insiders didn't expect to until after 2010.

Here's why:


As the oil industry showed last year, small gaps between supply and demand can cause big price variations. Companies that aren't already making dirt-cheap products will lose money, and most of these companies are still far too young to have built up war chests.

The graph also shows where Lux thinks the market will recover, in 2012. Around the same point, they think the industry will be worth over $60 billion, or twice what it's worth today. And if most of the smaller companies and inefficient players get pushed out by then, the pie will have to be divided by a smaller number of strong companies like First Solar, a thin-film panel maker that nobody thinks will go under.

Incidentally, the tough road ahead for solar companies won't end badly for the world. The Lux report has a number of graphs projecting the costs of various technologies going forward, but the one below for crystalline silicon seemed fairly representative. If the economy recovers, and the cost per watt of solar panels drops as much as the analysts think it will, solar power will become a lot more attractive to nearly everyone.