Solar Industry Endures, Adapts to Reduced Demand

In the wake of the global credit crunch, dramatic cutbacks in European subsidies for solar power have resulted in substantially reduced demand for solar cells—causing prices to drop and new manufacturing operations to be delayed.

The decreased prices could make new solar projects more financially feasible—but they also spell a tough year for manufacturers. Furthermore, utilities are having difficulty raising capital for large-scale solar projects in any case, with global financing for renewable energy projects in the first quarter of 2009 at only about half the level of the fourth quarter of 2008.

While Spain and Germany have cut state support for solar projects, the U.S., Japan and China are introducing new support—though the impact won’t likely be felt until early next year.

In 2008, solar cells were priced at about $3.95 per watt. This year, analysts expect prices to average nearly half that: about $2 per watt.

Some analysts believe the falling prices could signal the beginning of a period of radically diminished profit margins for solar manufacturers, even as demand ultimately grows.

The world’s largest solar components maker, Q-Cells of Germany, is already compensating for decreased manufacturing revenue by helping site and build projects before selling off completed installations to banks, investors and utilities.

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