The global solar manufacturing industry is unquestionably headed for a thinning of the ranks, with up to two-thirds of all companies being forced to merge or go out of business thanks to the plummeting price and corresponding oversupply of polysilicon, the raw material used to manufacture most solar panels.
As Shyam Mehta, a senior analyst of solar markets at GTM Research put it to TPM in an email: “This is a dangerous time to either be in, or enter the solar manufacturing space. We are in a period of significant oversupply, price declines, and an uncertain (if not negative) demand outlook — lots of risk and not much near-term prospect of reward.”
Specifically, when it comes to U.S. polysilicon manufacturers, Mehta thinks that of the three American companies that currently produce the material, two need to optimize their polysilicon business models with their other businesses to survive the glut: REC Technology US Inc., a subsidiary of Norwegian company REC (Renewable Energy Corporation) and MEMC Electronic Materials, a Missouri-based company.
“The business outlook for these firms is therefore predicated on the success or failure of their non-poly business as well, which I would say, generally speaking, is not great,” Mehta noted. “Both of these firms actually have low-cost poly technologies that drive lower costs than existing processes (assuming same location and degree of integration), but their uncompetitive non-poly segments (wafer and modules for REC and wafers for MEMC) are weighing them down and could have a decisive say in their fate.”
But Mehta and a few other analysts are seeing a light at the end of the tunnel, no pun intended.
“If macroeconomic conditions improve (specifically with respect to the debt crisis that is affecting Europe), we should see demand respond to current low pricing levels that would help to bring supply back in line with demand,” Mehta wrote.
In addition, green energy analyst Richard Keiser published a new report in which he predicts rapidly increasing demand for solar installations, and thus polysilicon, throughout the U.S. over the next five years.
Still, he notes that “The rebound will come, but it will be asymmetrical,” as Forbes reported.
That hasn’t stopped Money Morning‘s David Zeller from picking out the five solar energy stocks worth investing in for longterm growth, one of which includes U.S. firm First Solar, which has experienced a confidence-rattling management turnover as of late.
Mehta’s advice to weather the current storm is as follows: “For companies looking to enter the market, I would say now is the time to keep your money in your pocket and sit on the sidelines until the dust settles. Conserve cash, work on R&D to optimize your technology, and only make the plunge if your business model is equipped to handle a $20/kg polysilicon environment with gigawatts of commoditized, cheap Chinese crystalline modules.”
Correction: This post previously stated that Mehta thought REC and MEMC were at risk of going out of business. In fact, Mehta said that REC and MEMC would need to optimize their business models in order to remain competitive during the shakeout.
