Dim outlook seen for solar in '06

Dim outlook seen for solar in SMQ-8216-SMQ06
SAN JOSE, Calif. — After sizzling growth in recent times, the solar energy market is projected to dim and “hit the wall” for panel, equipment and materials vendors in 2006, warned an analyst.

The projected slowdown in the solar market for 2006 is mainly due to ongoing and severe shortages of polysilicon, one of the key materials used for making solar cells, said Jesse Pichel, an analyst with Piper Jaffray Inc., an investment banking firm.

Leading polysilicon vendors cannot keep up with huge OEM demand and are reportedly sold out of these materials for the next two to three years, according to industry sources. Polysilicon, a material that consists of multiple small crystals, is used to make silicon wafers, solar cells and other products.

Solar panels are in huge demand and suppliers “can sell what they make right now,” Pichel said. “But we think that the industry will hit the wall in 2006.”

Driven by strong demand in Germany, Japan, and, to a lesser degree, the United States, the worldwide solar module market is projected to reach $5.3 billion in 2005, up from $4 billion in 2004, according to Piper Jaffray. By 2010, the solar module market is expected to hit $12 billion, according to the firm.

The solar module market is also expected to reach 1,638 megawatts in terms of worldwide cell production in 2005, up 30-to-35 percent from 2004, according to the firm. But in 2006, the market is projected to slow and reach about 1,680 megawatts in overall cell projection, up only 5 percent from 2005, according to Piper Jaffray.

As more polysilicon capacity becomes available over time, growth in the solar sector is projected to resume, possibly as early as 2007. At that time, the solar module market is projected to grow 15-to-20 percent, according to the analyst.

Generally, the commercial market will drive solar energy. The big adopters will be the “Wall Marts, businesses and schools — not the onesy-twosy residential market,” he said.

Solar energy, however, is still dependent on government subsidies and remains twice as expensive as the traditional electricity grid. Solar modules sell for about $3.25-to-$3.50 per watt right now, but prices are expected to fall over time. “With technology improving and costs declining, we believe that for most applications, select solar companies will be cost competitive with the grid without subsidies by 2010,” he said in a recent report.