Slowdown dims solar panel prices 40-50%

Inventory build-up can brighten power project prospects.
Solar panel prices have fallen 40-50 per cent in the international markets in the last 6-9 months, triggered by the global liquidity crunch. This has led to tighter funding for solar farm power projects and a consequent build-up in inventory of panels.
Despite an improvement in global liquidity and revival of orders, there is no imminent prospect of prices returning to mid-2008 levels, say industry experts.
Solar panel manufacturers say prices are unlikely to return to the early 2008 levels even though some large projects are getting off the ground, particularly in western and southern Europe, the largest market for solar power projects.
The crash in prices has substantially brought down the delivered cost of electricity from solar projects.
Inventory build-up
According to industry experts, a number of reasons contributed to the price crash. Solar panels cost around $3.75-4 a Watt till the third quarter of 2008, after which they started falling. The prices are about $1.9-2 a Watt now, according to Mr Yogesh Mathur, Chief Financial Officer, Moser Baer India Ltd, which has subsidiaries that manufacture photovoltaic cells and modules and develop integrated photovoltaic systems.
Solar farm projects are large in size, about 1-5 MW, which is quite significant in terms of volume and value. A 5-MW solar farm typically used to cost about $30 million and this has now dropped to around $20 million. Till mid-to- late-2008 the market was booming and order books for all manufacturers were full, according to Mr Mathur.
Mr Shankar Rao Chodagam, Managing Director of the Hyderabad-based Titan Energy Systems Ltd, says that up to September 2008, the supply of panels was less than demand. Many companies, based on the earlier high growth projections, built up inventories, which also contributed to a fall in prices.
Attractive costs
Apart from Germany, which is Europe’s largest solar power market, Spain too is getting active in solar power, followed by Italy. Japan and the US too are growing solar power markets.
Mr Hari Surapaneni, CEO, Solar Semiconductor, a major player, said that with manufacturers trying to get rid of inventories, prices softened appreciably. “It is good for the consumer and the Indian industries involved in the solar business,” said Mr Surapaneni, whose company has orders over $3 billion from European customers of solar PV modules.
Chinese competition
Despite the high capital cost, solar farm projects were attractive both for investors and lenders because of the incentives offered by various European governments. Hence, even at the high costs, investors were assured of reasonable internal rate of return. “Because of the government support, the attractiveness to leverage, to borrow and to invest in that farm was quite high. The investors got a 10/20-year tariff,” said Mr Mathur.
Credit used to be available in plenty, but between the latter part of 2008 and early this year it dried up, resulting in a number of solar farm projects being put on hold.
Combined with this, says Mr K.E. Raghunathan, Managing Director of the Chennai-based Solkar Solar Industry Ltd, a manufacturer of solar products, Chinese manufacturers of panels also started dumping products in the global markets at rock-bottom prices. The Chinese manufacturers were able to do this due to various reasons, principal among which is the huge government support they get for exports.
Industry players say credit availability is improving and solar projects are slowly taking off, resulting in growing demand for solar panels.
Mr Mathur says that as the credit crunch eases, it has become attractive for banks to lend to the sector, especially with the lower overall system costs and consequently lower cost of energy. He does not expect prices to go back to the 2008 peak levels even though inventories are getting reduced. “As scale builds up in manufacturing, costs will come down. There could be a price uptick, but not to the extent as last year,” he says.
Grid parity
Along with scale economies, increase in cell efficiency — the quantum of incidental solar rays that gets converted to electricity — from 15 per cent to 17-18 per cent, should result in prices dropping over the next couple of years to grid parity.
According to Mr Chodagam, the developments augur well for Indian players as the current prices are better than diesel parity. “By 2011, it is expected to come to grid parity for the production of solar power.” Simultaneously, the country’s grid connection policy and the Solar Energy Mission will get a boost as the rate of return will improve.
Adds Mr Surapaneni, “we believe this trend (of lower prices) will continue and the cost will come down to Rs 10-12 crore a MW, bringing solar power closer to other forms of power.” On Thursday, Moser Baer said it got a contract to install a 1 MW solar project for Mahagenco, Maharashtra’s State-owned generation utility, for Rs 12.5 crore.
Indian manufacturers are confident that this means good business, as apart from the domestic market, Europe, Japan and the US will once again become large markets.