US Solar Market Set To Expand Amid Falling Prices, Growing Supply

Date : 01/31/2011 @ 8:04AM
Source : Dow Jones News
Stock : Trina Solar Limited Sponsored Adr (Cayman Islands) (TSL)
Quote : 11.54  0.0 (0.00%) @ 2:05AM

US Solar Market Set To Expand Amid Falling Prices, Growing Supply

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U.S. demand for solar power is likely to continue growing quickly this year, driven by growing supply, falling solar-panel prices and government incentives.

The global solar-power market has experienced a sea change in the last two years, as solar-product makers in China and other countries have boosted manufacturing of high-quality products and sold them at increasingly low prices. The growing competition from Chinese and Taiwanese solar-product manufacturers has forced suppliers around the world to focus on cutting costs and prices, as well as boosting sales volumes.

The result: prices have been halved over the last two years, with further drops expected this year and next. The falling prices and growing availability of solar panels and other equipment, coupled with government incentives and renewable-energy requirements in some states, is creating a boom in the U.S. solar market.

U.S. demand for solar panels more than doubled in 2010 to more than 1,000 megawatts, said Paula Mints, an analyst at Navigant Consulting in Palo Alto, Calif. She said they are expected to double again in 2011 to 2,000 megawatts.

Wholesale solar-panel prices, currently around $1.50 a watt, are expected to fall another 20% by the end of this year, which will help drive growth in the U.S. solar market, said Arno Harris, chief executive of solar-power developer Recurrent Energy, which is owned by Sharp Corp. (SHGP, 6753.TO).

"As module prices come down, solar is becoming more competitive," said Harris, who believes the U.S. could eventually become the world's largest renewable energy market. "It's becoming the renewable-energy technology of choice for utilities that have renewable-energy requirements."

While pioneering solar-power generators like Recurrent are growing quickly with the U.S. solar market, large, established companies have also jumped into the game. NRG Energy Inc. (NRG), the nation's largest independent power producer, owns a 21-megawatt solar farm in California built by First Solar Inc. (FSLR) and has bought or invested in about 1,800 megawatts of solar-power facilities at various stages of development. And the company plans to buy or build more solar farms, said Tom Doyle, head of NRG's solar power unit.

"We see it as a high-growth market, Doyle said. "Returns are every bit as attractive as the fossil-fuel plants that we've developed."

Despite falling prices for products, suppliers can earn margins as high as 25% to 50%, while developers and owners can see returns in the "high teens," Doyle said.

Short-term incentives have been a major driver of the U.S. solar market. Solar developers can get a federal tax credit equal to 30% of the cost of a facility until 2017. And developers that started construction last year or begin this year can obtain a government grant in the amount of the credit. Mandates in California, Arizona, New Jersey and other states that require utilities to buy renewable energy are also fueling the market. In California, utilities must use renewable sources for a third of the power they sell by 2020.

Germany and other European countries have been the largest buyers of solar power products over the last few years owing to generous government subsidies. But those subsidies have been cut and may be cut again, weakening demand. The U.S. and Canada are likely to pick up much of the slack and benefit from low-priced solar panels from China and other Asian countries.

"A lot of traditional high-cost capacity is likely to get shut out of the North American market, leaving demand for only a handful of low-cost players" said Barclays Capital analyst Vishal Shah.

Companies that stand to benefit include U.S.-based First Solar and SunPower Corp. (SPWRA, SPWRB), as well as China-based Suntech Power Holdings Co. Ltd. (STP, K3ND.SG), Yingli Green Energy Holding Co. Ltd. (YGE) and Trina Solar Ltd. (TSL, K3KD.SG), among others, Shah said.

Some types of solar power are faring better than others. Solar photovoltaic panels, which convert sunshine into electricity, are popular, while solar thermal power is fading. Solar thermal plants use curved mirrors to direct the sun's heat to a central tube in which steam is generated to drive power turbines.

Bankers have said that lining up financing for solar-panel facilities is relatively easy because they have a successful track record in Europe, but that solar-thermal power developers face major difficulties because most of the technologies are untested at a commercial scale.

The disparity prompted NRG to switch a 66-megawatt solar facility from solar-thermal technology to solar panels, while other solar-thermal developers have scaled back plans. U.S. renewable energy developer NextEra Energy (NEE) said it may switch one of two solar-thermal power plants it is developing in California to solar panels.

"While [the project] is permitted as a solar thermal project, we are also evaluating the [photovoltaic] option," NextEra spokesman Steve Stengel wrote in an email.

-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468;


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