A new report from market research firm, IC Insights highlights the expected recovery in capital spending within the photovoltaics industry as the market recovers over the next few years. The market research firm claims that spending on manufacturing plants, equipment and materials in both the crystalline (c-Si) and thin film sectors has not declined as much as PV manufacturers had wanted in light of the slump in demand and difficult financial conditions, restricting project finance for solar installations.
IC Insights said in the report that it was late in 2008 that major PV manufacturers started to make capital spending cuts as the scale of the decline in demand became clear. Although many significantly reduced spending budgets for 2009 compared to 2008, long-lead times and previously planned expansions already taking place meant that many manufacturers could not abruptly halt all expenditures.
Although 2008 was a record year for PV installations, production capacity was already growing faster than actual demand, which saw many market analysts warn last year that a mismatch between supply and demand was developing. IC Insights believes that the inability to reduce spending fast has further aggravated the mismatch. The market research firm now expects PV production capacity to increase by 32% in 2009, compared with 2008, reaching a nominal installed capacity of 11.5GW. Capacity reached 8.7GW in 2008, a 69% increase over 2007, according to IC Insights.
The key concern is that IC Insights is forecasting a 22% decline in solar system installations this year, creating the need for further capital spending cuts in 2010 to reduce the supply and demand imbalance.
Therefore, IC Insights is projecting the PV industry will cut capital spending further in 2010 to approximately US$680 million, down from US$1.13 billion in 2009, a decline of 40%. Cuts in capital spending will slow capacity expansion to just 15% in 2010, yet the solar market is expected to recover with a 37% growth in system installations.
The supply and demand mismatch will impact manufacturing utilization rates. The market research firm projects rates to plummet from 83% in 2008 to 54% in 2009 and to 52% in 2010.
As the recovery in demand moves through 2011, capital spending will slowly recover, IC Insights said. Spending is expected to nearly reach the levels set in 2008 in 2012 when spending should reach US$1.34 billion an increase of 74% compared to 2011. Further growth in spending is expected in 2013, when capital expenditure is set to reach US$1.97 billion, a 47% increase of 2012.
As market demand increases manufacturing capacity utilization is expected to increase to 63% in 2011 and return to 2008 levels of 82% in 2013. The high utilization rates will also contribute to overall cost per watt reduction strategies, IC Insights noted in the new report.