S&P Equity forecasts solar cell capacity to increase 39% to 23.8 GW in 2011

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Continued PV module capacity expansions next year will result in price declines of 15%, fuelling further growth of the PV industry, according to a new industry forecast from Standard & Poor Equity. S&P Equity expects solar cell capacity to reach 17.1GW in 2010, increasing 39% to 23.8GW in 2011. The average price of polysilicon will end 2011 at around US$60 per kilogram, down about 21% from current spot market prices of US$76 per kilogram.

“The year 2010 was strong for the solar industry, as profits increased substantially. While we see some hurdles early next year as subsidy reductions take effect, we expect demand to strengthen in the second half, as smaller markets look to further establish a solar footprint,” said Clyde Montevirgen, S&P Equity Research solar energy analyst. “Overall, for 2011, we see a mixed picture, with healthy sales growth but declining profitability for some.”

S&P Equity forecasts that PV installations would increase at least 20% in 2011 over this year’s installations. Part of the reason for modest growth may be due to average selling prices for modules are expected to drop about 15% in 2011. The analysts at S&P believe the substantial portion of the decline in prices would occur in the first half of the year, typical with recent years pricing trends.

However, margins are expected to be squeezed due to module costs only declining 13% next year.

China-based solar companies are also predicted to continue to take market share from most U.S. and European competitors. Backed by local bank debt, Chinese manufacturers expanded production and cut unit costs in 2010, allowing them to offer panels at lower costs and gain market share. Cost benefits from vertical integration and operating leverage will lead to lower average panel costs of about US$1.12 by the end of 2011.

This trend is set to continue, with China-based solar companies having more than 50% of the world's total cell capacity by the end of 2011.

S&P expects non-Asia based companies will start to focus more on project development and installations, in order to preserve profitability.

The German market is expected to account for nearly 50% of total solar unit installations in 2010, with growth of about 150% from 2009 levels. However, a 15% decline is expected in 2011, though no reason was given for the decline.

Diversification away from the German market would enable some firms to do better than others in the coming year.

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