Darker Times for Solar-Power Industry

By LEILA ABBOUD The global recession and tight credit conditions have cast a chill on the solar-power industry after years of breakneck growth, and could usher in long-term changes in the industry. Banks have curtailed financing for major solar projects, and Spain -- the world's second-largest solar-power market after Germany -- has slashed subsidies for the industry, leading to sharply lower demand for solar cells. Sales of the tiny chips that convert the sun's rays into electricity are expected to drop by at least 20% this year. As a result, solar-cell manufacturers are delaying construction of new factories and sharply cutting prices. Several big solar companies, including Renewable Energy Corp. of Norway and Q-Cells SE of Germany, have scaled back ambitious profit and revenue goals, and are predicting a tough year ahead. Analysts expects solar cells to fetch an average of just $2 per watt this year, down sharply from $3.95 per watt in 2008. Q-Cells Q-Cells, a maker of solar cells, has pushed into building energy projects, above. "Last year we couldn't make enough solar cells to keep up with our customers' demands," said Anton Milner, chief executive of Q-Cells, the world's biggest solar-cell manufacturer by volume. "Now it's a buyer's market -- customers are coming back to ask if they can buy lower volumes and have lower prices than planned." In environmental terms, there may be a silver lining in the industry's woes. The drop in prices for solar-power gear could make solar energy more competitive with burning fossil fuels to generate electricity, even if oil prices stay at around $50 a barrel. Today, less than 1% of the world's electricity comes from solar power. "The dramatic cost reductions now happening in solar will be good for the industry and the environment in the long term," said Sven M. Hansen, chief investment officer of Good Energies LLC, which invests in renewable energy. "But in the short term, the outlook for solar companies has never looked more difficult." World-wide shipments of solar cells to companies that install rooftop solar-power systems and build fields of solar panels for commercial energy production grew 85% to almost 6,000 megawatts in 2008, according to research firm Collins Stewart LLC. This year shipments are expected to fall to 5,575 megawatts. First-quarter sales at SunPower Corp. fell 22%, and the California solar-cell producer cut its revenue forecast for 2009 by 17%. Last month, Taiwan's Motech Industries reported its worst quarter since 2003 with revenues down 15% and net income down 80% to $1.4 million. Some industry watchers think the current downturn is more than a bump in the road. Dan Reis, analyst at investment-research firm Collins Stewart, says falling solar-cell prices could herald an era of lower profits and thinner margins. Sales of solar panels will boom in volume terms, Mr. Reis said, but since prices will be much lower, companies with low costs, such as Chinese manufacturers Trini Solar Ltd. and Yingli Green Energy, will have an advantage. Even so, solar-cell makers may get some relief as countries including the U.S., Japan and China provide more support for renewable energy either as part of their economic-stimulus plans or to combat global warming. But those subsidies are unlikely to translate into an uptick in solar-cell orders until next year at the earliest. In the meantime, government subsidies and private-sector financing are likely to be scarcer than in recent years. The Spanish government will subsidize just 500 megawatts worth of solar projects this year, down sharply from 2,400 megawatts last year. Utilities and other developers are also finding it harder to get loans or raise investment capital for big solar projects. In the first quarter, global financing for renewable-energy projects fell to €11.5 billion from €20.5 billion in the fourth quarter, says London consulting firm New Energy Finance. To adapt, Q-Cells' Mr. Milner has slashed capital-spending more than 40% from last year, and has postponed the construction of a new factory by six months. This year, the company, which hired 800 workers in 2008 as its revenue rose 30%, has let the contracts of its temporary workers expire and has laid off about 80 people. "I've gone from managing for rapid growth to managing for cost reductions," said Mr. Milner. To protect margins, the Q-Cells CEO pushed into the business of building big solar-energy projects. Last year, he formed a division that finds the project site, obtains the permits, builds the solar installation, and then sells the project off to investors, banks or utilities. "We've seen amazing growth, and this will soon become a significant part of our business," he said. Write to Leila Abboud at leila.abboud@wsj.com