After two years at the top, Germany this year is likely to lose its place as the world’s top photovoltaic (PV) solar market, slipping to No. 2 behind former runner-up Italy, according to an IHS iSuppli PV Market Brief report from information and analysis provider IHS (NYSE: IHS). PV solar system installations in Germany during 2011 are expected to decline to 5.9 gigawatts (GW), down 20 percent from 7.4 GW in 2010. Meanwhile, Italy in 2011 is set to install up to 6.9 GW worth of PV systems, nearly double the 3.6 GW from 2010, as presented in the table below.

“Propelled by residential and institutional investors who support green initiatives as well as sustainable funding, Germany has been the world’s leading country for PV installations since 2009,” said Dr. Henning Wicht, director and principal analyst for photovoltaics at IHS. “However, installations in the country stalled in the first half of 2011. And while the market recovered in the second half, the increase was insufficient to generate growth for the whole year. Meanwhile, the Italian government’s attractive incentives boosted the country’s installations massively, giving it the top position worldwide.”

New PV solar installations in Germany in the first half of 2011 amounted to only 1.7 GW—less than a third of total for the entire year. High PV module prices early in the year caused buyers to hold off purchases until costs moderated.

However, figures from the German Grid Agency reported installations of 2.3 GW from June to September, exceeding the original IHS estimate of 2.2 GW. A mini boom also materialized in Germany in October, November and December because of reduced system prices and changes of tariffs expected in January 2012.

 Meanwhile, Italy this year added more solar capacity than any other country thanks to attractive tariffs and changing subsidy schemes from the government in Rome. After a modest second quarter, installations in Italy are estimated to have reached a far-more robust 2 GW in the third and fourth quarters, helping that country jump to the top of the PV market this year.

US Comes in Third
Following in the wake of the two giant European players will be the United States in third place, with 2.7 GW worth of installations in 2011; China in fourth, with 1.7 GW; Japan in fifth with 1.3 GW and France in sixth with approximately 1.0 GW of new installations.

In all, new global installations this year will reach 23.8 GW, up a robust 34 percent from 17.7 GW in 2010. Table 1 compares the rankings of the Top 6 countries in 2010 and 2011.

PV Prices Shake Down in an Intensely Competitive Market
Despite the worldwide increase in new PV installations this year, component prices in the solar supply chain—stretching from wafers to modules—are on the decline. In the third quarter, for instance, large PV systems were being offered in Germany at 1.60 euros—or about $2.13—per watt, down from 1.80 euros; with residential rooftop installations also declining to 1.90 euros, a reduction from 2.20 euros.

Among less favorably positioned Tier 2 and Tier 3 suppliers in Germany, desperation selling had driven module prices to levels reaching 0.68 euros per watt.

The weak demand in Europe will lead to further price battles in 2012, with overall module prices forecast to reach 0.65 euros—or $0.80—in March 2012, IHS believes.

The primary field of contention will be module and polysilicon prices. Already, spot pricing for polysilicon has dropped below $30 per kilogram as of early November, and spot prices of $20 are possible by the March/April time frame given the continuing decline in demand. Meanwhile, module prices will be driven by production costs, with the rapid fall in the cost of silicon expected to pave the way for cheaper modules to be produced.

Given the intense competition in the market and the current oversupply, gross profit margins from wafer to module production will be in the single-digit range. Even best-in-class companies will not be able to escape the pressure on margins, and savvy business plans will need to be adopted by firms to navigate the crunch, IHS believes. In a recent example, American manufacturer First Solar Inc. has chosen to postpone the commissioning of a solar plant in Vietnam. Other manufacturers also will have to excel in their operations and increase performance without spending in order to stay profitable.

Still, the overall picture could improve soon. System prices are expected to stabilize in the fourth quarter this year at 1.50 euros per watt for ground and at 1.80 euros for rooftops, due to increasing orders.

Worldwide demand also is expected to pick up by April 2012, driven by demand in Europe as well as by supportive local programs coming online in China and the emergence of new markets such as India.

A healthier business environment for the PV industry could well emerge by the end of the first half of 2012—but only if demand returns as a reaction to the low system prices on the market.

More information

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