Solar PV costs and prices have fallen dramatically, leading to a more balanced supply-demand picture

Over the past three years, solar photovoltaic (PV) installed system prices, module prices, and module production costs have all fallen by more than 50%, while a shakeout of uncompetitive PV cell manufacturers has caused the number of suppliers to decline from 250 in 2010 to 150 in 2013. As a result of these falling prices, manufacturing consolidation, and a more balanced supply-demand picture, PV demand will continue to grow and the solar industry will shift from a demand-constrained market into a classic supply-driven market in 2014.

Until recently the size of the PV industry each year was constrained by deployment levels across individual end-markets, with global forecasting performed by adding demand from each country. Ultimately 2014 year-end demand will be determined by how much product can be produced and shipped, analogous to a classic supply-driven market environment.”

The demand-constrained environment of the past few years was a catalyst behind the industry’s over-capacity and over-supply problems that hindered capacity utilization rates, and resulted in capital expenditure declining to an eight-year low in 2013. Demand during 2013 was driven primarily by the booming Asian market, led by China and Japan, which are the top two markets globally. Adding in the United States, the third largest market, the top three countries accounted for almost 60% of total annual demand in 2013.

Figure: Solar PV Demand by Key Geographic Segments for 2013 and 2014

Looking at the global segmentation of the end-market demand in 2014, it is important again to consider the cumulative demand that is likely to be shipped into China, Japan, and the United States, rather than the specific number of gigawatts in each of these countries. A shortfall at any given time, in any one of these countries, will likely result in an uptick in demand from the other two.

For example, any demand downturn this year in the United States, arising from the current investigation by the US International Trade Commission against China and Taiwan, may prompt the Chinese government to increase domestic demand, in order to absorb excess supply from its local manufacturers and enable them to maintain high factory utilization rates.

The solar PV markets in China, Japan, and the United States are characterized by strong PV project pipelines, flexible and innovative financing vehicles, and proactive government policies that can be adapted to drive short-term demand upside. Understanding the changing supply dynamics into each of these countries during 2014 will represent a key tactical challenge for all module suppliers serving the PV industry this year.