LOS ANGELES/TOKYO - A collapse in silicon
prices threatens to put the heat on solar panel makers that use
little of the material, such as Japan's Sharp Corp and
even low-cost industry darling First Solar Inc.
Spot prices on the solar industry's key raw material,
polysilicon, have halved since January, giving a leg up to
solar panels that rely heavily on the material.
Thin-film solar panels, made with little or no polysilicon,
are starting to lose their competitive edge over China-made
silicon-based modules, which are more efficient in transforming
the sun's rays into electricity.
"First Solar is still the undisputed leader, but finally,
someone's competing with them," said Macquarie analyst Kelly
Dougherty. Intensifying price competition is making scale
all-important, hurting the chances of start-ups, she said. "If
this trend continues, I wouldn't be surprised if just a handful
of thin-film companies are left."
U.S.-based First Solar, the world's top thin-film company,
has been snapping up large, utility-scale contracts in Europe
and the United States thanks to its cadmium telluride panels
that are cheaper to produce than the traditional silicon-based
panels that dominate the market.
But the precipitous drop in silicon panel prices is eroding
First Solar's lead.
Last month, the chief executive of German solar power plant
builder and First Solar customer Phoenix Solar AG
said the company was ready to shift toward silicon-based panels
if prices drop far enough.
Crystalline silicon and thin film solar panels are now
competing in the same markets for the same customers, Andreas
Haenel said on a conference call, adding that Phoenix had been
able to negotiate lower prices with First Solar as a result.
"Whenever we see that one is getting the advantage over
another, we are flexible to shift from left to right and from
right to left," Haenel said.
CHINESE ADVANTAGE
Polysilicon prices will continue to fall as semiconductor
demand stays weak and oversupply plagues the solar sector,
industry players say.
That, along with potential demand gains from a new solar
subsidy in China, would further lower costs for Chinese
manufacturers, who already boast processing costs of 90 cents
to $1 per watt of generating capacity -- narrowing the gap with
ultra-low-cost First Solar and giving Sharp and Taiwanese
thin-film makers such as NexPower Technology, an affiliate of
United Microelectronics Corp, a run for their
money.
Chinese manufacturers including Suntech Power Holdings Co
Ltd, Trina Solar and Yingli Green Energy
Holding Co Ltd have been able to cut their prices more
aggressively than their German and U.S. peers because they
procure more polysilicon from the spot market and because of
low electricity and labor costs.
Yingli Green Energy Holding Co Ltd, which is undercutting
even its Chinese rivals, was tapped by U.S. power company and
First Solar customer AES Corp last month to be its
exclusive supplier of crystalline silicon solar panels -- a
deal Barclays Capital analyst Vishal Shah wrote "shows further
evidence that low poly prices are likely closing the gap
between First Solar and Yingli panel prices."
Silicon-based panels are thought to be competitive with
thin film at about 1.60 euros ($2.26) per watt of generating
capacity, according to Friedman Billings Ramsey analyst Mehdi
Hosseini.
On average, prices are now between 1.70 euros per watt and
1.80 euros per watt, Hosseini said, adding that China's Yingli
recently beat out First Solar for a contract in Germany by
pricing below the market average at 1.60 euros per watt.
First Solar officials did not reply to a request for
comment on Hosseini's assertion.
"These price falls are a major problem for thin-film
makers, especially for those that use turnkey lines from
Applied Materials Inc or Oerlikon and who
just deliver standard amorphous tandem thin-film cells," said
iSuppli analyst Stefan de Haan.
Applied Materials customers include India's Moser Baer
, U.S.-based private company Signet Solar and China's
ENN Solar Energy Co. Oerlikon customers include Germany's
SCHOTT Solar and ErSol Solar Energy AG and Taiwan's
CMC Magnetics Corp.
DOWN, BUT NOT OUT
Not that anyone expects First Solar to be run out of the
market. Rather, lower prices on silicon-based panels will
pressure the company to stay competitive by cutting its own
prices, ultimately driving down earnings estimates.
"First Solar is still one of the best companies, it's just
that competition is catching up and do you really want to buy
it at $200?" said Hosseini, who cut his rating on First Solar
to "underperform" this week. "The kind of earnings that I am
expecting justifies a $100 or $110 stock, not $200."
First Solar's stock was at $190.66 in Monday afternoon
trade on Nasdaq and has gained about 30 percent so far this
year. The shares trade at about 25 times 2009 earnings
estimates, compared with multiples of 22, 15 and 11 for Yingli,
Suntech and Trina.
One First Solar investor said that while competition was
heating up, he still expected the company to compete best for
contracts with U.S. utilities, who are willing to trade
efficiency for the lowest price possible.
"It does make thin-film marginally less superior, but it
definitely hasn't eroded its advantage," said Edward Guinness,
a fund manager with Guinness Atkinson Funds, which owns more
than 11,000 First Solar shares. "We've always seen thin-film as
having an attractive niche. I don't think it's going to take
over the whole market, and I've never thought that."
($1=.7050 euro)
(Reporting by Nichola Groom; Editing by Tim Dobbyn)
Copyright 2009 Reuters
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