Citi: Solar prices to sink rapidly in looming shakeout

Financial analysts at Citigroup have joined the ranks of solar-company watchers that see falling prices and collateral damage in the next two years.

For consumers, the up-front price of getting solar-electric panels is still high--in the range of $20,000 to $35,000. A shortage of silicon cells is one reason that panels remain expensive.

But the overall demand for solar cells and panels is still very strong, driven by corporate customers and utilities. The solar industry has been ramping up production of silicon wafers in an effort to keep up.

In a report published on Thursday, Citi said it believes that the silicon shortage will become a silicon oversupply, which will start to push down prices next year and then accelerate further in 2010.

Analysts also see demand risks from potential changes in 2010 to rebate programs in Germany and Spain, two of the largest markets for solar.

For consumers, falling solar prices means that they'll be able to purchase more watts per dollar. That's not necessarily good news for manufacturers, though.

"We think headwinds will start to intensify, moving into the second half of 2008, as the current environment of benign pricing begins to rapidly reverse course in '09 and accelerate in '10, and decline faster than most can cut costs. In this environment, we think a shakeout will ensue," according to Citi's report.

Softening consumer demand
Like many financial analysts, Citi sees First Solar, which makes cells from cadmium telluride rather than silicon, as a leader because it anticipates making electricity at "grid parity" in 2012.

Meanwhile, on Thursday, Akeena Solar reported a first-quarter loss and said conditions in the consumer market were softening. It warned that a recession and tight credit were making homeowners hold back on solar purchases.

In addition, Akeena said a federal tax credit for renewable-energy purchases, which has not been renewed, is hurting business.

That pessimism appears to have spilled over onto solar-installer Real Goods Solar, which went public on Thursday but saw its stock price end the day below the low end of its anticipated offering price of $10.

[michael_o]

Solar cells are silicon; it seems like they should be subject to some form of Moore's law. Downward price pressure seems like a good thing; long-term should allow gobs of cheap electricity from sustainable, low/no impact sources to replace oil and coal.

[mlamonica]

People often say that solar cells should follow Moore's Law but it's not playing out that way in solar. Certainly, the manufacturing costs of cells are going down. But the "performance" part isn't keeping up. Efficiency in converting light to electricity is improving, but it's incremental-- a couple of tenths of a percentage point a year. Silicon solar cell efficiency is in the range of 14% to 20 %. So the "bang for your buck" really comes from lowering the overall dollar per watt cost, and a lot of that is through scale.