Those conditions are likely to drive some in the solar industry out of business and will force others into mergers, Andreas Haenel, chief executive officer of Phoenix told Reuters at the Solar Power International meeting.
The company, which designs and builds large solar power installations, sharply cut its sales and profit forecasts last week largely because of a write-down in the value of the solar panels it had purchased, sending its shares plummeting.
Prices for the panels that turn sunlight into electricity have slumped as much as 40 percent this year, with much of that decline coming between May and July when companies unloaded their inventory onto the market.
For Phoenix, that decline hurt the value of panels it had yet to receive.
"We had to make the writedowns while the inventory was still on the ship," Haenel said.
And those price declines, which have shrunk profit margins at the module makers such as Suntech Power Holdings, First Solar, Yingli Green Energy and Q-Cells, are continuing.
"The spiral of prices going down hasn't ended," Haenel said.
European demand for solar panels suffered in the first half of the year as Germany, the No. 1 market in the world, trimmed its subsidy, and installers in Italy, the second-largest market, awaited the rollout of new incentives there.
Uncertainty and declines in panel prices appear to have delayed some deals that Phoenix was expecting at the end of the second quarter.
"More than 100 megawatts of contracts that we thought we were very close to finalizing suddenly disappeared," he said.
Demand did not pick up until late in September, he said, and Germany could still see 5 gigawatts of capacity installed by the end of the year, when incentives there will decline again.
Based on the number of installations in Germany, Haenel estimated that the price support for solar electricity there will be cut 15 percent, the steepest possible reduction under government rules.
Still, demand in Germany should be strong since profit returns on projects in the German market have risen, reaching the mid-teens on a pretax basis.
"It's much higher than it would be normally," he said.
The global solar industry is undergoing a shakeout that is likely to see some companies closing their doors and others that may be bought out.
"There is a consolidation needed and a consolidation is coming," Haenel said.
He declined to comment on whether Phoenix would play a role in that expected consolidation.
SOURCE: http://www.reuters.com/article/2011/10/19/us-phoenixsolar-idUSTRE79I5YS20111019
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