Market growth forecast. Although the structural change of the solar market has not yet ended, the general conditions in the forthcoming years are expected to improve again. Bank Sarasin analysts expect newly installed solar power capacity in the international solar market to grow by 46 per cent to 8.4 (2009: 5.8) GW. In 2011 the market is expected to grow further with an anticipated newly installed solar power capacity of 12.7 GW. The European Photovoltaic Industry Association (EPIA) forecasts newly installed solar power capacity of 6.0 to 10.8 GW for 2010. For 2011 the forecast growth corridor ranges from 7.5 to 17.4 GW.

Further rise in supply. Increasing competition in the silicon market and the expansion of production capacity to 68,000 (2009: 67,000) tonnes in 2010 and 98,000 tonnes in the subsequent year are expected to create a further decline in silicon prices. The Sarasin Bank expects the average price to fall to 45 (2009: 55) US$/kg in 2010 and 40 US$/kg in 2011. This will help manufacturers of crystalline solar power technology – such as SolarWorld – to further cut their production costs so that it will be easier for them to compensate for potential price reductions in modules.

Solar manufacturers can tap additional cost savings potential through efficiency enhancements in wafer and cell production. As a result, average silicon demand is to be reduced by five per cent to 7.8 (2009: 8.2) g/Wp as early as in 2010 and to 7.6 g/Wp in 2011.

In the next two years, global production capacity for wafers, cells and modules will continue to rise. Asian competitors, in particular, have announced ambitious expansion schemes. The Sarasin Bank therefore anticipates growth in crystalline cell production of 53 per cent to 12.5 (2009: 8.1) GW in 2010 and a further 21 per cent to 15.2 GW in 2011. Manufacturers of alternative solar technologies such as thin film will also expand their production capacity, although many research projects carried out in this area will probably not result in marketable products due to the more difficult funding environment. Moreover, potential cost benefits of these manufacturers will be less relevant due to the fall in crystalline cell and module prices. By contrast, more mature technologies such as module production based on cadmium/telluride will probably gain market shares. However, this technology which uses highly poisonous substances might fall under future regulation provisions. The use of cadmium is already governed and has been limited by the EU Chemicals Regulation.

The rise in supply will probably cause further price reductions, a key step on the way to achieving grid parity. Once parity will have been achieved, completely new markets will open up for the solar sector, regardless of promotion schemes. In the long term, the sector will therefore benefit from falling prices. Consolidation tendencies in the market provide established companies such as SolarWorld with an opportunity to gain additional market shares and strengthen its position as a quality supplier.

EEG amended. Despite the planned amendment to the German Renewable Energy Sources Act (EEG), experts predict that Germany will remain the world’s largest solar market in 2010. EPIA expects newly installed capacity of up to 2.8 (2009: 3.0) GW. As the growth corridor of 1.5 GW defined by the EEG was exceeded in 2009, the feed-in tariffs for solar power will decline by nine or eleven per cent, respectively, as of 2010, depending on plant type and size.

Due to strong market growth in 2009, a further decline in feed-in tariffs for solar power plants is also being discussed. With effect from 1 July 2010, the feed-in tariff for roof-top systems should be reduced by 16 per cent on a one-off basis while feed-in tariffs for free-field plants are expected to sink by 15 per cent. Free-field systems on arable land should not receive any further incentives according to the current status of discussion.

These additional declines – which should be significantly higher than originally discussed – create enormous challenges for the solar sector. As Germany currently is by far the largest solar market, the amendment is likely to further reinforce the consolidation pressure within the entire solar sector.

In order to nevertheless guarantee growth in the solar market in Germany over the long term, growth corridors are again to be stipulated in the most recent amendment to the EEG. These corridors allow for an adjustment of the tariffs to the market situation. Accordingly, the basic feed-in tariff decline of 9 per cent will enter into force at annual growth of 2,500 to 3,500 MW. If newly installed capacity exceeds this corridor, the feed-in tariff decline will rise in 1,000 MW stages: in 2011 by 2 percentage points and in the following years by 3 percentage points respectively. If, by contrast, market growth falls short of the 2,500 MW line, the basic feed-in tariff decline will be reduced in 500 MW stages by 2.5 percentage points each time.

The feed-in tariff for solar power used for self-consumption is planned to be made more attractive through amended EEG. The existing limitation of self-consumption to systems of less than 30 MW will be lifted to 800 kW. This will benefit the regulation of power grids and balance power consumption. As a result, the German solar market will remain attractive, above all in the private rooftop area. EuPD Research expects rooftop systems on private and non-private buildings to account for around 91 per cent of the entire German solar market by 2012 (2009: 86 per cent). By contrast, the share of free-field systems will fall to nine per cent (2009: 14 per cent).

Promotion programs take effect. For the USA, analysts expect stronger growth in demand in 2010. One of the key drivers of this development will be the national Cash Grant Program adopted in the course of the third quarter of 2009, under which solar customers can get 30 per cent of the cost of new solar power installations reimbursed in the form of a grant. Market experts believe that the US solar market will exceed the 1,000 MW threshold of newly installed output in 2010. Barclays Capital forecasts newly installed capacity of 1,076 (2009: 468) MW for 2010 and even 2,945 MW for 2011. Unlike in Germany, the USA are expected to experience strong growth, in particular, in the market for free field systems. This is due to the fact that many US utilities are interested in increasing their share of solar power due to the introduction of statutory minimum shares of renewable energies in the energy mix. Since these companies may also benefit from the tax credits of 30 per cent of the Cash Grant Program, building large-scale plants is particularly attractive to them.

Growth in European markets. The remaining European markets are also expected to show positive development. According to experts, Italy is mainly expected to show a dynamic trend in the next two years. In 2010 newly installed solar capacity is expected to be 924 (2009: 374) MW. In 2011 the Italian solar market is expected to growth to a newly installed output of 1,478 MW. Italy is expected to achieve accumulated solar capacity of 1,200 MW as early as in 2010 so that the feed-in tariff for solar power would have to be amended again in accordance with the Italian Energy Act “Conto Energia II”. The new tariffs would then enter into force as of January 2011. Although no official announcements concerning the new tariffs have been made, the Italian Solar Industry Association has already presented the draft of a new tariff scheme to the government. It provides for stronger reductions for free-field systems compared to roof-mounted systems so that the breakdown of newly installed capacity in Italy might change to the benefit of the rooftop segment.

Having overcome the recession, the solar markets in France, the Czech Republic and Belgium are expected to continue to grow in 2010. The Sarasin Bank expects the European markets (excluding Germany and Italy) to achieve overall growth of 33 per cent to 1,190 (2009: 896) MW in 2010. For 2011, these European markets are expected to continue to grow and achieve newly installed capacity of 1,707 MW.

Growth in Asia benefits the global competitive situation. The key growth driver in Asia will be Japan. According to expert forecasts, the Japanese solar market will grow by 50 per cent to 547 (2009: 365) MW in 2010, with newly installed capacity of 739 MW in 2011. According to Bank Sarasin, China and India will develop as key sales regions. As a result, the competitive situation in Europe and the USA will be alleviated to some extent since Chinese manufacturers will probably increasingly seek to sell their products primarily in these countries due to their logistic proximity to these markets. Taken together, the two markets are expected to more than double in 2010 and reach a newly installed solar capacity of 557 (2009: 245) MW. On the whole, the Asian market is expected to achieve newly installed capacity of 1,560 (2009: 896) MW in 2010. For 2011, the market volume is expected to grow to 2,475 MW.