Differentiation criteria becoming more important. In the year under review the solar power market underwent a fundamental structural change – away from a sellers’ market towards an end customers’ (or buyers’) market. For the first time, supply consistently exceeded the demand. This is why every customer had to be “fought for”. The quality and properties of the products as well as further differentiation criteria of the individual manufacturers turned out to be crucial. The prices for solar power products plummeted by about one third industry-wide in the year under review. In addition, influenced by the global recession, investments in the solar industry declined, just as in other renewable energy segments.

According to the figures of Bank Sarasin, the newly installed output capacity on the solar world market – after consistent growth in the last five years – sank slightly for the first time in 2009 by one per cent to 5.8 (previous year: 5.9) GW. The cumulative solar power output worldwide in the year under review amounted to 20.5 (previous year: 14.7) GW; this would be enough to supply around 20 million people with electricity (assumption: 1,000 kWh annual average power consumption per person).

Supply exceeds demand. Due to the persistently difficult financing conditions, a shrinking economy and the hard winter in early 2009, demand in the solar market during the first half of the year tended to be very low-key. Many providers reduced their production capacities or introduced short-time work. The persistently low demand caused a price decline along the entire value chain from silicon via wafers and cells through to complete solar systems.

Consequently, the average prices for silicon – the most important raw material for the production of crystalline solar modules – dropped from 70 US$/kg at the end of 2008 to 55 US$/kg at the end of the year under review. The huge span between the spot market prices that reached record heights of more than 400 US$/kg in 2008 and the contract prices (2008: 79 US$/kg) dissolved almost completely in the year under review. The reason for this development was an increasing silicon supply versus weak demand. According to estimates by Bank Sarasin, the silicon capacities that are available to the solar industry rose in 2009 by 40 per cent to 67,000 (previous year: 48,000) tonnes.

With the removal of the bottleneck in pure silicon, the market for upgraded metallurgical silicon (UMG-Si) also collapsed. Last year this material was still traded as an alternative to the very expensive and hardly available solar grade silicon. Many new silicon producers therefore abandoned their projects in this field within the course of 2009. Alternative solar technologies such as thin film also suffered from the declining silicon price because their previous cost advantage over crystalline solar technologies was reduced. Of the 140 companies that were active in the thin film business in 2008 only about 70 providers survived in the year under review. While it is true that the share of thin film products in the solar market increased to 20 (previous year: 16) per cent, growth of this section of the solar market has slowed down. These alternative technologies are not expected to jeopardize the dominant market position that crystalline technologies have (some 80 per cent of the total solar market) over the short- to medium-term.

The global markets for solar products such as wafers, cells, and modules also underwent structural changes in the year under review. Production capacities increased significantly while the demand remained weak, as a result of which the surplus supply on the market rose, above all in the first half of 2009. Thus, according to the figures of Bank Sarasin the growth in solar cell production alone amounted to 56.7 per cent. In 2009, capacities rose worldwide to 10.5 (previous year: 6.7) GW. This development was driven mainly by the strongly expanding Chinese manufacturers, who have cost advantages over European producers in the form of lower wages, lower costs for energy, and less expensive real estate. In addition, they received low-cost credits from the state banks, which accelerated the growth of the companies. In order to penetrate the markets in Europe and the USA it was mainly Chinese manufacturers who offered their products at very low prices. This also put the margins of other manufacturers under pressure. 

In particular, cell manufacturers who were tied to fixed wafer contract prices on the supply side and who were simultaneously confronted with substantially declining module prices on the buyers’ side sustained very high margin losses. Many dropped into the red and had to reduce their growth rate substantially as they were no longer capable of covering their capital needs from the operating business. Combined with the difficult credit market environment, some competitors were forced to introduce short-time work or to sell shares of associated companies in order be able to obtain capital. On the other hand, fully integrated manufacturers were better off.

On average, in 2009 it was possible to increase the degree of efficiency of crystalline cells to 17.0 (previous year: 16.5) per cent, according to the European Photovoltaic Industry Association (EPIA). According to information from Bank Sarasin, the industry also succeeded in reducing average silicon consumption to 8.2 (previous year: 8.6) g/Wp. Anyone who seeks long-term success in the solar market must consistently improve efficiency and cut costs in the future in order to compensate for declining prices as well as possible.

Demand picked up significantly in the second half. Due to the change in the competitive situation, customer benefit as a selling point has come into focus in 2009. European providers who have nurtured their presence in the retail market, their strong distribution structures and their high service quality for many years succeeded in positioning themselves better than Asian competitors. Customers were prepared to pay a premium of up to 25 per cent (in comparison to Asian products) in return for higher confidence in the warranty performance and quality. As a result, European brand manufacturers’ prices did not drop as dramatically as those of Asian competitors. Moreover, when it comes to the external financing of projects, brand awareness turns out to be an advantage because, with borrowed capital financing as restricted as it is, banks prefer projects that use solar modules of well-known manufacturers.

On the whole, demand was low-key in early 2009. However, over the course of the year the considerable price reductions together with stabilization of the economy stimulated customers’ investment propensity. In the second half of the year the solar market picked up noticeably. This was mainly driven by strong demand on the German market. As of the end of the third quarter of 2009, the demand reached such a high level that delivery and assembly bottlenecks occurred on the German market.

Germany most important solar market worldwide. In spite of the difficult environment, the German solar market developed very well. The reason for this is that this mature market has well-established distribution channels in addition to rapid approval and financing procedures. The newly installed output capacity doubled in 2009 to 3,060 (previous year: 1,500) MW. The cumulative solar power output reached 8,422 (previous year: 5,362) MW. All told, Germany accounted for around 55 per cent of the worldwide solar market in the year under review. The most important growth driver was the roof systems market which, according to figures provided by EuPD Research, accounts for 86 per cent of the overall German market, while free-field solar plants account for a share of only 14 per cent.

US market lags behind expectations. The US solar market was particularly hard hit by the economic crisis. Several large-scale projects had to be postponed due to financing difficulties. Driven by the demand in California, the roof systems market did indeed grow, but could not completely compensate for declines in the free-field systems market. According to an estimate of Barclays Capital, on the whole the US solar market grew by 468 (previous year: 342) MW. In 2009 additional funding measures for solar plants were approved within the framework of the economic stimulus package “American Recovery and Reinvestment Act of 2009”. These were, however, not implemented until the third quarter of 2009. The hoped-for demand increase therefore did not materialize in the year 2009. As in previous years, California was again the most important sales region in the USA in 2009. In the context of the “California Solar Initiative”, slight growth of twelve per cent to 135 (previous year: 121) MW in the newly installed output capacity could be achieved.

European solar markets on the increase. In spite of tougher financing obstacles in 2009, Italy succeeded in rising to third place among the solar markets. However, solar projects there suffered more severely from the restricted financing possibilities than those in Germany, for example. In 2009 the newly installed output capacity amounted to 374 (previous year: 338) MW, according to information supplied by the power authority, Gestore Service Energetici.

Other European markets such as France, Belgium, and the Czech Republic also reported positive development in the year under review. The reason for this was the consistent improvement of distribution channels as well as the acceleration of approval procedures. All this contributed to the fact that, in 2009, Europe continued to be the most important solar market region with a share of 65 (previous year: 79) per cent of the worldwide solar market.

New funding programs in Asian countries. In Asia, Japan introduced new funding programs: as a result of these they could, after stagnation in 2008, report renewed growth by 62 per cent to 365 (previous year: 225) MW. The country thus defended its top position in the Asian solar market. Other countries such as China, Australia, and India approved new funding programs for solar power which are, however, not yet fully mature. In South Korea the market in 2009 was reduced by more than half due to the launch of a market cap amounting to 100 MW in comparison with the previous year (276 MW).

Changes to the solar funding conditions for important core markets were announced in the year under review. These are only expected to become effective as from 2010 or 2011. The future solar power market Supplementary report