In 2004, there were only a few dozen solar panel makers. The United States owned 43% of the market share then. China had none. With billions worth of revenue on the table, though, by 2008 China had become the biggest solar panel maker in the world.
The number of companies making solar panels soared to several hundred during that four-year stretch. The ballooning industry grew so fast, nobody knows the actual number of companies that were operating at the peak of demand in 2008. But, just for perspective, Canadian Solar (NASDAQ:CSIQ) (its manufacturing plants are in China) didn’t exist until 2007. Neither did Suntech Power.
Even after Spain and Germany — two huge solar panel customers — squelched their subsidies, more Chinese manufacturers came online in 2010 and 2011, hoping to break into a market that was poised for a rebound that never really materialized.
It wasn’t a purely-Chinese pile-on though. SunPower Corporation (NASDAQ:SPWR) didn’t become the solar panel manufacturer America knows and loves today until 2007.
Well, guess what — while nobody questioned it at the time, the world built too much solar power manufacturing capacity between 2007 and 2010 … way too much.
And There’s Still Too Much
The numbers are staggering. The global demand for solar panels is not only still growing, but still accelerating. Last year, we added about 30 gigawatts of new electricity production capacity. Problem: We have enough manufacturing capacity to add 58 gigawatts of new capacity per year. And yes, that potential output factors in the exit of Solyandra and Evergreen Solar. Indeed, it factors in the exit of about 30 North American and European solar panel manufacturers in the past 12 months.
For comparison, China exported about 12 gigawatts worth of production capacity, with the European Union buying about 60% (7.2 gigawatts) of it. That still leaves about 17 gigawatts worth of excess potential out there to contend with, one way or another.
Yes, pushing China out of the European market — in part or in whole — could make a helpful dent for EU manufacturers like Germany’s SolarWorld AG or Q-Cells, or even U.S.-based SunPower. It just won’t be enough to truly make solar fiscally viable given the potential supply and moderating demand … despite what the European manufacturers are saying.
In other words, it’s a capacity problem much more so than a pricing problem or a parity problem. Until the industry’s production potential gets cut in half, panel makers somewhere are going to have to take losses.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.