Why the Solar Industry Is Struggling

Last summer the future of the solar industry looked bright. Demand was high thanks to generous government subsidies, and solar stocks were soaring. But now it resembles a classic bubble. The solar industry overbuilt and is now struggling under the weight of excess capacity and falling prices. As the global recession took hold, credit dried up and governments cut subsidies, most notably in Spain, where the world's largest subsidy program blew up after spurring nearly 10 times the growth it had intended. When Spain capped it last year, the world's second-biggest solar market collapsed─and so has the price of solar panels, down 50 percent in 2009. That's great news for consumers but terrible news for manufacturers now sitting on warehouses full of overpriced panels. Most companies took huge write-downs in the second quarter, driving their stock prices even lower. Germany's biggest solar company, Q-Cells, had traded near 100 euros early last year; it's now about 10 euros. But it's not all bad news. There have been some recent signs of life in the solar sector, mostly out of China, where companies such as Trina and Suntech are undercutting their Western competitors on price. Last week offered a glimpse as to why the solar industry's future may lie in China: Changzhou-based Trina secured a critical $300 million loan from a consortium of Chinese banks, and Arizona-based First Solar signed a deal to build the world's biggest solar power plant─in Inner Mongolia.