Governments cause photovoltaic inventory collywobbles

Different waves of inventory levels for Photovoltaic (PV) solar cells this year are making market conditions perilous according to iSuppli.

These could potentially drive unaware companies out of the market, the analyst company  said. The conditions are as a result of seasonal factors, which are coupled by the timing of cuts in government incentives in Germany, which the company said are causing demand to oscillate from quarter to quarter this year.

However, the company did say that 2010 represents a boom time for the global solar industry, with PV installations doubling from 2009. The company however warned that the fluctuations in demand, would result in even greater volatility in inventory levels for 2010.   

Dr. Henning Wicht, senior director and principal analyst for PV systems at iSuppli, said: “Makers of solar cells, as well as PV installers and other supply chain participants that can’t deftly manage these inventory swings, may risk being stuck with bloated stockpiles that could drive up their costs and put them at a major competitive disadvantage that will be impossible to overcome,” he added.

He said this year’s solar supply chain uncertainty comes amid a doubling in new PV system installations. Worldwide PV installations are projected to rise to 14.2 Gigawatts (GW) this year, up from 7.2GW in 2009. However, in the solar market, the levels of PV installations in 2010 will be heavily impacted by seasonal factors, marked by a slow winter and a robust summer, the company said.

It added that a more important factor in 2010, was “the gold rush mentality” prevalent in Germany, which is the world’s largest PV market. Immediately before the cut in Germany’s Feed-in-Tariff (FIT) in mid 2010, installations spiked as businesses and consumers rushed to take advantage of the government incentives before they were reduced. It warned a similar phenomenon will impact the market before the next FIT cut announced for the beginning of 2011.  

Such ebb and flow of demand will bring major swings in inventory levels, for example Days Of Inventory (DOI) for solar throughout the PV channel amounted to 165 in the first quarter of 2010, up 110.6 percent from 78 in the fourth quarter of 2009. In comparison, channel DOI plunged by more than half in the second quarter, dropping 61.9 percent to 63 days. The third quarter is then expected to bring a surge of 66.7 percent to 105 DOI, followed yet again by a drop in DOI during the fourth quarter of 44.8 percent to 58 days.

“PV channel inventory piled up during the end of the first quarter of 2010—a pattern that will occur again in the third quarter, although to a lesser extent,” Wicht said. Inventory, meanwhile, fell in the second quarter in light of the summer German FIT cuts as well as price drops adopted by installers to preserve market volume during this time of the year, he added.

He warned that for companies throughout the PV supply chain, a gaffe at this point could be potentially fatal. Those unfortunate enough to make a misstep at this point can find themselves left behind, iSuppli believes, relegated to a permanently smaller market position from which recovery is unlikely.