Crashing panel prices: should developers gloat?

On the surface, the last several months have been good for installers and solar developers as panel prices have come crashing down.  Not only has the United States seen a substantial reduction in installed costs of PV installations but Europe has also experienced a rapid decline in panel pricing of close to 30% from one year ago.

For a developer this news may inspire a pleasing, sit-by-the-fireplace-and-sip-my-cognac sensation, aka “gloating”.  This satisfaction mainly comes from the harsh memories associated with panel procurement in the previous 18 months.  If I had a dog I would be patting him and murmuring to myself; “Remember when panel prices were €3,30/watt?  Remember when certain unnamed panel manufacturers were canceling contracts and sending panels to the highest bidder?  All that is long gone and you and I, dear friend, shall reap the rewards of over-capacity and excess inventory.  Pass me the cheese.”

To a great extent, panel price reductions have meant that Germany should be able to continue its aggressive annual installation record despite substantial cuts in the feed-in tariff.  Additionally, it means that previously unprofitable areas of Mid & North-Europe such as France can now be developed due to lower installed costs.  But collapsing panel prices and excess inventory also have a dark side.  Panel companies that have slashed production and jobs may be sitting on panel lines that are non-productive and a massive drain on their balance sheet.  Additionally, many of these firms were closing long-term silicone procurement agreements at 2007 and 2008 prices; prices which have since fallen drastically. Previously unassailable module manufacturers may be stuck with excess inventory, non-performing lines, and long-term contracts that commit them to purchasing high-priced feedstock.

As a developer, I am concerned by this.  Many large-scale projects, even under the current financial crisis, are financed over 15+ years with panels often acting as some form of collateral on the debt.  Panel manufacturers by necessity offer performance warranties over 20 years.  But if the manufacturer is at risk of going out of business then you have to worry about a) the financeability of your project and b) what kind of recourse you have in case the panels don´t perform.  What does this mean? Manufacturers with a diversified market presence (Sharp, Sunpower) and a reputation for high-quality, will likely see a big bounce in demand as developers reach this same conclusion.   As well, new entrants into the module production business who have reputable balance sheets will be able to procure feedstock at lower prices, undercutting some of their less agile competitors.

Taken as a whole, lower panel prices and reduced installed costs should be a good thing, with the goal being electricity production at grid parity.  Getting to that point, however, may mean burying a few casualties.