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Supply Modules > Demand Modules

It’s Econ 101. Prices for solar modules will fall. But not smoothly…nor painlessly. Except for the highest efficiency suppliers (basically SunPower and Sanyo) and specialty products (Andalay) there is absolutely no differentiation in the module supply chain. Since all modules are basically just blue/black glass with aluminum frames, the only way to get an integrator’s order is based on price.

So prices have started to fall—and fast. Second and third tier manufacturers without strong downstream distribution will have to reduce their price the most in order to get orders. Smart integrators will hold out for even lower prices, and will direct their orders to manufacturers who have staying power.

There are not many people who were in the solar industry in the “Old Days” when module manufacturers had to actually MARKET and SELL their products. I’m talking 2004 here! I may be “geezing”, but I remember when module prices marched steadily down to the mid $2 range, and that was when worldwide production was a fraction of what it is now. Since 2004 it’s been purely a sellers market; module companies (and upstream players) steadily raised their prices because that was what the market supported.

It’s changing almost overnight to a BUYERS market for solar modules. While this may put some stress on the margins of module manufacturers, these lower prices are terrific for the industry. Low module prices mean low system prices — which will mean a huge increase in customer demand. These lower prices, coupled with the 8 year ITC in the U.S., means that the residential retrofit, commercial flat roof and utility scale markets will all see very rapid growth in the coming years. The surviving module companies will do terrifically well once prices and margins settle down to a more sustainable level.

It’s reasonable to expect other value chain adjustments as module supply exceeds demand. Module manufacturers will slow down their production ramp and only consume the raw materials to which they have committed. Silicon prices will come down quickly. Manufacturers will consolidate, both horizontally and vertically.

And finally, as these silicon prices plummet, the cost advantage of thin film modules will completely disappear. Remember, BOS and installation costs for thin film are at least $0.75/watt higher than crystalline. So who needs an 8% efficient thin film module at $1.75/watt when a perfectly good 15% efficient crystalline module is available for $2.50/watt by late 2009?

All industries go through cycles, and we’ve got a front row seat on the solar industry gaining scale and becoming much more customer focused—and AFFORDABLE.

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