NEW YORK -- Despite a well-publicized oversupply of products and excess manufacturing capacity for solar photovoltaic equipment and components, some solar power industry watchers are still predicting further robust growth in production capacity. But financial analysts fear numerous makers may fail over the next few years.

Record demand for solar equipment and a shortage of polysilicon, the key ingredient for PV panels, led companies worldwide to rapidly expand their facilities just before the global financial crisis cratered demand for new clean energy installations. As a result, prices for polysilicon, PV and thin-film solar panels have plummeted, and many experts say the industry is now in the midst of an upheaval as weaker firms close or sell off major chunks of their operations to stay alive.

But while companies struggle with a glut of manufacturing capacity and unsold equipment, at least one research firm still sees capacity growing strongly and not slowing down or shrinking. It remains confident that firms will continue to bet big on government stimulus programs, the push for action on climate change and a bounce in demand responding to fallen prices.

In the latest report to join this chorus of solar bulls, analysts with Austin, Texas-based DisplaySearch, a division of the global market research firm NPD Group, predict the worldwide manufacturing capacity for solar cells will expand by 56 percent this year over 2008 levels. 2009 is seen as one of the weakest market years this decade, with even DisplaySearch admitting that demand is down by some 17 percent this year, while others see a decline of up to 30 percent.

"So much cell manufacturing equipment was ordered and installed over the past year that capacity is still expected to grow 56 percent this year," explains report author and manufacturing research vice president Charles Annis in a summary.

In his third fiscal quarter "Quarterly PV Cell Capacity Database & Trends Report," Annis agrees that an "enormous over-supply" is forcing prices down and threatening the viability of numerous cell makers. But despite the current weakened market, the company sees capacity expanding at a compound annual growth rate of about 49 percent a year up to 2013.

Is some overcapacity a mirage?

Other photovoltaic industry researchers aren't so sure.

"During the boom, there were significant capacity increases. There were also, by the way, significant announcements of capacity that may or may not have happened," said Paula Mints, principal PV analyst at Navigant Consulting. "If someone is following announcements and assuming capacity based on that, then their numbers are way too high."

But all agree that the rapidly descending prices, fueled further by aggressive cost cutting by some of the industry's leading players, are causing a bit of upheaval in the solar technology field.

Analysts point to Advent Solar, DayStar Technologies and Blue Square Energy as among the solar companies in the United States that are feeling the pinch and could be shaky. Though stronger solar manufacturers are viewed as unlikely to acquire weaker rivals immediately, as that would only add to their own inventory problems, large technology companies not traditionally involved in solar power seem to be moving in.

In one oft-cited example, a major German auto parts builder recently swallowed up two solar companies that had been active players in the German market before the current economic upheaval, Aleo Solar and ErSol Solar Energy.

First Solar Inc. has been given the title of largest cell manufacturer in the world in terms of production capacity, with an estimated 1 gigawatt's worth. First Solar recently posted $180 million in profit for the second quarter of 2009.

China coming rapidly out of the shadows

But Navigant's data show that last year, Q-Cells was the largest maker in terms of sales. That company is now hurting, as much of its customer base has been hit hard by the global economic downturn, a factor compounded by the exit of Spain as a major destination for sales.

And though Japan has long been the leading home of solar manufacturing capacity, China is rapidly rising as the leader in the industry, many experts acknowledge.

China is estimated to have surpassed Japan two years ago as the world leader in solar production capabilities, although Japanese makers still have plans to rapidly grow output levels. And there is growing speculation that Suntech is poised to emerge as the global leader.

Suntech doesn't report its latest quarterly fiscal results until Aug. 20. But analysts at Credit Suisse, citing an earlier positive income report by the smaller Chinese maker Canadian Solar, predict that "China solar panel makers will report strong Q3 results aided by strong seasonality, and falling poly prices."

Thin-film solar technologies are also expected to expand their market share. Annis predicts that thin film's share of the overall solar power industry will grow to 30 percent of cell capacity by 2013. Some experts predict that 2013 will see an explosion of solar power installations worldwide, while some see a strong rebound coming even sooner, even as early as 2010.

But given the solar industry's relative youth and its history of wild up-and-down swings and adjustments, Navigant analyst Mints warns against following too closely predictions on the future size and shape of the solar industry in the years to come. The feared "shakeout" in the industry could simply be a temporary return to less certain times, she notes.

"It's an industry that was essentially unprofitable up to 2004 and is used to struggling," said Mints. "So we're pretty much back to that right now and learning how to struggle again."

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