The first half of 2016 has seen unprecedented levels of PV installations driven by China, and it will be China that causes a dramatic slump in global demand for solar PV cells and modules in the second half of the year. IHS Technology expects this to cause sharp price declines, which will be a gut check for a number of PV companies, which means a shakeout is probably on the horizon.

China installed close to an almost unbelievable 13 GW of PV in the first half of 2016, as PV developers scrambled to put their projects in place before the feed-in tariff drop in China on June 30, 2016. However, to balance out these huge numbers, PV installations are expecting to fall by 80% in the third quarter of the year, with the Chinese governments goal to keep installations below 20 GW for the year.

As China pulls back its installations, prices are expected to plummet, which can already be seen in the industry, as prices for modules that will ship in the second half of 2016 will be as little as $0.44 per watt. To add to the strain that the PV industry will be placed under, huge expansions of production capacity will add to the oversupply, dragging the prices down further.

After a crazy PV expansion (15 GW of cell ; 18 GW of module) from China PV makers, solar cell and module production capacity of China and Taiwan is expected to reach 76.5 GW and 80.4 GW at the end of this year while the forecast of global PV installation is in the range of 65 GW  69 GW, said Morgan Kuo, global PV strategic marketing manager at Heraeus.

Its not just in China that the demand is slowing, but the U.S. market is experiencing similar pullbacks. In the U.S. though, this is not a result of a reduction of installations, but instead its because of high inventories, after large numbers of Chinese modules were shipped there in 2015. On top of this, the extension of the investment tax credit past 2016 has caused developers to extend plans to complete solar projects into 2017.

Long-term effects

These factors combined will put a huge strain on PV module suppliers, who are already in financially precarious situations, and will most likely lead to a shakeout and consolidation in the industry. However, the industry has seen this before, and while there may be some short-term negative effects, it is unlikely that they will be too severe, or last for too long.

Everyone lived the hangover from Italy in 2011 for a long time, that was a solid two-year oversupply and it was quite pronounced, Andy Klump, CEO of Clean Energy Associates, told pv magazine. I dont think we are at that level of irrationality, but I do think there will be a bit of an oversupply. But once again, we have seen this cycle play out several times in the solar market and we will see supply pick up in 2017, so it is a question of what kind of uptick we will see with lower pricing. But there will always be a lag effect for demand to catch up.

The long-term effects could actually benefit the solar industry, as prices are likely to stay lower, leading to cheaper solar power. The oversupply issue occurs again this year. But it is good to reduce the cost of solar energy and will increase the RE share in the global electricity demand in the near future, added Kuo.

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