It's been a rough-and-tumble ride for many publicsolarcompanies lately. And the solar industry had best prepare itself for further hardships, according to a panel of Wall Street experts at Greentech Media's Solar Market Outlook conference in New York on Tuesday.
"There is going to be shakeout in the market," said Jesse Pichel, a senior research analyst at Piper Jaffray, who predicts that a module oversupply will drive prices down.
According to Pichel, the winners will be the companies with the lowest cost per watt. Right now, the low-cost leaders are First Solar and "a couple of folks in China," he said.
Pichel also pointed to silicon manufacturers as possible future winners. Even as silicon suppliers rush to add new production capacity, he said some solar companies will be forced to lower their guidance in the middle of the year because there just won't be enough of the precious stuff to go around as companies continue to make more panels.
And that will keep margins pinched, even if the solar industry hits grid parity, the point when solar is competitive with conventional electricity, he said. "Margins for polysilicon vendors will be 50 percent less," he predicted.
Stephen O'Rourke, a managing director at Deutsche Bank Securities, expanded on the idea. In his view, a larger supply of silicon at the end of next year will lead to "a flood of polysilicon-based modules" hitting the market. That flood, in turn, will lower prices precipitously, squeezing margins and challenging balance sheets, he said.
O'Rourke forecast an industry shakeout -- starting with crystalline-silicon-based panels and spreading to thin films -- that could last two or three years.
So solar companies need to start jockeying for survival starting now, he said.
"All the companies out there need to think very, very carefully about how they will position themselves for a shakeout to take advantage of the real opportunity, which is not going to hit for another five or six years," O'Rourke said.
To be safe, crystalline-silicon-based solar-panel manufacturers need to lower costs until they are able to profitably sell panels for $2 per watt, said panel moderator Travis Bradford, president of the Prometheus Institute and a Greentech Media partner. Thin-film manufacturers need to reach profits with $1.50-per-watt prices, he added.
If they don't, companies could find themselves trapped with low margins and unable to raise money to expand and reinvest, Bradford said.
In light of the approaching shakeout, Pichel also warned companies to set more conservative goals.
"We've seen over the last couple years a lot of big promises from solar companies that have not delivered," he said "We have seen a lot of polysilicon startups from companies that have zero experience and zero financing in the field. And quite frankly, we have seen a lot of smoke and mirrors regarding public-company polysilicon supply. And it's pretty distressing."