COLUMN-Solar module market looking up due to Japan: Gerard Wynn
LONDON, Aug 13 (Reuters) - Solar module prices may be rising for the first time in at least five years after Japan introduced generous subsidies last year, as it turns to renewables to try to plug the gap left by nuclear shutdowns in the wake of Fukushima.
Solar manufacturers say Japan is the world's most profitable market. It is also one of the fastest growing, which leads to the question of how long it will be able to sustain costly support for solar.
Japan alone may not be able to make up for an expected drop in European demand this year, but it has boosted manufacturers' profitability, as confirmed by China-based Canadian Solar in earnings guidance last week.
From 2008 through 2012, solar module prices fell more than 80 percent. Some of that decline came from improved technology and efficiency that reduced costs, but much of it was the result of global overcapacity. Countries such as Spain and Germany had offered subsidies to encourage growth and then reduced or withdrew them. Producers sold at a loss to keep market share, crippling profits and crushing returns for investors. (Charts 1 and 2)
For this year, the evidence is still scant on whether or not the average global price has been pulled up by Japan and other emerging markets.
But even a relatively modest fall combined with the industry's continuing moves to cut costs could mean that manufacturers benefit from a calmer period (briefly at least) after years of slumping profits and losses.
Major solar module suppliers are cagey about selling prices, usually updating investors annually in regulatory filings.
Only one major module manufacturer, Hanwha SolarOne , has reported average prices so far this year, perhaps because it had good news.
Its average selling price rose 10 percent in January to March to $0.66 per watt from the previous quarter.
That is still below its last year's average price of $0.72, but it follows seven straight years of average annual price falls since the company's inception.
Hanwha SolarOne has historically recorded some of the steadiest and steepest price falls across the sector, and its announcement could indicate that price rises will be more general.
It also reported that sales rose by a third and shipments by nearly a half in the first quarter. Japan accounted for a third of sales, up from a fifth the previous quarter, and it singled out growth markets including Japan, China and South Africa.
On the supply side, it pointed to market consolidation.
OTHERS IN JAPAN
Another top-10 producer, JA Solar, described the superiority of the new, rapidly rising Japanese market in terms of prices.
It reported that average selling prices in Japan last year were 27 percent above the company-wide average, followed by Thailand by 24 percent; Australia by 15 percent and South Korea by 12 percent.
"China and Japan are expected to become the growth engines in 2013 and beyond," JA Solar said in its first quarter report.
"Our Japan shipments in Q1 alone were greater than our shipments there in the whole of 2012."
Another Chinese producer, Canadian Solar, attributed rising margins to Japan in second-quarter results published last week.
"We have been consistently pursuing our strategy of geographic diversification and have focused on new growth markets such as Japan," Chairman and Chief Executive Officer Shawn Qu said.
"This has contributed to not only the volume but most importantly the gross margin improvement in the quarter."
Japan's share of total Canadian Solar shipments was 35.7 percent in the April-June quarter, up 95 percent on the previous quarter and a level the company said it expected to maintain.
Japan introduced a feed-in tariff in July last year that required regional utilities to buy power from renewable energy suppliers at pre-set premiums for 20 years for installations over 10 kilowatts and 10 years for smaller ones.
The headline support rate is 38 yen ($0.39) per kilowatt hour.
That is double the support rate in last year's leading market, Germany, which pays 0.15 euros ($0.20) for sub-10 kw installations and 0.1 euros for projects over 1,000 kw, both over 20-year periods.
Most Japanese nuclear power plants remain closed after the 2011 Fukushima disaster.
The scale of its challenge even to replace a small portion with renewables is huge. In 2009, nuclear power accounted for 29 percent of total generation, compared with 1 percent for all non-hydro renewable power, according to Japan's Ministry of Economy, Trade and Industry.
The Japanese incentives have led to a frenzy of interest from module makers, hunting for support after a succession of fleeting booms in places such as Spain, Britain and Italy.
But the overly generous support poses risks both to Japan and the solar industry.
For Japan, it will increase the cost of solar power as the subsidy is factored into the installation cost, even before adding a possible hike in global module prices.
And for the industry, present global overcapacity was created by the boom-bust cycle caused by Europe's previous generous subsidies and their subsequent, hasty withdrawal.
Japan seems to be following that same narrative to the letter.