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The future of solar power

A steep decline in demand and prices could move production to Asia and away from more expensive German manufacturers.

A general view shows a "solucar" solar park in Sanlucar La Mayor, near Seville, Nov. 6, 2008. In September 2008, the Spanish government decided to decrease its solar power subsidy, a decision that wiped out nearly 40 percent of the worldwide demand for solar cells and modules. (Marcelo del Pozo/Reuters)

SAN FRANCISCO — Solar cell manufacturers worldwide are currently suffering from the collapse of a bubble that was pricked by the sudden reduction of a government subsidy in Spain.

The result has been a global slump in demand and prices that could help low-cost producers in China and Taiwan take market share away from higher-cost German manufacturers, industry analysts say.

“The situation is ugly for all the producers, but the Germans are being hit especially hard by what has happened to the market because of the conditions in Spain,” said analyst Stefan de Haan with the Munich office of the market research firm iSuppli.

For several years Spain had offered such generous subsidies for solar power installations that the country had become the world's single largest market for solar modules. De Haan estimates that of the 5.4 gigawatts of solar power installed worldwide in 2008, about 2.6 gigawatts went to Spain.

But in September 2008 the Spanish government decided that it could only afford to subsidize 500 megawatts of solar power in 2009, a decision that wiped out nearly 40 percent of the worldwide demand for solar cells and modules. “Orders dried up, inventory began to accumulate and manufacturers began to cut prices almost to the level of costs,” said de Haan, who projects that worldwide solar power installations will fall to roughly four gigawatts in 2009 as a result of the new Spanish policy.

The collapse in demand is likely to shift market share among the world's leading producers, he said.

In 2008, China was the world leader, producing 26 percent of all solar cells, followed by Germany and Japan tied with 18 percent each, and North America at 15 percent, de Haan said. Taiwan accounted for 13 percent of global production in 2008, while the rest of Europe, excluding Germany, accounted for 7 percent, with the remaining 3 percent scattered among the rest of the world, he said.

Industry analyst Paul Maycock, with PV Energy Systems, Inc. in Williamsburg, Virginia, said new factories in China and Taiwan opened just as the change in Spanish policy caused demand to collapse.

“We had this double whammy, with more production coming on line at a time when there was suddenly no place for the product to go,” said Maycock, who has tracked what happened to prices as a result.