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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.

Before the Spanish reversal, solar modules had been selling for about $3.75 to $4.00 per watt of electricity generated, before factoring in installation costs, he said.

“Now I'm hearing about Chinese and Taiwanese producers selling at $2.25 a watt or less just to clear inventory,” Maycock said.

In this price-cutting environment, Maycock said, German manufacturers, who have higher labor expenses, will be hard pressed to maintain market share against their lower-cost Asian competitors.

Germany's largest solar manufacturer, Q-Cells, recently said it would lay off 500 workers, or nearly one-fifth of its workforce, and begin producing solar cells at a new factory in Malaysia as part of a cost-cutting campaign to stay even with competitors like the Chinese giant, Suntech. Meanwhile, the leading North American manufacturer, First Solar, may be somewhat insulated from the current slump because it has pioneered a cheaper process for making solar modules, Maycock said.

First Solar uses a thin spray of relatively inexpensive cadmium telluride to turn sunlight into electricity in contrast to the common practice of basing solar cells on more costly silicon. “They can sell for lower prices because their manufacturing costs are lower,” Maycock said, which should allow the company to gain market share even in the slump and keep North America from sinking relative to rival regions.

However world market shares shake out, the current competition should give solar a boost.

“The big issue is when solar becomes economic without the subsidies,” Maycock said, adding that falling prices will help hasten the arrival of a crossover point that remains some years away.