Manufacturers of solar panels have boosted production to the point that they could face a glut panels that could bring down prices and compress margins.
Manufacturers such as Trina Solar, Canadian Solar and Jinko Solar Holding increased their manufacturing capacity by up to 18% this year, according to Bloomberg New Energy Finance.
By the end of the year, analysts are predicting as much as 15,000 MW of new solar panel capacity to come online and, if slowing installations cannot absorb the new supply, panel prices could fall by as much as 15%, SNL Financial reports.
There is a dark side and a bright side to solar power business cycles. Low panel prices have been key to the boom in solar power installations.
As recently as June, a joint report from GTM Research and the Solar Energy Industries Association said that as much as 14.5 GW of new solar power capacity could be added in 2016, a 94% increase over the 7.5 GW installed in 2015.
Strong demand has, in turn, prompted manufacturers to ramp up their manufacturing capability. SolarCity, for instance, recently moved completion of its solar panel “giga factory” in Buffalo, New York, ahead a couple of months to June 2017.
But as manufacturers ramp up production to meet demand and gain market share, they risk flooding the market and pushing panel prices down, which could cut into their profit margins.
“Oversupply appears to be business as usual in the solar industry,” Jenny Chase, New Energy Finance’s lead solar analyst, said in a Bloomberg report.
Manufacturers could feel even more pain if there is also a drop in solar installations.
In a recent report, Morgan Stanley said installations will likely decline by 7% in 2017 to 65,000 MW, SNL reported this week.
"Cost reductions will be critical, but gross margins are still likely to compress across the industry," Morgan Stanley said in the report.