With the solar market racked by oversupply, one way out of dwindling profits could be improvements to technology creating higher efficiency cells.
A massive oversupply for photovoltaic modules is threatening to cripple the industry with low prices, and this is expected to cause revenues to drop by 10 percent this year. This drop in revenues is set to continue into the next year, as suppliers engage in a price war.
The industry saw a record $38 billion in revenues but has since been dogged by a failure to cut back on production. According to IMS Research this will result in a decline to just $30 billion in 2012.
Digitimes reported today that China will be continuing with its expansion plans, which are contributing to the oversupply.
Speaking to TechEye, solar expert at IMS Research, Sam Wilkinson, says: "The frantic pace at which module capacity has been expanded in China is of the key reasons that supply currently far exceeds demand. Ultimately it is the oversupply situation that is driving suppliers into a fierce price battle."
In fact gross profits are expected to see a dizzying drop from $10.3 billion in 2010 to around $5 billion in 2012. This is partly due to suppliers not able to reduce their costs as quickly as prices drop.
It is thought that because global demand is not growing fast enough, with governments in Europe cutting incentive schemes, revenues will not reach 2010 levels for another five years.
But there is hope that revenues could make improvements from 2013 and there are signs of demand increasing. In the US market Google recently announced that it would continue its solar plan by setting up a scheme to install solar panels for free in thousands of American homes.
According to IHS iSuppli a potential solution to the problem of dwindling profit margins could be by increasing prices of cells by upgrading efficiency.
High efficiency cells are expected to more than double market share by 2015, jumping to 31 percent compared to 14 percent now.
Using advanced conversion techniques it will be possible to increase solar from between 0.3 to 5 percentage points. This is substantial improvement considering that current modules are usually see around 15 percent efficiency.
According to IHS, conversion efficiency will not be a priority over the past couple of years as suppliers have chased higher production to meet a surge in demand.
But with prices slumping, a move to a better product could attract more customers. Apparently the extra cost which ensues creating the various developing techniques such as 3D cell structures, can mean a 10 to 15 percent mark up on current prices.
With research labs like ECN and Fraunhofer, as well as equipment firms such as Applied Materials and Manz Automation AG, onside IHS reckons the new technology should be viable soon enough.
At the start of 2011 the leading producers of high efficiency cells were said to be Sun Power and Sanyo Electric, though it is expected that many other will begin to roll out their offerings during the course of this year.
But even with the boost that new technologies can bring, the industry faces a struggle to return to the profits of last year.
According to Sam Wilkinson, the answer is far from simple. "The obvious answer to this question is to stabilise and increase prices, and decrease costs – which is obviously not an easy thing to do, particularly in today's climate," he told TechEye.
"Suppliers will be looking for new sales channels, emerging markets, developing their brand and trying to promote value added products," Wilkinson continued. "We've seen suppliers try to control or minimise costs by renegotiating supply contracts or cancelling contracts in order to take advantage of low spot market prices, out-sourcing production or in the long-term moving toward vertical integration models."
According to Wilkinson, cell efficiency is a way that the solar market can get back to more solid growth. "Efficiency, prices and costs are all a function of each other," he says. "And it is true that a more efficient module means 'more watts per module,' therefore a more powerful module and potentially a higher price.
"Of course, the key concern is whether higher efficiencies can be reached without increasing costs by an amount that negates the price increase. "