March 14, 2011 -- Barclays analyst Vishal Shah says that the major earthquake in Japan -- which reached 8.9 on the Richter Scale on Friday, March 11, with serious aftershocks -- improves the longer term policy outlook for the renewable solar energy sector even though it weakens the near term supply/demand outlook.
Barclays does not anticipate any immediate change in policy developments in Europe (Italy, France, Germany). Longer term, however, the US, Japan, China and several other Asian countries will consider greater use of clean generation technologies (wind, solar) over nuclear power, says Shah. Japan’s disaster will have broader implications on the debate about how to balance renewable, nuclear and conventional energy sources, agrees Charles Annis, VP of manufacturing research at DisplaySearch.
Japan's Fukushima Prefecture is facing a nuclear crisis following the earthquake, with three power plants damaged, multiple news sources are reporting. The World Council for Renewable Energy (WCRE, a global network for renewables initiated by EUROSOLAR, The European Association for Renewable Energy) is calling for a "global ban on new nuclear power, phase-out of current plants, and a decisive immediate move to a 100% renewable world."
In the near term, Shah sees some supply disruptions, potentially negatively impacting fundamentals across the solar supply chain. The entire Japanese economy will be impacted for a while, which may cause some minor shipment and short-term pricing issues for PV components, says Annis. Japan accounts for less than 10% of polysilicon, wafer and cell production capacity, according to DisplaySearch's numbers. Piper Jaffray analyst Ahmar Zaman says that Japan accounts for 2GW of expected 2011 demand (Piper is cutting its estimate to 1GW following the earthquake disaster), over 19,000 metric tons of polysilicon capacity, 650MW of wafer capacity, 2.2GW of cell capacity and 2.5GW of module capacity.
Solar silicon materials have been relatively in tight supply as solar module market volumes have been pulled in during the last several quarters, notes Linx-AEI Consulting. Subsidy cuts in Europe caused international funding sources of equity and debt to freeze recently, Linx adds, saying that "immediate market forces for solar silicon materials has put downward pressure on demand for supplies."
Leading Japanese poly suppliers (M.Setek, Tokuyama, Shin Etsu) have been either directly or indirectly impacted by the earthquake in Japan, according to sources checked by Barclays. "With the exception of M. Setek’s facilities, Japan’s solar manufacturing industry appears to be mainly intact," says Annis, adding that "[M.Setek] facilities were not damaged by the tsunami, but are stopping operation due to lack of electricity and water. AUO stated that production would resume in about a week."
Poly prices could remain stable as a result (around $95-100/kg) and negatively impact cost/availability of solar manufacturers (such as SunPower Corporation [SPWRA], Chinese suppliers). Zaman expects lowered consumer demand in Japan will cause Japanese module suppliers to export more product, pressuring average selling prices (ASPs) in 2011. The drop-off in poly production in Japan will tighten global supply, keeping ASPs north of $70/kg over the near-term and challenging downstream margins, Zaman adds.
From a demand standpoint, First Solar (FSLR) could see the least impact, followed by most Chinese suppliers that have minimum presence in Japan.
"There is no silver lining in this horrific situation," says Annis, pointing out that the boost solar and other renewable energies will get from the nuclear meltdowns will depend on how dire the nuclear situation becomes.
Letter from Japan: Update on infrastructure, fab status after earthquake
News from Japan on the Impact of Disasters
Japan earthquake's impact on semiconductor community
Japan earthquake update: List of facilities impacted
Annis' blog on the topic, Impact of the Japanese Disaster on the PV Industry
Electronics in Japan: Earthquake impact from IHS iSuppli