Solar cell makers in China, the world's largest exporter in the industry, will find it hard to repeat the robust growth they have enjoyed in recent years as demand in mature markets slows and competition heats up.

Though industry analysts still expect bullish demand for this year, with low inventory levels and steady prices, they see the seeds for oversupply starting in 2012. The global market for solar photovoltaic (PV) cells may grow 30 percent this year, after doubling in 2010, according to industry forecasts.

Over the long term, the Chinese market and other emerging countries hold the key to profits for China's PV industry, according to participants at the SNEC 5th International PV Power Generation Conference and Exhibition held last week in Shanghai.

"The next five years will be a new phase for the industry," said Gao Jifan, chairman and CEO of Jiangsu Province-based Trina Solar Ltd. He estimates new annual installations globally will triple by 2015, after surging eightfold in the last five years.

Europe is currently the world's largest PV market, with 13 gigawatts of new installed capacities in 2010, according to the European Photovoltaic Industry Association. Power output of the new installations corresponds to that of two large coal-fired power plants.

The tremendous growth in solar panels in recent years was driven by lower production costs and prices, as well as green-driven policies in some key markets.

Germany, the world's largest market for solar panels, added over 6.5GW in 2010, while only 3GW of new PV installations occurred outside Europe last year, according to the association's estimates. "It's just not reasonable that manufacturers worldwide have to rely on Germany for almost half of their shipments," said Fang Peng, CEO of JA Solar Holdings Co.

JA, Trina and other Chinese PV makers export more than 90 percent of their products. China's large manufacturing base is often seen as one good reason why China should adopt policies to expand the domestic market for solar power, but there seems no immediate need for that from an industrial point of view.In fact, government officials have stated there is overcapacity in PV manufacturing, a claim some industry executives downplay. Shi Zhengrong, Suntech Power's chairman, said overcapacity is good for lower prices, which in turn will trigger higher demand.China has adopted a wait-and-see strategy because it's budget-conscious and because solar power costs are still much higher than thermal power generation, said Wu Dacheng, vice chairman of the Chinese Renewable Energy Society's PV committee.In Germany and other European markets, growth in solar power expansion is slowing as governments seeking to reduce debt and spending are scaling back green-power subsidies and other initiatives earlier than planned. China now offers subsidies to a limited number of solar power projects, but late last year it canceled some planned projects.

Competition in the industry has intensified after a number of new players entered the industry with new technologies and higher conversion efficiencies. The Chinese government's concern about sector overcapacity also means it may not be willing to come to the rescue of domestic producers if exports should slow.

Charles Yonts, Hong Kong-based solar sector analyst at CLSA who was at the Shanghai show, was impressed by the new faces in the industry.

"At one point, I was struck by the fact that, standing in the middle of one of the exhibition halls, I couldn't see a single familiar company," he said. "And this is from a guy that gets excited about solar industry journals, sad as that may be."

Many of these companies' presence was telling of the robust eco-system building up around solar in China but also deepens his fear of oversupply, Yonts said, adding that plenty of them will cease to exist and ultimately, most of them.

"Nowadays, you need to spend more on technology and innovation to be competitive," Trina's Gao said.

And while some are predicting consolidation in the solar industry worldwide, that may not be the case in China for now.

"We have talked about consolidation each of the past five years, but it hasn't really happened," Murray Cameron, board director of the European Photovoltaic Industry Association, told Shanghai Daily. "As long as the market grows, there is less pressure to consolidate. If the market stagnates, then the pressure is there."

He estimated the world market may grow only a little this year, but he expects China to become the world's largest market by 2015, though he wouldn't give figures. China's official goal is to grow solar installations to 20GW by 2020, a 60-fold rise from 2009, as panel prices fall.

Technical issues are expected to improve with China's development of its new smart grid, the energy society's Wu said. "The solar market, more or less, only just started in China. I expect improvements to come soon," he said.

The future market prospects for Chinese producers should come from outside Europe.

The European association said in an October report that countries of "sunbelt" regions - those within 35 degrees from the equator - have the greatest potential for developing solar power. Many countries in that belt are already coping with high electricity-generation costs.

Apart from China, all the top 10 major PV markets in the world are located outside the "sunbelt" region. Sunbelt nations will represent between 27-58 percent of aggregate global installed PV capacity by 2030, with China leading the way, the association report said.

Despite higher solar irradiation in sunbelt countries, they currently comprise only 9 percent of global installed PV capacity.

Heraeus

The Heraeus Photovoltaic Business Unit, a world leader in developing silver pastes for crystalline solar cells, said it looks to double capacity in 2011, although the solar photovoltaic (PV) industry foresees a mere 30-percent capacity growth.

Growth in the PV industry has traditionally been underestimated, and Heraeus is not concerned about overcapacity, said Andy London, global business unit manager of the firm, which is a unit of German precious metals house Heraeus.

"If the market does rise 30 percent as forecast, we will have excess capacity and we will be able to shorten lead times, which will benefit our customers," London said in an interview in Shanghai.

Heraeus has a 42 percent share in the global market for silver used in the fabrication of PV cells, followed by DuPont with 38 percent.

Sky Solar

Sky Solar Holdings Co, which builds and operates solar PV installations in many overseas markets, has established a China subsidiary as a platform to participate in the development of the domestic market, Chairman and CEO Su Weili said.

Sky Solar sources equipment from China to build solar farms and rooftop installations in mature markets such as the Czech Republic and Germany. Now the domestic market is poised to grow at a faster pace, but problems may exist in systems operation and design that could affect plant efficiency, the firm said.

To better serve the domestic market, the company announced last week in Shanghai that its new China subsidiary will focus on investment in renewable energy.

AUO

Taiwan's AU Optronics Corp, a global leading LCD panel maker, said it aims to devote 15 percent of its investment budget to the solar photovoltaic sector. Its solar business now is a relatively small contributor to corporate sales.

AUO, which entered the solar industry in late 2008, has bought Japan's M. Setek to secure supply of polysilicon, a key raw material for making solar power panels, and formed a joint venture with United States firm SunPower.

The company is building a 1-gigawatt plant in Tianjin for PV modules and is seeking more partnerships on the mainland, said James CP Chen, vice president of AUO's solar business group.
Other LCD makers like Samsung and LG also are venturing into the PV industry.

Manz

Manz Automation AG, which supplies production systems to the solar photovoltaic and flat panel display industries, last week broke ground for a new plant in eastern China to meet rising demand from solar cell firms eager to reduce production costs.

About half of the plant's capacity will be devoted to the PV industry when it starts operations next year in Suzhou, Jiangsu Province, CEO Dieter Manz said in Shanghai.

The German-based company said production of solar cells and modules may account for between 9 percent and 15 percent of operational costs, so good processing systems play a big role in reducing the cost of solar power generation.