March 20, 2008 12:13 PM PDT

Solar industry bubble will pop, but continue to grow

Posted by Martin LaMonica

The most vexing problem facing the solar electric industry the past few years has been a shortage of silicon, the most common material used to make solar cells.

But once that silicon shortage eases, prices for products could start drop significantly--and dig into solar companies' profits.

Lux Research on Thursday published a summary of a report that predicts that the solar bubble will burst next year.

An oversupply of silicon won't be the only reason that prices will fall, according to Lux's report.

Several other solar technologies are emerging that will give incumbent solar photovoltaic providers more competition, including thin-film solar cells made from materials other than silicon.

"The market is now approaching a tipping point: We project that the supply of solar modules will exceed demand in 2009, leading to falling prices and a shakeout among companies that aren't prepared to thrive in this new environment--particularly crystalline silicon players that haven't invested in new thin-film technologies," said the report's lead author, Ted Sullivan, in a statement.

Traditional panels will also get a run for their money from concentrating PV systems, solar thermal, and organic solar cells, which are all maturing, said Lux Research.

The findings from the company, which specializes in nanotechnology, are consistent with what many people in the solar industry have been saying for some time.

The constraints on silicon supply are easing, which should put more price pressure on manufacturers in the coming years.

However, the overall solar industry is expected to continue to grow rapidly. Even Lux forecasts that the annual growth rate will be 27 percent over the next five years--becoming a $70 billion market by 2012.

As a result, what's likely to happen is that there will be consolidation among the several existing solar suppliers and the dozens of start-ups that have entered the field over the last few years.