The solar market hasn't been doing so hot. But the market for solar panels could start heating up soon.
Falling prices for industrial commodities used to make solar panels, as well as expectations for higher prices for natural-gas and electricity, could boost the solar panels' appeal to investors and consumers.
If those prices remain at current levels, market watchers say, component prices will fall, making solar projects more financially attractive. That could reignite the solar space, which has undergone a recent spate of weakness.
Aptly listed under the ticker symbol TAN" TAN, +1.18% the Guggenheim Solar exchange-traded fund has dropped more than 12% year to date. Among the ETF's top 10 holdings, shares of First Solar Inc. FSLR, +1.23% have gained 8.2% year to date after dropping more than 18% last year, while SolarCity Corp. SCTY, +1.24% lost about 6.7% this year, looking set to extend a nearly 6% decline in 2014.
Prices for components that are key in the construction of solar cells, such as polysilicon and silver, have fallen significantly, said Brien Lundin, co-founder of Natcore Technology NXT, -1.92% NTCXF, -1.22% a solar research and development company.
SIZ5, +0.53% have lost about 6% this year on Comex. Polysilicon prices have dropped to around $20 a kilogram from more than $400 a kilogram in 2008, according to Lundin.
Based on 2014 figures, a typical 60-cell silicon solar panel uses anywhere from one-half to two-thirds of an ounce of silver, according to Dennis Flood, the chief technical officer for Natcore. So the cost of a half-ounce of silver in a silicon panel is about $7.50, if silver prices are around $15.
Other commodities that comprise solar panels are also lower including copper HGZ5, +0.09% which has dropped around to 16% year to date.
The Silver Institute expects the total amount of silver consumed by all silicon solar panels in 2016 to be at about 70 million ounces, Flood said. That is roughly $1.05 billion of silver at current prices.
Some scientists have been able to eliminate silver from solar cells, but not in a way that's truly cost efficient," said Lundin. Natcore announced last week that it is developed a lower-cost solar cell that eliminates the use of silver.
A drop in the price of some of the core materials in solar cells hasn't yet resulted in overall cheaper prices for solar panels. That might take more time, said Phil Van Horne, chief executive officer of energy-solutions firm BlueRock Energy.
Van Horne explained that the lead time for manufacturers to obtain the raw materials for panel manufacturing is long enough that the recent drop in futures prices hasn’t yet worked its way through the supply chain." But he said, if current market prices persist, then I think panel prices will drop."
That would be good news for consumers. In the first quarter of this year, the U.S. residential solar market installed 437 megawatts of photovoltaics, the system that converts sunlight into electricity. That is up 76% compared with the same time last year, according to Solar Energy Industries Association.
Another key issue for the solar market is the drop in natural-gas prices US:NGV15 over the last several months, solar market experts say.
On the New York Mercantile Exchange, natural-gas futures lost 6% year to date.
Oil US:CLV5 and natural-gas prices should impact the adoption of solar-generated electricity indirectly by keeping the cost of electricity low, as appears to be the case at least in the U.S.," said Flood.
But a transition from coal as a fuel for power plants is still in progress and that may create some increased demand for natural gas," said Van Horne. Given that, prices for both natural gas and electricity may climb.
Any increase in electricity price, combined with cheaper solar panels, either from a sustained drop in world-wide metals or from technology innovations, will lead to better economics for solar projects," said Van Horne.
By MYRAP. SAEFONG via marketwatch.com