How excess capacities are fuelling the solar boom

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Solar power tariffs, which have more than halved over the last two years, may continue to trend lower. An analysis by Morgan Stanley research estimates solar panel capacities to exceed installations by 45% in 2017, putting downward pressure on tariffs.

Solar panels are an important component, constituting as much as 40% of the utility scale project cost. In 2016, capacities exceeded installations by 28%. With the industry forecast to add 6,000 megawatts of new capacities and global installations estimate to soften, the demand-supply gap is estimated to widen this year, weighing on panel prices. “Following a 30% price decline in 2016, we expect a further 20% decline by the end of 2017,” Morgan Stanley said in a note.

Solar installations in Japan, China, the UK and some other markets are estimated to slow this year. It has to be seen how long solar panel manufacturers will endure the downtrend in prices. According to JM Financial Institutional Securities Ltd, Chinese manufacturers, large suppliers of panels to India, may not be recovering fixed costs at current prices.

“While Chinese suppliers may not be recovering fixed costs at current prices, a shrinking solar market in China, Europe and anti import trends in US can lead to prolonged period of pain for Chinese module makers—a boon for Indian solar programme,” JM Financial said in a note.

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