Is the slumping solar market temporary or a long-term trend?

The news coming out of the solar industry has been downright contrary over the last few weeks.

On the R&D side, we’ve covered new breakthroughs in materials science that could dramatically reduce pricesand highlighted the invention of semi-transparent cells that allow 70% of light to pass through them unhindered. News on other fronts shows strong demand for solar plants in India in the wake of the massive brownouts that struck the country earlier this month; US-based First Solar(the only profitable panel manufacturer in the top ten) has contracted to design the facilities.

That last sentence is the problem. Panel prices have fallen nearly 50% in the past twelve months. Raw material costs have also declined substantially — but not enough to offset the finished drop. Photovoltaic panels, the most common type, are expected to dip below 40 cents/watt in coming weeks. These price cuts have reversed the booming fortunes of a number of manufacturers, most of which are based in China. The top five Chinese companies announced a combined loss of $250 million in the past quarter. If solar is really the Next Big Thing and the renewable energy source with the best long-term prospects, why isn’t anyone making any money?

A big part of the problem lies with China’s overeager approach to booming solar panel demand from 2008-2011. The Chinese government saw the growth of solar power as a way to establish China as a dominant manufacturer and fuel the country’s nascent tech industry. It’s incentive strategy paid for a huge increase in panel manufacturing capacity. Soaring European demand kept the hamster wheel spinning briskly until the bottom fell out of the Euro and Germany cut the feed-in rate it paid homeowners who supplied electricity to the grid. Now the market is flooded with panels that no one is buying. Several prominent German solar panel companies have shut down. Have oversupply and high government subsidies falsely created the appearance of a market?