Suntech Power Holdings (NYSE: STP) has crossed the all-important milestone of being able to produce 1 gigawatt of solar panels a year.
The Chinese company celebrated the accomplishment Thursday along with the opening of a new headquarters in the city of Wuxi that comes with 1-megawatt solar panels built into building facade in addition to a host of energy-efficiency features. Suntech makes the solar cells and assembles them into panels.
Reaching 1 gigawatt is certainly worth boasting, although investors will care more about what the company does now that it has that capacity – and how it weathers the economic downturn.
Last month, Suntech's CEO Zhengrong Shi said an oversupply of panels in the world market would likely lead to a 25 percent to 30 percent drop in Suntech panel prices in 2009. A growing supply of polysilicon, the key ingredient for making solar panels, along with the battered global economy will take the blame, analysts said.
Last November, the company cut its 2008 sales and shipment forecast after its customers had deferred orders. Suntech expected to ship 490 megawatts instead of 550 megawatts worth of panels by the end of 2008. For 2009, it anticipated shipping more than 800 megawatts worth of panels (see Weak Euro Prompts Suntech to Slash Sales Forecast).
Still, building a manufacturing powerhouse is crucial for companies to price their solar goods competitively and sell lots of them to meet sales goals.
"Economy of scale matters," said Jenny Chase, a senior solar analyst at New Energy Finance. "It's going to be a difficult year for solar manufacturers. There are going to be a lot of companies trying to undercut each other."
Competing solar companies that are close on reaching the 1-gigawatt capacity include Q-Cells in Germany and First Solar in the United States. Q-Cells, which makes solar cells and sell them to panel makers, recently lowered its 2009 production and sales forecast after its customers wanted to postpone deliveries, leaving Q-Cells with solar cells that it couldn't resell quickly (see Q-Cells Cuts Sales Forecast After Customers Delay Deliveries).
First Solar, which claims to be able to make solar panels cheaper than anyone else, hasn't announced cutbacks. But some analysts have questioned whether First Solar's customers, most of them located in Europe, are building up a larger inventory than usual. Because of the credit crunch, project developers are finding it more difficult to get loans from banks to build solar power plants (see First Solar Panels Piling Up?).
"We have heard about a build up of panels in general, and would be surprised if First Solar's panels aren't among them," Chase said. "Some companies just couldn't get financing. As far as I can tell, First Solar modules are still nicely priced."
Suntech's shares climbed more than 6 percent to reach $12.77 per share in recent trading.