Is this the end of China's solar boom?

The success of China's solar industry has brought its downfall.

That's the sentiment amongst Chinese solar manufacturers in light of news of layoffs at industry giant Suntech, reports of oversupply, projections of a 20-percent decline in industry revenue this year, and the credit crisis, according to an article from China Daily.

China was the No. 1 producer of solar modules in 2007 with 1,180 MW in production capacity, according to the China Solar Association. The Jiangsu province alone accounted for 1,000 MW, which was a quarter of the global total.

Eight years of consecutive growth in the solar market prompted a number of new Chinese players to enter the solar market (see New Chinese players enter solar despite oversupply fears).

But the new inventory has come online in time to create an oversupply that is projected to drive down costs (see China solar market in late 2009 spells glut). Some firms are already folding (see Bankruptcies start to plague Chinese solar) while others can't find buyers for products (see Bad news from Q-Cells spreads through solar supply chain).

Jiangsu-based PV manufacturer Suntech Power (NYSE: STP) last week confirmed it laid off 10 percent of its workforce, in part because it projected a decline in panel prices in 2009 of about 25 percent to 30 percent. The company's production capacity has reached 1 gigawatt of solar panels a year.

A new report from research company iSuppli says 11.1 GW of panels will be produced in 2009, up 62 percent from 7.7 GW in 2008. However, iSuppli says just 4.2 GW is expected to be installed in 2009, up from 3.8 GW in 2008.

That means supply will exceed demand by 168 percent in 2009, up from 102 percent in 2008, China Daily reported.

The iSuppli report says the oversupply will drive overall revenues down 19 percent to $12.9 billion in 2009 from $15.9 billion in 2008. The average price of installed panels are projected to drop from the current $4.20 per watt to as low as $2.50 a watt.

The oversupply is exacerbated by the credit crunch, which has lowered demand for panels. China exports 98 percent of its solar PV products, according to China Daily.

"An over-reliance on the overseas market has led China's solar PV industry into trouble due to the global economic slump and regulatory conflict in Europe," said Ma Shenghong, a solar industry researcher at China Academy of Science, to China Daily.

Shi Jingli, a researcher of Energy Research Institute under the National Development and Reform Commission, said the downturn has the potential to weed out companies and establish environmental standards.

"Some small Chinese silicon manufacturers are criticized for polluting the environment with production waste, damaging the industry's reputation and unsettling the market by over-cutting production costs. So it might offer new opportunities for Chinese solar PV industry to reshuffle its structure," she said

She also predicted revenue will rebound in 2010 as price declines slow.

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