German solar sector to dim in 2009 says WestLB

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FRANKFURT (Reuters) - Germany's solar sector is in for another year of strong growth but the industry may see a downturn in 2009 as falling silicon prices may weigh on companies' profits, a research report by WestLB said on Monday.

By Eva Kuehnen

FRANKFURT (Reuters) - Germany's solar sector is in for another year of strong growth but the industry may see a downturn in 2009 as falling silicon prices may weigh on companies' profits, a research report by WestLB said on Monday.

The sector will likely benefit this year as investments are brought forward before a revised renewable energy law comes into effect in 2009 that will see reduced government support, WestLB said in the study on the outlook for renewable energy.

"After the boom year in 2008, growth won't be as strong in 2009," WestLB's Sebastian Zank said on a conference call with journalists.

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WestLB expects global installations of solar power systems to grow by 50 percent in 2008 to 3.5 gigawatts (GW) and by 30 percent in 2009 to 4.5 GWs, it said.

Germany's Solar Industry Association (BSW) expects the global solar industry to grow by 20 to 30 percent annually in the next three years, it said in a statement on Monday.

"Sector sentiment may turn in the second half of 2008 due to the overcapacity in silicon," Zank said.

A shortage of silicon, a key material for solar cells, has kept prices up in the industry.

But they are seen falling as silicon producers such as Hemlock, MEMC Electronic Materials, Norwegian solar energy firm Renewable Energy Corp (REC) and Germany's Wacker Chemie rapidly expand production capacity.

"Silicon supply should exceed silicon demand by the end of 2009, according to our calculations," WestLB said.

Lower silicon prices may lead to lower margins for solar cell, wafer and module producers.

Most likely to withstand this development are large, vertically integrated companies, with an innovative product portfolio, WestLB said. It recommends German solar cell maker Q-Cells and SolarWorld.

Solar cell maker Ersol may face difficulties, the bank said, as the company had long-term silicon supply contracts with fixed silicon prices.

Despite growing competitiveness, WestLB said it did not see a growing trend towards consolidation in the industry this year, as valuations were still too high.

Strengthening export business was key to averting risks and securing future growth for German companies, WestLB said.

The German solar sector exported goods worth 2 billion euros ($2.97 billion) last year, with an export rate of 38 percent, up about 4 percentage points on the year, the German BSW association said.

"We are aiming for an export rate of 70 percent in the long term," said Carsten Koernig, head of BSW, in a statement.

For 2008, the BSW expects to see two-digit growth rates in the German photovoltaic sector, it said.

In 2007, German solar industry sales -- including solar cell, wafer and module makers -- rose 23 percent to 5.5 billion euros, it said.

(Editing by Quentin Bryar)