By Myra P. Saefong, MarketWatch
TOKYO (MarketWatch) -- Japan's solar sector has proved to be a worthy rival to China as it works to reduce costs and maintain its technological lead to take advantage of a growing market for renewable energy.
The demand outlook for photovoltaic (PV) solar systems, which convert solar radiation into electricity, is "strong" and pricing looks "firm" in the near term, analysts at Macquarie said in a recent note to clients.
That bodes well for Japan's solar PV firms such as Kyocera Corp. /zigman2/quotes/204880749/delayed JP:6971 -0.27% /zigman2/quotes/205094593/delayed KYOCF +0.75% , Sanyo Electric Co. , Sharp Corp. /zigman2/quotes/203224600/delayed JP:6753 -0.54% /zigman2/quotes/207472799/delayed SHCAF +3.24% and Mitsubishi Electric Corp. /zigman2/quotes/207150000/delayed JP:6503 -0.67% .
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In Tokyo's afternoon session, shares of Kyocera were up 0.4% and Sanyo Electric tacked on 0.7% with the Nikkei 225 gaining 0.4%. Sharp's stock fell 0.3% and Mitsubishi Electric lost 1%.
On the other hand, Japan's PV firms will have to work harder to counter the threat from China, Macquarie analysts said.
"Japan's PV firms have been accelerating capacity expansion plans to better compete against overseas rivals and will invest in efforts to slash costs and achieve greater differentiation, but it not clear that enough is being done," they said.
And "cost competitiveness matters for Japan's solar PV firms because they export the majority of their output (64% of megawatts shipping in the first quarter to third quarter of the fiscal year ended in March 2010) and will inevitably run up hard against China-based competitors," the analysts said.
At the moment, it appears to be China that has the bigger advantage. It's cheap to build capacity in China, and the nation has huge investments driving market share for PV producers.
China's PV majors are expanding fast and making "enormous investments in capacity -- from solar wafers to cells to modules," Macquarie analysts said.
And the top PV producers are going for gigawatt-scale or larger, they said, pointing out that the top integrated cell and module producers will all attain gigawatt -scale within the next 12 months.
It's possible that the "combined module capacity of China's top five integrated firms will be 40% larger than that of Japan's entire industry by end-2010, dramatically underscoring the pace of growth being seen in China's industry," they said.
At the same time, cost competitiveness there is still increasing, with costs falling across the value chain, they said.
"The drive for lower production costs and cost leadership at China's solar PV manufacturers, backed by substantial investments in manufacturing scale, is likely to result in continuing pressure on average selling prices of solar PV modules," the analysts said.
China's solar PV suppliers include Trina Solar Ltd. and Canadian Solar Inc. /zigman2/quotes/205481506/composite CSIQ -5.99% , and those two companies are expecting to see pricing of $1.50 per watt peak for standard modules by the end of this year, compared with $1.70 to $1.80 currently.
"China's solar PV players are prepared to drive sustained price declines to promote demand growth and market-share gains and are not afraid [of] triggering price periods of oversupply, as they believe they will have cost leadership at those times," analysts at Macquarie said.