I Beg to Differ

In 1880 Margarete Steiff founded the famous German plush toy company Steiff, which was, and still is, distinguished by its high quality products and high prices. In 1902 Steiff invented the teddy bear of which it manufactured 974,000 copies right away. Today, a century later, most of the worldwide plush toy demand is met by Asian companies and sold at more affordable prices. The process which Steiff and the like experienced over the course of a century was experienced by photovoltaic module manufacturing companies within a decade. Government incentives accelerated the maturation of the PV industry and of national module manufacturers who, once established, promptly face the volatility of a globalized market. Solar energy is lucrative and the industry’s doors are open to competitors.

The 2010 Photovoltaic Sustainable Growth Index, published by  PRTM management consultants, found that out of the top 10 PV companies in 2010, four are headquartered in China, three in Germany, and two in the U.S., as opposed to 2006 when six were headquartered in Germany and only two in China (Figure 1). Little differentiation in product and service between manufacturers makes price the main competitive factor. Lower profit margins follow. According to the same PRTM study, average operating margins of the 10 most profitable companies declined by more than 50% since 2005 (down from 16.3% to 7.3%, Figure 2). Another emerging trend shows a growing gap between leaders and followers, between the top- and bottom-most companies. Total equity of the last four companies decreased to 30% on average, while the top four maintained between 80% and 50% equity according to PRTM. 

Figure 1: Revenues of PV Companies by Country and Region (source: PRTM)	Figure 2: Average Operating Margin of the Ten Largest PV Cell and Module Manufacturers (source: PRTM). The graph shows a downward trend of PV manufacturers' operating margins in recent years

The time to act is now

Like in any other industry, players who do not attempt to differ from others or increase their profit in other ways at this stage, might not survive in the long run, let alone make it to the top. Put optimistically this means that module manufacturers need to overcome a challenge: to implement essential changes which will enable them to prosper in a competitive global market. How?

Whether you are an established or starting module manufacturer the PRTM study provides you with useful strategic tips:

1. Move away from “one-size-fits-all” product offerings. Instead, differentiate products, services, and solutions.
2. Keep inventory and Balance of System costs down by balancing demand and supply
3. Use technology/IP sourcing and co-development to introduce an added value
4. As a new entrant you need to find a niche for market entry

A small but influential group of forerunners of innovative business models began differentiating themselves from the competition by collaborating with power optimization companies to achieve these goals.

Imagine how much money you could save on manufacturing and inventory costs if you did not have to care about matching modules or storing them for replacement claims 10 years down the road. Instead you would replace an old module with whatever new module was available. You may also have thought of fully covering a multi-faceted roof. I assume you agree to the fact that traditional installation practices leave little room for such creativity. Speaking of creativity, states are currently forming regulations and policies on safe PV installation rules and investing in educational programs for firefighters who have to cope with the impact of the solar movement on their work, namely the putting out of fires under prevailing high voltages. Why not create a safety switch that can turn off a module when needed?

The above mentioned companies follow a trend towards the embedment of smart electronics into modules. Module-level power optimizers enable separate management of each module in a string, which opens up opportunities for the development of many unique features, such as the installation of mismatched modules or modules in different orientations as well as the automatic module shutdown when needed. In a recent interview with Greentechmedia.com Jigar Shah, Founder of Sun Edison, stated: “It’s a foregone conclusion that everyone is going to try a DC-to-DC solution.” Shah named the ability to swap panels from different types to be one of the obvious values of module embedded electronics. Improved power production and PV monitoring capabilities were the other two.

So, facing the global setting, the wish to avoid price plummeting, to reduce costs and to increase sales is obvious. Ideas and ways to raise revenues exist and range from improved inventory management to differentiated product offerings and originality. Whatever the hesitations, choosing a strategy which best fits your company and starting its implementation is inevitable.