Paula Mints SPV Market Research/Strategies Unlimited
December 10, 2012 | 13 Comments
Over the course of its terrestrial history, solar industry growth has primarily relied on incentives and subsidies for growth and as a mark of success, instead of healthy margins and profits. For most of the industry's history buyers of technology (cells and modules) have enjoyed price control. The primary reasons that buyers have controlled the price function for most of the PV industry's history are: a) The industry requires incentives/subsidies for its growth b) Without subsidies there is not pull for the technology c) There are many substitutes, both renewable and conventional d) all substitutes enjoy some degree of subsidies themselves e) the task of educating consumers that owning the means of electricity production offers more control than continuing to rent electricity is daunting and f) the industry continues to promise prices so low that continued investment in high quality technology and R&D is almost impossible.
The solar industry – referring to all solar technologies and the entire solar value chain – has courageously persevered in the face of significant doubts, cheap (and subsidized) conventional energy, and the powerful lobbies of conventional energy along with its own sometimes questionable choices. The industry has persevered primarily because of its belief that solar is the energy technology of the future. In terms of success, believing will not necessarily make it so, and years of battling entrenched conventional energy remain ahead, but without this core belief in the rightness and inevitability of victory, solar will not succeed. It takes courage to plow ahead during tough times and relatively easy times simply because you believe that you are on the right path.
As demand for solar products is fragile, and the industry’s incentives are controlled by governments (who often do not understand the technology or the industry), participants tend towards extremes in terms of wishful thinking often seeking out information that confirms its hopes. It is difficult for any group or individual to avoid confirmation bias, which is the tendency to seek out information and data that supports a closely held view. This behavior brings out the best and the worst of an industry that has overcome much in its ~40 year history, has more to overcome, but no matter what, is not going away. Success will, however, continue to require hard work, development of new business models, cost reduction and, yes, believing in the impossible.
1. Crystalline Technology is the technology of the past
In 2004, the Germany feed-in-tariff incentive model began to stimulate demand in Germany and was quickly copied by other countries. Noting the apparent security of the FiT, investors became interested, and the market in Europe surged. This period of strong demand coincided, unfortunately, with a shortage of polysilicon. This shortage had been expected by the solar industry for decades. Prices of polysilicon increased signs, supplies of crystalline modules were constrained and these factors, coupled with high demand, led to a significant increase in the price of c-Si cells and modules. Despite the high price of polysilicon, manufacturers of c-Si technology – for the most part – began enjoying higher margins. At the beginning of this period, there was insufficient capacity of thin film technologies to fill the gap. As prices increased, investors, venture funds and other began to show significant interest in thin film technologies. Fairly quickly, the end of c-Si was pronounced along with a rapid increase in market share for thin film technologies – widely viewed at this time as the technology of the future. Regarding the death of c-Si technology, consider Mark Twain, commenting on the announcement of his demise: “The reports of my death are greatly exaggerated.”
Figure 1 PV Module ASPs to the first buyer, 2001 – 2012
Figure 2 Crystalline & Thin Film Technology % Contribution, 2001-2011
2. Thin films are dead
Referring again to Mark Twain, “The reports of my death are greatly exaggerated,” the pendulum has swung back and the death of thin film technologies is often heard. The primary reason for the current lack of confidence in the future of thin film technologies is current low price of crystalline technology. The assumption is that thin films cannot compete with crystalline technology’s progress in this regard. This assumption ignores the confusion over the difference between inventory pricing and the average price to the first buyer as well as the fact that no technology manufacturer – globally – is currently healthy. If the current low prices for PV modules were progress, then the industry would be enjoying profits, investing in R&D and encouraging technology startups instead of watching a steady march into bankruptcy.
Table 1: Off Grid Applications
3. Micro-grids are the next big thing
Incentive driven industries – particularly those without pull and where competing substitutes enjoy significant advantages as well as those in which the incentive environment is insecure, will grasp at any potential savior that presents itself – much like a drowning person grasps at any floating object in his/her reach. Currently interest in the off grid market and its many applications is experiencing a renaissance of sorts. As the solar industry enters a low incentive environment, micro-grids (or village grids) are gaining attention as a potential multi-gigawatt market for PV and other solar technologies. It is true that the potential for micro-grids is strong – it has always been strong. The reality of serving this market however remains non-trivial. Granted, replacing inefficient, expensive and polluting diesel generators is a laudable and environmentally necessary goal, and, granted the use of solar in hybrid configurations continues to have potential, but, obstacles to deployment continue to include multiple levels of bureaucracy (down to the local village level), uneven support by utilities, affordability, lack of incentives, setting up and administrating payment for generated electricity, acceptability by local populations, O&M training, among other concerns specific to working in developing areas of the world and with off-grid applications. That there is demand for electricity and potential for this application is unquestionably true, this aside, serving the population most in need of the micro-grid sub-application is also expensive, time consuming and not for the faint of heart. During the successful early FiT years the solar industry could have planned for its low incentive future by developing a micro-grid business model – it did not and so is unprepared to mine the multi-gigawatts of potential that are currently exciting to contemplate and daunting to serve. The off-grid applications dominated PV industry demand through 1999. In 2011, off grid was 1% of the multi-gigawatt market for PV systems.
(Table 1, above) Share of PV Market Demand, 1991 - 2011