February 8, 2012 -
"Now is the winter of our discontent
made glorious summer by this son of York;
and all the clouds that low'r'd upon our house
In the deep bosom of the ocean buried."
-- Shakespeare, Richard III, Act 1, Scene 1.
2011 saw several highly visible company failures, and 2012 is likely so see more before the solar winter of discontent gives way to glorious summer. Here's a snapshot of just the past week:
- Bekaert, which supplies wire saws to slice silicon ingots into wafers, says it will is restructuring, determining that "immediate action" is needed to fight off "difficult market conditions in the solar energy sector."
Consolidation can provide a healthy winnowing out for an industry. The current era of consolidation in the solar industry, though expected, is not healthy, however -- it is the direct result of blind faith in the inevitability of incentives, while ignoring the inherent risks of an incentive-driven market.
As the PV industry moves into its long-expected and long-delayed correction year (or two), one thing is certain; this too will pass. It may be a painful slog towards recovery, but the industry will recover, bringing with it accelerated learning in terms of reducing manufacturing costs, improved installation practices, and advancements in balance-of-systems (BoS). Along the way, though, there will be much discontent.
Figure 1 offers a picture of 2011 metrics entering 2012; though counting is still underway, the data is presented with high confidence. The methodology used is classic market research and primary research: shipments are PV technology (thin films and crystalline) to the first point of sale (first buyer), production refers to the technology that the manufacturer produced whether or not it was shipped, outsourcing (reselling of technology between manufacturers) has always been a common practice in the PV industry, more so in recent years. Production figures often include outsourced technology leading to an oversizing of the market.
The figure also includes an estimate of installations for 2011. With current high levels of inventory, the installation number can, on a market-by-market basis, be higher than shipments. It also includes commercial capacity, and announced capacity, announced production and inventory into 2012. At the start of 2012, high levels of inventory continue to hold module and cell prices down at artificially low levels.
Figure 1: PV industry metrics, 2011 into 2012
Who's selling and who's buying
Supply is who sold (shipped) the technology. Demand is who bought the technology, though this does not necessarily mean that the technology was installed. In 2011, China/ Taiwan shipped 61% of technology to the first point of sale (Figure 2), up from 54% in 2010 and 46% in 2009. If this trend continues, China/Taiwan will manufacture and ship close to 70% of technology in 2012. Unfortunately, as with manufacturers in the other regions, this technology is highly likely to be shipped at a loss.
On the demand side of the equation, there's another clear trend. Europe consumed 65% of technology in 2011, while shipping 8%. In 2010, manufacturers in Europe shipped 15% of technology, while consuming 80% of all technology shipped.
Figure 2: 2011 Regional supply and demand market shares.
In 2011, low prices for crystalline technology pressured c-Si manufacturers while creating a highly competitive climate for thin-film manufacturers. Despite the rapid downward trajectory for cell and module prices (cells as low as $0.50/Wp, with modules below $1/Wp), thin-film manufactures almost miraculously held onto a 13% share of total shipments in 2011 (Figure 3:).
Unfortunately, the competitive climate in 2012 has not improved. What's a manufacturer to do? Hold on for dear life and wait it out.
Figure 3: Technology market shares, 2009-2011.
How to lose money on every Watt sold
In 2012, average selling prices remain artificially low. The proof of this is in the negative margins currently experienced by PV technology manufacturers. On the demand side, bidding on large projects, PPA prices, have also dipped to painfully low levels, likely on the assumption that since these projects (particularly in the U.S.) are several years from actual building out, the current low prices will continue downward, leaving enough cushion in the margin to overcome a bid of <$0.08/wp.
Meanwhile, statements about grid parity seem to be arguing for a paradigm in which all manufacturers lose money and eventually go out of business.
Figure 4: Average selling prices to the first buyer, 2000-2015 (forecast). Average price for reselling inventory in 2012: $0.95/Wp.
Ah, to be done with the solar winter of discontent, and then bask in the glow of glorious summer. Announcements are coming (in some cases imminent) of changes to FiT structures and rates, some retroactive, with once bountiful markets likely to be far less so in the very near future. The solar industry will need to work with less-robust incentives. New business models and true cost reductions will ease the global industry into a healthier competitive position. Faster learning (cost reduction) in balance-of-systems components and more efficient, faster installation practices will help -- because PV technology manufacturers cannot continue to bear the burden of cost reduction. Regarding cost savings on the installation side, wage expectations and laws (such as prevailing wage in some areas of the U.S.) are a variable that may not be controllable.
2012 is likely to be an ugly year in solar, with significant infighting between the demand and supply sides of the market (demand wants prices low, supply needs prices to rise in order to survive). With high levels of manufacturing capacity, high levels of inventory, and decreasing incentives, the current low prices will be around for a while -- and this is not good. Consolidation and the failure of more companies will help bring higher prices, and with them a return to healthy manufacturer margins -- that is, for those left standing.
But in the end, remember: this too will pass.
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