Paula Mints, SPV Market Research/Strategies Unlimited
July 04, 2013 | 3 Comments
It’s the time of year when quarterly results are anticipated (or dreaded) and bad news is magically turned upside down under the heading: losses were lower than expected. Of course…losses are not good news and in any case, Q1 results are not great indicators of what the scope of the year will bring.
Table 1 offers select manufacturer Q1 data. The group in Table 1 shipped 44 percent of Q1 total shipments of 7.3-GWp. The revenues for manufacturers in Table 1 were 57 percent of Q1 cell/module revenues of $5.9-billion. Observing Table 1 (below), gross margins were positive for these manufacturers (with the exception of LDK), while operating margins were negative, (with the exception of First Solar and Canadian Solar). The manufacturers in Table 1 lost a total of $485.6-million, with only First Solar reporting a net gain for Q1.
In Q1 2013, crystalline manufacturers benefited from lower polycrystalline costs, nonetheless, given the financial bloodletting of 2012, the return of positive gross margins for many manufacturers is welcome and offers hope for a the beginnings of a recovery.
Table 1: Select PV Manufacturer PV Revenues
A healthy recovery should take the lessons of the recent ten years into account.
Lesson #1: What the government gives (incentives) the government may well take away, reduce or change drastically. An object lesson in this regard is Spain, which has an abundance of bankrupt systems. Another object lesson is the Ontario, Canada FiT for large systems, which has been changed to a bidding system. Diversify.
Lesson #2: Building significant manufacturing capacity on the basis of often fickle incentive programs (even FiTs) may serve the manufacturer well in the short term, but will come back as expense down the road when the market is less profitable or shut down altogether. Building capacity based on a conservative forecast may mean you cannot serve all the near term business, but it will leave you with less idle capacity to support when times are bad.
Lesson #3: Fully committing to catch phrases (such as grid parity) while announcing that extremely low module prices are progress may find manufacturers unable to raise prices and suffering low to no to negative margins. Commitment to unachievable and highly profile goals may actually turn out to be a cost — be pragmatic.
Lesson #4: Business models are innovation engines for the solar industry. They should appropriately reflect true solar costs. Solar is highly visible and ripe for business plan innovation. A model truly reflective of solar costs that takes into account the customer’s needs will win hearts, minds and wallets.
Lesson #5: Vertical integration is not the panacea for current industry problems that is, it is appropriate for some companies, but not for all companies. Vertical integration comes and goes in all industries, look to your long term goals before you take the leap.
Many manufacturers are adding capacity circumspectly in 2013. Some however, are building enthusiastically laying their hopes primarily on the market in Japan. It is worth noting that some utilities in Japan are stating that their goals concerning PV installations are already oversubscribed. This lesson is worth remembering as strategies are planned for markets in Latin America and India as well as markets in other regions.
Amid a barrage of changing (often retroactively) FiTs tariffs and programs, little to no control over raw material costs, severe downward price pressure (for all participants on the solar value chain), shifting markets, a lack of observer understanding about solar technologies as well as internal buy-in to poorly explained concepts such as grid parity, LCOE and the championship of interested outsiders who just want to see as much solar installed as possible whether or not anyone makes any money — optimism is often the life raft that keeps the solar industry from sinking.
It is easy to play on optimism, on the hopes of an industry that is beset on all sides by doubters, true believers as well as a host of competing energy technologies. These days there is an overcapacity of information about how and when the industry will return to profitability: which markets will prove significant in size, and which technology will arrive at a manufacturing cost low enough to support low prices?
Optimism is necessary for solar industry participants to continue in the face of, basically, all-of-the above — but only if it does not blind them to the practical realities of day-to-day business in the energy world. Several years ago an irrational belief in the inevitability of the FiT, which initially were profit machines that spawned the utility scale market. It was assumed by most people that these instruments would never end, and would migrate from market to market opening the entire world up to the inevitability of solar. This has indeed proven true — the original FiT traveled from market to market shutting them down one by one while slowly evolving into the margin-destroying tender bidding model.
Solar as an energy choice is here to stay — it is part of the climate change answer (and this is a problem optimism will not solve). The industry is selling electricity — and it must compete with available substitutes, but it is also selling independence and environmental responsibility. Responsibility may be a tough sell, but independence is sexy. Maybe it is time to get back to the educating the public about the true value of high quality solar and then making certain that we live up to our promises.
It will not be easy and participants will continue to fall prey to get rich (or this is how you get rich) schemes, but in the end, practical optimism will win out and the world will be better for it. The coming recovery is not a dream — it is a practical reality that will come to pass in part because of the optimism of solar industry participants.
Lead image: Arrows on road via Shutterstock