Solar

PV Analysts: Cautious Optimism for 2010

Issue 1 and Volume 2.

Opportunities in the photovoltaics market in 2010 remain strong, say industry analysts participating in a PV World survey, but as Alfonso Velosa of Gartner cautions, “the challenges appear to be stronger than the opportunities at the moment.”

Such guarded optimism for the year ahead is the general consensus among analysts, with worldwide growth opportunities confronting several to-be-determined factors, such as the stability of the global economy, the fate of government incentives, feed-in-tarrif (FIT) restructuring in Germany, and overall sliding module prices.

Some analysts believe certain aspects of PV manufacturing — specifically, thin-film — have bright days ahead in 2010. Says Bob Klenke of ITM Marketing, “The significant increase in thin film manufacturing will dominate the demand for new manufacturing equipment, accounting for approximately 50% of capital investment over the next decade. Virtually every company involved in the electronics supply chain should ask themselves how they can benefit from this unique growth opportunity.”

Overall, however, as analyst Paula Mints of Navigant Consulting observes, “Despite eagerness to leave a painful 2009 behind, hang on tight PV industry, because 2010 promises to be a bumpy ride.”

Fewer Incentives, Better Distribution

Robert H. Moran, Research Analyst, BCC Research, Williamsburg, VA USA

The photovoltaics (PV) industry has a global history of rapid, double-digit growth. Although technical advances have brought PV close to the cost of traditional fossil fuels, there is still a ways to go before the costs are comparable. Part of the technology’s success has been attributed to the generous incentives offered to users of this unique solar technology.

The global economy, however, has thrown many of these incentives into a tailspin. Spain, a fast growing market, has reduced its feed-in tariff (FIT) by 30%, which has resulted in lower expectations for growth. The German government is considering a steeper cut to FITs for solar energy, which could also result in lower growth. And in the U.S., many states are already burdened by the recession and plan to lower tax credits; we think the federal government will extend its tax credit to eight years, which will provide some relief. The Administration is also proposing a $3.4 billion stimulus package to improve the grids.

The reduction in incentives takes away from the growth of solar PV systems. We think that the industry will continue to grow in 2010, but perhaps not as fast as in previous years. Incentives help to expand PV installations, which, in turn, reduce cost. PV has come a long way, and we feel that its benefits, especially in today’s energy environment, will overcome the loss of incentives and, in the long run, continue traditional growth. When recovery is more evident, some incentives may return.

On the lighter side, there is a new proposal in the U.S. to build a transmission link to connect the nation‚’s three major electricity grids — Eastern, Western and Texas (Tres Amigas “superstation”) — which is generating interest among energy policy makers because it has the potential to accelerate development of renewable energy. The project is estimated at $1 billion or more, and opens the door to energy access for more users in the U.S. This development is a plus for PV, as well as other renewables and will increase their availability and growth.

CIGS Thin-film Solar Cell Market To See Continued Growth

Kenny Kim, EVP, Solar&Energy Div., Displaybank, Seoul, Korea

Displaybank’s forecast in global PV installations represents a V-shaped growth with 2009 being the lowest point. From 2009 to 2013, the (CAGR) is expected to be 45%. CIGS solar cell production contributes to this growth through the combined efforts of module and equipment manufacturers. CIGS solar cell production capacity is expected to reach 667 MW in 2009 and 1,175 MW by 2010, with actual outputs reaching 179 MW and 325 MW in 2009 and 2010, respectively.

CIGS capacity expansion. Germany-based Wurth Solar is considered the leader among the current CIGS thin film solar cell manufacturers in terms of both technology competitiveness and mass production size. But, considering its annual production capacity is expanded by a small scale of 10~15 MW each year, it appears that greater volume production technology development is needed.

Japan-based Showa Shell Sekiyu added 60 MW to its existing 20 MW production capacity in 2008 and reached 80 MW by 2009. Additionally, the company announced its plan to expand its production capacity to 1 GW by 2011, suggesting that the company’s production technology development has advanced to a significant level.

Solibro, a subsidiary of Q-Cells, plans to increase its module efficiency to 10.5% and production capacity to 135 MW by 2010. Additionally, U.S.-based Solyndra, a glass tube-type CIGS solar cell manufacturer, plans to expand its production capacity to 110 MW in 2009 and begin construction on a 50 0MW production factory in the second-half of 2009. Currently, Solyndra’s major target markets are the U.S. and Europe, but the company plans to construct a 1 GW production factory to serve emerging markets in Asia.

Considering the production facility expansion plans by these manufacturers, Showa Shell Sekiyu (Japan), Solibro (Germany), and Solyndra (U.S.) are expected to become major leading CIGS solar cell manufacturers in the future.

Driving volume production. In the thin film a-Si solar cell market, equipment manufacturers, such as Oerlikon, Applied Materials, and ULVAC, offer turnkey solutions to not only supply manufacturing equipment, but also guarantee the module yield, which largely advances volume production technology for a-Si. Similarly, Germany-based Centrotherm, a crystalline Si solar cell manufacturer, began supplying turnkey solution equipment for CIGS production. Centrotherm currently guarantees 10% efficiency, and it has successfully developed mass production equipment for CIGS solar cells with 12% efficiency in August 2009. This suggests that high-efficiency CIGS solar cell volume production will be driven by the equipment manufacturers.

Compound semiconductor deposition technology, a known bottleneck for CIGS solar cells under the current mass production systems, is anticipated to be resolved around 2011 to allow CIGS solar cell production capacity to reach 3,645 MW with an output of 1,915 MW by 2013. As a result, we look forward to a new PV industry cycle for CIGS solar cells, led by greater capacity through innovations in volume production technology, turnkey equipment solutions that provide enhanced efficiency, and an economic recovery that is on the horizon.

More Turbulence Ahead in 2010

Alfonso Velosa, Research Director, Semiconductors, Gartner, Tucson, AZ USA

Though the PV market in late 2009 appears to be firming up, the challenges appear to be stronger than the opportunities at the moment.

We continue to see uncertainty for the financial returns for projects, especially in Germany, with mixed signals on how the feed-in-tariff (FIT) will be re-structured in 2010. The federal government incentives in the U.S. market have taken too much time, delaying the start of key projects. Firms continue to add module capacity, especially on the thin film side; additionally, financial firms place more scrutiny on PV projects and vendors.

The opportunities remain strong. Utilities and homeowners are increasingly interested in PV systems, and large utility ecosystem partners, such as construction and merchant power generation firms, are looking into PV. The final element is the bifurcated level of technological development. One is about revolutionary technology innovations, such as new approaches to thin film or to concentrated PV. The other is a cost-based approach that optimizes the system’s bolts, wiring, and integration of the modules with the balance of system. This leads us to four themes we expect to see for the PV industry in 2010:

Growth, sort of: We do see increasing global demand for PV systems, with growth almost 40% on a gigawatt (GW) basis to 6.9 GW. Yet there is excess capacity in the market at all steps of the value chain. Thus, we expect average selling prices (ASP) to contract by 20% for modules in 2010, limiting market growth for 2010 to only be 10% over 2009. This ASP contract will lead to pressure across the PV value chain, even despite the inventory drawdown in the second half of 2009.

Germany: There has been improvement in the German PV market over the past few months; however, the adjustment of the terms for the German feed-in-tariff in 2010 remains a critical uncertainty, not just for our forecast, but also financial players looking to invest in the PV market.

Foundations in other markets: The U.S., Chinese, Italian and other growth markets will see investment in personnel, distribution, and people, yet their real potential for growth is in 2011.

Consolidation: Many weak firms in the PV market remain alive only due to the cash they raised in 2007 and 2008. We expect many of these to start merging or being acquired, especially in the thin film PV arena.

Excellent Growth Opportunity for Materials, Equipment and System Suppliers

Bob Klenke, Managing Director, ITM Marketing, Durham, NH USA

At the end of 2009, China dominates the $30 billion global solar industry, producing ~ 30% of the world’s PV cells and 49% of the polysilicon wafers that are the main ingredient used for solar cells. It is estimated that the 15 largest PV manufacturers control ~ 75% of the total available worldwide market, with the vast majority of manufacturing taking place in China, Europe, and Japan.

Countries such as Germany, Japan, Spain, and the United States manufacture < 10% of worldwide cell production but remain as the dominant consumption regions for PV modules. In the future, it is foreseen that PV consumption will shift somewhat away from these distributed on-grid application markets to non-distributed off-grid markets, spurred by electrification programs of non-population center communities and the installation of solar-generating plants in developing and emerging countries.

Currently, the solar industry is experiencing a short-term overcapacity due to the global downturn, but retains a positive long-term outlook as new technologies come online to boost efficiency of incident solar light, combined with price/volume economics and demand from emerging markets. Forecasts vary, but conservative estimates foresee PV production growing by a 25% compound annual growth rate (CAGR) over the next two decades.

Overall, the PV market presents an excellent growth opportunity for material, equipment, and system suppliers. This is due in large part to thin film manufacturing technologies increasing from 10% to 30% of the overall market at the expense of polysilicon-based manufacturing. The significanct increase in thin film manufacturing will dominate the demand for new manufacturing equipment accounting for ~ 50% of capital investment over the next decade. Virtually every company involved in the electronics supply chain should ask themselves how they can benefit from this unique growth opportunity.

A Stronger 2010, Provided Policy Momentum Remains Positive

Mark Thirsk, Managing Partner, Linx Consulting LLC, Mendon, MA

2009 was a traumatic year for the PV industry. The lack of credit-backed funding amid a continuing global recession has led to a slowing of a red-hot growth market that many had expected to be unstoppable. Against this background, the renewable energy-friendly administration in the U.S. has not produced the expected climate and energy bills. This backdrop has put supply chain participants throughout the PV industry through testing times, with many players in severe financial distress.

Some good things came of the 2009 turmoil: Advances in manufacturing technology have helped both crystalline silicon and thin film technologies become more competitive, and falling silicon prices made modules significantly cheaper and boosted meager demand. Efforts to develop standards and improve factory automation will also yield a more competitive industry in time. Lastly, the apparent ongoing political commitment to supporting renewable energy subsidies in Germany and many other countries should continue the industry trajectory, although, as we have seen in the boom-bust support of PV in Spain, continued support is not guaranteed.

As 2010 starts, what trends can we discern about the coming 12 months? It seems certain the shift of the manufacturing center of gravity to Asia will continue in the short term, with China becoming even more the epicenter of module supply. With the recession easing more slowly than hoped, difficult economic conditions will persist into 2010, and companies will continue to struggle.

The bad news is that module prices will continue to slide, whether planned or not. The good news is that lower module prices are critical for a healthy industry. While supply chain overcapacity has severely tested cell and module makers’ strategies, and reordered the global pecking order, companies with robust strategies will emerge stronger with good products, and roadmaps to further improvement. Innovations in materials and processes geared towards creating benefits realized on a levelized cost of energy (LCOE) basis will be the only way to improve industry economics and create value on a project basis.

PV is still a largely uneconomic way to generate power, and requires subsidy. While subsidies exist, the industry treads the narrow path of growing at a healthy clip, developing robust technology, and mapping paths to profitable business without those subsidies once PV installations become economically viable. The PV industry was far stronger at the end of 2009 than it was a year earlier, and will likely be stronger still in 12 months, provided policy momentum remains positive and capital continues to flow to companies made stronger by the shakeout in the industry.

Low Module Prices, Weak Demand Make for a Bumpy Ride

Paula Mints, Navigant Consulting, Principal Analyst, PV Services Program/Associate Director, Energy Practice, Palo Alto, CA USA

Most companies in the photovoltaic industry would agree that 2009 has been a heck of a year for underutilized or idled capacity, falling technology prices, shrinking profits, and disappearing markets. The PV industry continues to face downward price pressure, an ongoing need for incentives, and customers who remain wary of the high upfront cost. The global recession and the collapse of the financial markets under a mountain of derivatives was only part of the reason that the 2009 market for solar products was soft. The loss of a major market in an industry without diversified demand was the most important factor. In 2008, Spain was 41% of global demand (~ 5.5 GW). In 2009, this loss put pressure on the only remaining market (Germany) capable of consuming over a gigawatt of product.

Many new entrants found their plans stymied in 2009. Simply put, from research and development through pilot scale to commercial production, it takes a long time to make this stuff work. Time is measured in years, not months, and better measured in decades.

In 2009, technology sales will shrink at least 17% from the 5.5 GW sold in 2008 to ~4.6 GW. Problems in the debt markets shut down or slowed investment in multi-megawatt systems for much of 2009. Germany will end up consuming ≥ 1 GW more than expected or wanted (56% of the 2009 market). With a new conservative government in place, it is likely that the German FIT (feed-in-tariff) will change in 2010, but until something is announced, it is anyone’s guess if anything will happen after all.

Despite eagerness to leave a painful 2009 behind, hang on tight PV industry, because 2010 promises to be a bumpy ride. Uncertainty about changes in the German FIT will be resolved one way or another fairly soon, but the global economies are facing slow and fragile recoveries, and the debt markets remain vulnerable. Primary concerns for the PV industry in 2010 remain unsustainably low module prices and another soft demand year as new markets (U.S., Canada) begin to realize their potential, and the market in Japan recovers. In 2010, modest growth of 10% would be good news, as would a flat market, but another year of shrinkage is possible given the circumstances.

One lesson to be learned from this is that nothing will change for the PV industry until it can operate (mostly) incentive-free. Once this happens, the industry will be able to compete on a level playing field with other energy technologies (though many of these will continue to be subsidized, rendering the level playing field concept moot). Over time, the PV industry has endured. Maybe the real lesson is that it is here to stay.

Robust Recovery for Solar in 2010

Dave Cavanaugh, Senior Analyst, Pike Research, Boulder, CO USA

Led by a strong recovery of demand in Germany and burgeoning growth in Italy, Japan, and the United States, we are forecasting that demand for solar modules in 2010 will grow by 43% to reach almost 6.8 GW. True, polysilicon prices had fallen dramatically, but a world in the throes of financial crisis appeared unlikely at the time to be eager to offer increased solar incentives.

Now, as we close out 2009, we see reason for optimism for substantial growth for the solar industry in 2010. Crystalline silicon module costs have dropped significantly, as low as $1.40/W for lowest cost manufacturers, in large part due to reduced poly cost, but also as a result of lower costs in ingot and wafer manufacturing and cell processing. First Solar continues to lead the industry in module cost per watt (now at $0.85 and headed to less than $0.80 in 2010). Low cost per watt combined with favorable financing rates and terms will drive the industry to a levelized cost of energy (LCOE) that justifies new solar projects in many world markets, most notably in the U.S.

We see further reason for optimism in key demand markets. Feed-in tariffs (FITs) promulgated in the German Energy Sources Act (EEG) revision for 2010 were, at one time, rumored to be scheduled for substantial decline with a regression rate increase of 15-30%. Recently, though, the Merkel government agreed to increase the regression rate for 2010 to 9-10%, only slightly higher than the current 8-9%, thus ensuring that the large number of projects in the pipeline in 2009 will likely come to fruition in 2010.

We also see enactment (finally) of an incentive program in the U.S., likely in the second quarter of 2010. While details are still unclear, we see a combination of project financing incentives, cash grants, and renewable energy certificates in addition to continuation of an ITC that will provide sufficient project ROI to kick off many projects in the U.S. in 2010. In addition, we expect Italy to grow significantly as streamlined application processes allow the already generous Italian FITs to be manifested in new projects.

We expect demand in Japan to grow by at least 525 MW and in France to grow by ~ 350 MW. While we currently expect China to install only ~ 150 MW in 2010, this market represents a large potential in demand growth as government Renewable Portfolio Standard (RPS) goals and discussions are manifested in actual installations.

On the downside, we expect further consolidation of c-Si module makers with > $1.90 module cost/W and poly/wafer manufacturers not able to withstand low margins through 2010 and likely well into 2011. We hope to see CIGS module manufacturers approach the 10.7% efficiency and (likely) $0.80 cost/W of First Solar’s CdTe production, but we believe that 2010 will also see consolidation in the ranks of CIGS companies. We also have concerns over large FIT reductions in Germany in 2011 as reported compromises that kept FIT regressions in check in 2010 no longer hold back pressures to reduce industry returns.

In short, we look for at least 43% growth in demand for 2010, with an upside potential for worldwide demand to grow by about 80% to over 11GW if a larger portion of current projects in the pipeline is actually installed next year.