London — The news for 2010 continues to be Germany, Germany and more Germany, with a little Czech Republic, France, Italy, and the threatened retroactive degression of Spain’s feed-in tariff (FiT) thrown in for good measure.
Unstable Boom Times Continue for PV Market
Even using the latest available installation data for Germany as REW goes to press – there is no doubt that more than 4 GWp will have been installed by July 2010, and it is highly likely that despite the upcoming decrease in the tariff, between 6 GWp and 8 GWp are likely by commissioned by the end of 2010 – bringing about significant margin pressure.
Figure 1, offers regional demand shares for 2009 and an estimate for 2010. Note that Europe continues at above 80% of all PV sales. Though Japan and North America increased their market share in 2010, there is not enough demand in those regions to ameliorate a collapse of demand in Europe.
All of this might lead industry followers to once again begin touting gloomy predictions for future PV industry growth. Over time, however, the PV industry has shown it is the dire predictions of doom and gloom which will consistently be defeated, mostly by sheer will alone. This does not mean that a vague sense of doom isn’t hanging on by its fingertips to this incentive driven industry, it means that it is overcome, typically at the last minute and in some cases, as if by magic.
Magic, happenstance, luck, or alchemy aside, the PV industry is made up of solar survivalists who know that the odds are against them and so struggle mightily to bring down costs and preserve incentives, sometimes by making promises that are extremely difficult to keep simply because the PV industry is a business, and margins must be maintained in order for R&D to continue, efficiencies to rise and costs to decline.
That the incentive driven, grid-connected application continues to drive growth in the PV industry is certainly no surprise. Over time, jumps in volume from kilowatts to megawatts to gigawatts have been driven by growth in the grid-connected application sector.
In 2008, the grid-connected application sector accounted for 94% of total demand, increasing to 95% in 2009 and it is expected to be 97% in 2010. Grid-connected commercial applications, which includes all multi-megawatt systems not owned by utilities, continues to dominate the market at more than 50%.
Multi-megawatt, or utility-scale, applications are a relatively recent phenomenon in the PV industry, and this is driven almost completely by the feed-in tariff incentive model in Europe and other regions, except for in the US where a tax equity mechanism is the primary driver. In the US, the feed-in tariff model is currently being explored on a state-by-state basis.
With changes in European FiTs (the Czech Republic, which will implement a significant decrease in its tariff and add some interesting rules to it, along with Germany’s upcoming changes) will decrease margins and drive down system costs – to levels that are likely to be unprofitable for installers. Should Spain implement a retroactive degression, which would affect some 2 GW of installations, investor confidence in the reliability of the FiT mechanism would be, to say the least, shaken.
Average cell and module prices (ASPs) have remained flat during the first two quarters of 2010, with crystalline silicon (c-Si) module ASPs from China/Taiwan at $1.85/Wp, and cell ASPs from China/Taiwan at $1.15/Wp. Downward price pressure from c-Si manufacturers in the China/Taiwan region continues to depress technology prices globally with specific pressure on thin-film manufacturers. Specifically, prices for amorphous silicon (a-Si) of below $1.00/Wp have been observed. Globally, ASPs for thin-films are averaging $1.65/Wp. Note that manufacturers of lower efficiency c-Si technology using lower quality polysilicon out of China are offering product at below $1.50/Wp, but these manufacturers do not represent a significant market share and have bankability problems.
Given the upcoming policy changes in Germany and the Czech Republic, average prices are likely to remain flat, trending downward at the end of the year. That is despite the likelihood of strong demand continuing through 2011. The lower incentives will force lower prices, along with the accompanying margin squeeze.
In 2010, with inexpensive, higher efficiency c-Si dominating the market, and despite continued strong performance of First Solar’s CdTe technology, thin-film’s share of the market is likely to be flat at around 16%. And, towards the end of 2010, thin-films are likely to experience some significant downward price pressure in order to remain competitive.
What Does it Mean?
There is only the faintest likelihood of a crash in demand in 2010, despite – again – significant upcoming changes to various European feed-in tariffs. A more likely outcome is that the pressure of increased capacity will continue forcing ASPs and margins downward, giving manufacturers out of China an advantage. Although China has announced more flexibility of its currency against the dollar and there are indications that wages in China will increase (making the country a less attractive point of manufacture for companies based in Europe and the US), it is unlikely that these overheads will rise to the point that China loses its existing competitive advantage.
As of mid-year 2010, manufacturers from China/Taiwan are on track to again lead other regions in shipments. In 2009, manufacturers from China/Taiwan shipped 46% of the total manufactured capacity. In 2010, this will likely increase to more than 50% and means that such manufacturers will control cell and module ASPs for some time.
Despite an expected 65%–67% increase in shipments to the first point of sale in the market (the first point of sale is defined as demand here), 2011 will begin with significant inventory on the demand side of the market. Figure 2, shown above, presents estimated metrics for 2010, based on accelerated shipments/demand of 13.1 GWp. The current industry practice of rolling around 2 GWp of inventory from one year to the next will help continue to depress module prices, along with excess capacity, and the expected slow decrease of feed-in tariff support.
Looking ahead further, 2011 should also be a year of strong growth, if for no other reason than the capacity is there, production will continue and product will be shipped, even at a loss.
Though six months remain in 2010, and anything can change at any time in this incentive driven industry, the real question, and the real concern, is what will happen in 2012 when the likelihood of a significant degression (including penalties for overselling) of Germany’s FiT kick in. With the US continuing to develop its market at a slow (and hopefully sustainable) rate, the next significant market for solar is difficult to identify at this juncture.
Stephen Lacey recently spoke with Stefan de Haan, Senior Solar Analyst with iSuppli about its PV market predictions. To see what he had to say, watch the video below.