Price, technology, and the illusion of control

Paula Mints from Navigant Consulting takes a look at 2010 trends for silicon and thin-film solar PV technologies, who’s winning and why, and what’s coming soon to a PV industry near you.

by Paula Mints, Navigant Consulting

April 21, 2011 – In 1992, presidential candidate Clinton beat the incumbent President Bush with a little help from the following slogan: “It’s the economy, stupid.” For the only-just-recently-profitable photovoltaic industry, the slogan should be: “It’s the margins, stupid.” As feed-in-tariff rates fall and manufacturers continue to add capacity while announcing significant price decreases, margins will suffer. One would think that an industry that suffered unprofitability until 2004 would take heed — and one would be right.

Optimism aside, the industry knows that its fortunes rise and fall on the availability of incentives — note the mad dash to sell and install right before an announced tariff degression. These days, the strongest growth driver is degression anxiety. Given the rapid pace of degression announcements, not to mention the potential of caps hanging over some of the industry’s strongest markets, an industry-wide prescription for anti-anxiety medication might be in order.

Figure 1 presents the ugly truth in pricing, along with an estimate of prices to 2012. If you are a manufacturer you do not have to look, the trend is down and driven by too much capacity, aggressive pricing for share and lower tariff rates. If you are an installer or an investor in multi-megawatt installations, lower prices are good news, though the rejoicing should be mitigated by lower tariffs.

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Figure 1: Average price forecast to 2012.

The fact is that the photovoltaic industry has always required a strong constitution from its participants, and this is unlikely to change any time soon. And the more capacity the industry builds the less control it has over its margins. Unused capacity is expensive for manufacturers to carry.

Control is, basically, an illusion. In PV control is often based on a manufacturer’s willingness to lose money.

Winning technologies

Let’s be clear: the manufacturer who sells the most at the lowest margin does not win the race. Neither does the manufacturer who sells the most at the highest margin. In the PV industry, it may simply be that the survivors win — those willing to suffer through the pricing madness, continuing to lower manufacturing costs, partnering with balance of system developers and system designers/installers until PV can be swiftly, innovatively and cheaply installed, while everyone still makes money. A business is about value all along the chain, and as everyone knows a weak can cause the whole chain to snap at some inopportune moment.

Currently, crystalline technologies are winning the volume game because c-Si modules are both super-cheap and also higher in efficiency than thin-film solar technologies. Inexpensive crystalline products put margin pressure on the majority of thin-film manufacturers. CdTe manufacturer First Solar has the lowest manufacturing costs, is vertically integrated (it has a systems business in the US), and can compete more effectively than other thin-film manufacturers with crystalline technologies. Figure 2 offers a perspective on technology contribution to overall shipments from 1980 through 2010. The relatively larger market share enjoyed by thin-film technologies in the mid-1980s was primarily due to demand from the consumer indoor market. The uptick in thin-film shipments in 2007 was primarily due to silicon raw material constraints. Though these constraints have eased, thin films have achieved a degree of market acceptance indicating that these share gains are likely permanent. This is despite the decrease in share for thin films in 2010 (13% of total) down from a 17% share of total shipments in 2009.

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Figure 2: Technology % contribution, 1980-2010.

Some observations of 2010 shipments spanning the universe of solar PV technologies — monocrystalline, polycrystalline, ribbon silicon, amorphous silicon (a Si), cadmium telluride (CdTe), copper-indium-diSelenide (CIS), and copper-indium-gallium-diSelenide (CIGS):

  • At 87% of total shipments in 2010, c-Si technology’s share recovered from a low of 83% of total in 2009. Aggressively low prices for crystalline modules helped crystalline retain share. Crystalline technologies will continue to dominate at >85% in 2011 primarily because prices for high quality c-Si products are low.

  • Ribbon silicon held a 2% share of total shipments in 2010; however, its share is not expected to increase as the focus continues to switch to higher efficiency technologies.

  • Despite bankability concerns and low ASPs for c-Si, a-Si increased its share by 173% in 2010 and a 3% share of the global market. Continued low pricing for c-Si in 2011 will pressure margins for a-Si manufacturers and flat growth is expected.

  • CdTe shipments grew by 143% in 2009, with First Solar currently the primary manufacturer of this technology. In 2010, shipments for the technology increased by 34% for an 8% share of the global market for PV technologies. Capacity increases from First Solar and continued growth for new entrant Abound Solar should allow for stronger growth in 2011.

  • CIGS/CIS had a 2% share of the global PV market in 2010, with growth of 354% over 2009. That pace of growth indicates the technology’s new entrant status and will not hold up over time. There are some strong emerging performers in this sector.

What now?

PV manufacturers are unlikely to see any margin relief soon. In fact, the heady period of high margins (2004-2008) was an outlier in PV industry history; a blip, as it were, in a long and winding unprofitable road. It is an industry of true believers, optimists all, obsessed with a particular vision and willing to make significant sacrifices for this vision. To survive the downward trend in tariff rates, creative business models as well as BoS and installation innovation is needed. Vertical integration may well be (at least for a while) a way for manufacturers to survive. Smaller technology manufacturers along with startups will struggle to compete as manufacturing capacity for some larger entities tops 2GWp annually. As tariff levels fall — or incentives are shut down altogether — countries with significant capacity (China and Taiwan held 53% of manufacturing capacity in 2010) will have two choices: give it away or install it domestically. Should China decide to invest in domestic market for its domestically manufactured technology, it can control a content mandated, unlike other countries without value chains that stretch from raw material through to module assembly.

In this landscape of low prices and lowering incentives, most thin-film manufacturers will struggle. A robust market for BIPV, where thin films have an advantage, would help, but this market cannot conceivably be described as robust. Despite this seemingly dour assessment, thin-film technologies will maintain share of ~15%, as the sector continues to mature. Figure 3 presents a c-Si and thin-film (aggregate) forecast to 2015.

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Figure 3: Technology forecast to 2015.

Coming to a PV industry near you, and soon: competition with conventional energy in most markets with or without grid parity. And frankly, grid parity has many meanings and a primary usefulness as a marketing phrase. The point is, the industry must compete with all other energy sources as it continues to carry the burden of having a high upfront installation costs. No matter what happens, PV is hardware and the installation side is construction. The sun may be free, but converting it to usable electricity costs money.

Also coming to a PV industry near you: new business models, innovative system design, even more efficient installation procedures, less expensive balance of systems, new products and form factors for residential and small commercial installations, a real BIPV market, and greater acceptance by the energy buying public of the need to invest in solar towards a stronger global future.

One more thing: hopefully the US will finally streamline and standardize less expensive permitting for systems of all sizes, along with an easing of other barriers to implementing a solar future.

Paula Mints is principal analyst, PV Services Program, and director in the energy practice at Navigant Consulting. E-mail: [email protected].