Solar, Storage

Seven Key Solar PV Industry Metrics And What They Mean To You

Here’s a solid look at 2016 numbers from shipments to grid connections and an anlysis to help you understand how they will impact your business.

Take note: 

  1. A big low-margin industry got bigger in 2016, continuing with incentivized, subsidized or mandated markets that could – and often do – disappear overnight.
  2. Manufacturer shipments of crystalline and thin film technologies grew by 38 percent in 2016 over 2015, to 70-GWp over 50.9-GWp the previous year.  Strong growth was due to over-performance of China’s market for solar deployment installations for which grew by 130 percent over 2015 to 34.7-GWp in 2016. 
  3. PV industry metrics of demand and supply side inventory, capacity, production, shipments, installations and defective modules are offered in Figure 1.  A good way to think about the various metrics that make up the PV industry value chain is that shipments tend to be lower than production (after considering inventory), installations lag shipments and grid connections lag installations. Depending on the level of inventory overhang from previous periods, shipments can be higher than production in a calendar year. On the demand side, installations can be higher than shipments depending on inventory overhang from previous periods.

Figure 1: PV Industry Metrics 2016  

 

 

What it means to you:

Inventory: Both supply and demand participants have inventory.  Inventory is a cost and is often not worth the original price paid. Inventory behavior differs for inverter manufacturers, tracker and mounting manufacturers and cell/module manufacturers.

Small to Medium Installers and Distributors: You have the least buying power and if you understand how much inventory the manufacturer or distributor is holding you are in a better bargaining position.

Large Distributors and Developers: You have less buying power than you think particularly if your entire business is based on installing or selling solar PV components. When inventory is high you can get some deals but also may be buying some problems.

End Users: When your installer tells you that you have to wait for an installation understanding the ebb and flow of solar modules and other components will help you have an informed conversation.

Module Assembly Capacity: Module assemblers buy cells from cell manufacturers and assemble the modules.  Module design is important but without the cell it is just a frame.

Small to Medium Installers and Distributors: Beware of industry numbers based on module assembly capacity – no crystalline or thin film cell no electricity. 

Large Distributors and Developers: As with the above, beware of industry numbers based on module assembly capacity – no crystalline or thin film cell no electricity.   

End Users: You should be aware of what technology is inside your module and the brand may not tell you this – look at it this way, when you buy your computer you want to know who made the chip.

Crystalline Cell and Thin Film Capacity: Without the semiconductor material a frame is just a frame. Table 1 provides data for how many gigawatts of modules and cells the industry can produce.  The global solar PV industry has 96 GWp of module assembly capacity and 81.3 GWp of crystalline and thin film cell capacity. This means that all that 81.3 GWp of electricity producing modules can be made.  This also means that the industry is over capacity in terms of modules by 14.7-GWp.   

Table 1: 2016 Supply Metrics, Module Assembly Capacity, c-Si Cell/Thin Film

 Capacity, Shipments, Announced Shipments

Module Assemblers:  You guys are over capacity and in any other industry would be fighting over available cells to assemble and have no buying power. Luckily you are in the solar PV industry and as the entire industry is over capacity cell prices are held down.

Small to Medium Installers and Distributors: Plenty of cell capacity out there and unless manufacturers put the brakes on capacity additions prices will stay down. As it happens, the brakes have been applied.   

Large Distributors and Developers: As with the above, there is plenty of cell capacity out there and unless manufacturers put the brakes on capacity additions prices will stay down. As it happens, the brakes have been applied.  Larger buyers can take advantage of future pricing on future production but beware, consolidation is highly likely and you may well pay for product you do not receive.

End Users: Too much capacity means module prices are down offering you some negotiating power.  

Shipments to the first buyer: With all the different numbers floating around it is difficult to know the real size of anything. Shipments are the gigawatts produced in a calendar year. The first buyer may put modules in inventory to be resold at a later date. 

Small to Medium Installers and Distributors: If you do not know the basic flow of the industry and the size of each metric you will not know if there is inventory in the channel and you will not know how much is out there for you to buy.

Large Distributors and Developers: Your buying power increases when manufacturers are overcapacity.  Understanding what was produced and what was shipped and how much inventory is in the channel will help with negotiations.

End Users: Too much capacity means module prices are down offering you some negotiating power. 

Installations: The larger the installation the more the lag between the acquisition of modules and the completed installation.  Shipments and installations are not synonymous.

Small to Medium Installers and Distributors: Small to medium installers are closer to just-in-time installations than other parts of the solar value chain. This makes it crucial that you understand how the value chain works.

Large Distributors and Developers: Developers know there is a lag, understanding how big the lag may tell you how much developer inventory will flow into the channel. Large projects fail all of the time.  

End Users: Investors in large projects need to understand the solar value chain at least well enough to gauge the riskiness of their investment. Homeowners who understand the value chain will be better able to communicate if there is a long delay between agreement, installation and the time it takes to be connected to the grid.

Grid Connections: Just as there is a lag between buying a module and installing a module there is a lag between installing a module and connecting it to the grid and finally, producing electricity.

Small to Medium Installers and Distributors: It is important to understand the time it takes for utilities to connect solar PV systems to the grid as this will affect relationships with your customers.  Long delay – send them to the utility and to the PUC.

Large Distributors and Developers: The larger the project the longer the time to connect.  Understanding what is holding up your connection (infrastructure, the utility) helps you assess the riskiness of your investment. If connection times are lengthening and curtailment is increasing this will effect production and payment.    

End Users: Investors in large projects need to understand the solar value chain at least well enough to gauge the riskiness of their investment after all, production means revenue and no or curtailed production means no revenue. For homeowners, whether you lease or buy you have a right to know what is holding up your connection to the grid.

Defective Modules removed from the field: This is a metric that is very difficult to estimate as the data are obscured.  Typically, modules removed from the field are not from that year’s production.  As margins have become more constrained cell and module manufacturers have put pressure on consumable, raw material, junction box, back sheet, EVA suppliers to lower prices and where margins are constrained quality almost always suffers.

Small to Medium Installers and Distributors: Be aware that low prices hide shortcuts. The closer the installer to the customer the more pressure there is when components fail. 

Large Distributors and Developers: When modules fail, production falls and so do revenues.  Warranties may well be meaningless if a manufacturer fails.  Do your due diligence.

End Users: Investors in large projects expect a certain level of production and should be aware of quality concerns.  Best to be informed as if the module that fails after five or six years may not be easily replaced, particularly if more fail than have been expected and prepared for. Homeowners, whether they lease or buy, should be aware about the basics of the electricity producing equipment on their rooftops.