Parity, pricing, and solar schadenfreude: Why 2012 could be a correction year

Paula Mints from Navigant Consulting discusses the “illusion” of grid parity while PV manufacturers themselves are underwater, and hunting the elusive creature known as “pricing.”

December 14, 2011 – Incentive-driven industries are inherently risky. That the solar industry, with 98% of its demand driven by incentives of some type, appeared less risky from 2004 through 2010 (give or take a quarter or two) was merely an illusion. Currently some industry watchers are implying that solar is, and always will be, too expensive to gain a significant share of the energy producing pie chart — some of whom proclaimed solar (all solar technologies) the technology of the future. When you are hot (pardon the pun) everyone loves you; when you are not, SCHADENFREUDE takes over.

Currently there is a joyful noise over the achievement of grid parity. Indeed, solar is now more affordable and, on the demand side, margins are healthy. In some cases, solar is affordable without subsidies. That this has been achieved with prices for PV technology truly below the cost of production, along with the failure or near-failure of manufacturers — many of which are pioneers in the solar industry — indicates that grid parity as the solar industry now knows it is also an illusion. This illusion is driving companies out of business and setting one side (demand) of the industry against the other (supply). Concentrated solar photovoltaic (CSP) projects are being replaced with PV, putting this re-emerging industry at risk. CPV may well be able to ride out this unhealthy period by holding the line at appropriate direct normal insolation (DNI, ~7) and system sizes (>1MWp).

The global economy is also a factor in the current correction for solar. In Europe, a slight recession, high debt levels, unstable banks, and changes in the Euro system that may not be easily resolved (despite the fledgling agreement) certainly have had an effect on investor confidence. Abrupt changes in FiT rules and rates are also not helpful in this regard. Specific to the industry, high inventory levels going into 2012 (on the demand and supply sides) and the reselling of this inventory, high capacity, and a softening market indicate that prices for PV technology cannot increase in the near or mid-term.

It ain’t grid parity if manufacturers go out of business.

Figure 1: PV industry metrics, 2011 into 2012 (estimated).

Though the counting for 2011 is not (and cannot possibly be done) at this point, Figure 1 offers a picture of 2011 into 2012 including estimates for capacity, installations, shipments, production and inventory.

Pricing is the topic of the minute — which is about how often the average price estimate changes, minute-by-minute-by-minute. For the most part, the prices being bandied about are rumors passed on from one person to another. In many cases the repeated prices are from manufacturers, primarily in China, at such a low level in the food chain that their lack of survival is assured. Simply, these entities will not survive, along with, sadly, many manufacturers who should survive. The average price for the secondary market — that is, the first buyer to the second buyer and beyond, is currently $1.05/Wp. This takes a host of different price points into account, from $0.50/Wp to $1.20/Wp. The average global price from the technology to the first point of sale (first buyer) is $1.25/Wp, taking into account a host of different price points from $0.50/Wp to $3.25/Wp.

Figure 2 offers a picture of prices to the first buyer — these are annual averages. The shipment figures for 2011 are an estimate, based on current survey effort. The average prices for 2011 are based on survey data from the first buyer (demand).

Figure 2: Average PV technology prices to the first point of sale.

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