London, UK [Renewable Energy World Magazine] Amidst the world economic recession and credit crisis, the solar industry is quickly amassing nearly as many predictions of gloom and doom as it attracted wildly optimistic forecasts a year ago. Some analysts claim the worst is not yet over and that the shakeout will be brutal. They predict the higher cost of finance will continue to choke-off growth, sinking average selling prices (ASPs), engendering demand destruction, and even leading to the loss of subsidies due to falling government tax receipts.
No doubt the global recession will impact the photovoltaic (PV) industry, but some forecasts suggest a massive restructuring is just around the corner. One analyst sees a ‘handful of vertically integrated giants [that] will emerge to dominate the industry.’ Another sees ‘application wars’ possibly yielding a ‘clear winner.’ While some solar ventures without a realistic business model will surely disappear, deep industry consolidation and vertical integration won’t happen in the next several years. Here’s why.
An Industry in Infancy
The recent solar bubble was driven by investor expectations – and government incentives that anticipated reaching grid parity in the next three to ten years. Even without speculators and government incentives, solar power generation is in the early stage of a 30–50 year run, serving an unquenchable demand for clean, renewable energy. Today’s market leaders are no more likely to dominate the market in ten years as Shockley and Fairchild were when they began their semiconductor businesses in 1960. Any analyst envisioning a rapidly consolidating industry dominated by a few vertically integrated giants, should consider how a similar forecast would have aided the semiconductor industry in 1975 or the flat-panel industry in 1985.
The industry is only at the beginning of the cost learning curve. Few cell and module plants are fully automated and the supply chain is only beginning to develop optimal solutions for key production steps. Experience in the flat-panel and semiconductor industry indicates that even without technology or efficiency gains, productivity improvements are likely in the 10%–30% range per year, with annual yield improvements of 10%–15%. No one can predict who will ride this curve the fastest, but we can be confident the industry will cut costs and improve productivity every year for the foreseeable future.
Grid parity without incentives is already a reality in California and Hawaii, and is fast approaching in many regions of the world. As costs continue to decline, technology advances, resellers and distribution networks develop, and barriers to grid connections are removed, the prospects for the industry can only improve.
Diverse Technologies and Applications
Today’s market bifurcation between thin-film and crystalline technologies will further fractionate as new technologies come on board, and access to diverse market segments dramatically improves with maturing distribution channels. Grid residential, commercial and utility applications have different needs and market drivers. Building Integrated PV (BIPV) revenues may exceed US $4 billion [€3 billion] in 2013, possibly doubling to $8 billion by 2015 (NanoMarkets). Crystalline technologies currently dominate BIPV, but thin-films could revolutionize the segment. Each of the current and emerging technologies, all yielding different efficiencies and prices, are expected to have major roles in the coming years.
Commercialization of many near-term technologies hasn’t yet occurred, and many promising III/V and dye-sensitized technologies won’t hit high volume production until 2010. Full organic and hybrid solar technologies will reach pilot plant production in two to three years, and presumably full volume production soon after that:
- Organic, dye, nanostructure cells; 1%–5% efficiency
- Thin-film cells (a-Si, microcryst.-Si, CIS, CIGS, CdTe); 6%–11% efficiency
- Crystalline mc-Si, umg-Si, simple c-Si cells; 14%–18% efficiency
- Si, mainly c-Si; 20%–24% efficiency
- III/V tandem cells for concentrators with 25%–28% module efficiency; 36%–41.1% efficiency.
Investors continue to support all technologies and have shown no dramatic shifts from one technology to another. They apparently believe that all of today’s most discussed technologies will have a place in our solar future, or there is considerable disagreement on which companies the big winners will turn out to be. Either way, this suggests little likelihood of major industry consolidation.
According to GTM Research, venture capital investment in green energy technologies exceeded $2.8 billion in the third quarter of 2008, far exceeding any previous quarter on record (the first quarter of 2008 was $998 million and the second quarter of 2008 was $1.3 billion). Over half of this investment ($1.5 billion) was in solar, and a large portion of the remainder was in ancillary areas, such as smart grid and energy storage technologies. Much of this capital is expected to spawn a stream of surprising and innovative new technologies.
Canon, Taiwan Semiconductor Manufacturing Co. and Samsung Electronics are among the largest patent holders in solar and they have yet to introduce a product. By contrast, many of the world’s biggest producers in PV today hold relatively few patents on the technology. Anyone envisioning a rapid industry consolidation around today’s technologies is anticipating that breakthroughs and disruptive technologies are all in the past – a wildly risky proposition.
Beyond photoconductive technologies, innovation can be expected to occur in packaging, system development, installation systems, distribution channels and financing options. It is not an unreasonable expectation that tomorrow’s PV leaders won’t be those first to market with a core PV technology, but those which have adapted to competition, learned from customers, integrated their technologies with related innovations, and bundled their physical products with imaginative service and financing programmes.
The fact is, market penetration is so low today and so many innovations are still in development, on the shelf, unknown and simply unrealized, that enormous opportunities exist for new suppliers and radical market share shifts among existing suppliers.
Supply Chain Strategies
A recent report by VLSI Research reveals that eight out of the 10 largest solar equipment suppliers are marketing highly integrated crystalline or thin-film turnkey lines. Only $35 million in sales separated the second to fifth ranked supplier, indicating the competitiveness of the market. Presumably any prospective cell manufacturer with access to capital can enter the market with a turnkey line provided by one of these suppliers, not the sort of barrier to entry that would appeal to vertically integrated giants.
Yet according to Yole Développement, new production capacity for turnkey systems in 2008 was only 3% in c-Si, and about 53% in new production capacities in a-Si and a-Si/Œº. With polysilicon shortages disappearing, and with continued achievements in cell efficiency expected, the supply chain for both crystalline and thin-film equipment and materials will remain long, diverse and competitive, with possibly dramatic changes in market share occurring as one supplier leapfrogs another with the latest technology.
While turnkey manufacturing systems offer a fast market entry option, it remains a strong possibility that the supply chain will be marked by ‘best of breed’ suppliers at each manufacturing step, similar to the semiconductor industry. With industry standards emerging that allow equipment to be mixed and matched on an integrated line, this seems increasingly to be the case.
Geographic and Political Considerations
Both geography and politics will continue to have a major role in the formation of the global PV industry. Unlike mega-fabs that dominate the semiconductor and flat-panel industries, many observers anticipate that shipping costs and manufacturing location will be a major strategic variable for players in the PV industry. Much of Spain’s recent dramatic increase in consumption was provided by local fabs, and much of the growth in Japan, India, Korea, and China will be served by local cell and panel manufacturers.
In addition to logistics considerations, government support and incentives will also play a role in industry formation. While much of the attention has been focused on China’s rapid rise, major national initiatives are just beginning in India, Korea and the Middle East. The Indian government’s Special Incentives Package Schemes (SIPS) will create enormous cell, wafer and module manufacturing capacity, and India’s Generation Based Incentives are only in the first year of a 10-year feed-in tariff schedule. Generous feed-in tariffs in Korea may make that country Asia’s largest solar market by 2012. Meanwhile, the United Arab Emirates is allocating $22 billion towards renewable energy development and implementation, and increasing solar investments are being by made by Qatar and the government of Abu Dhabi. The list goes on.
What is also unknown is the degree to which international trade relations influence the global market for solar products, especially as incentives are increasingly sold and packaged as domestic economic development plans.
Primed for Change
So, while credit tightness and the recession seems likely to thin the solar herd in the next year, numerous opposing factors indicate a deep consolidation wave will not occur. We are in a global recession, marked by a severe credit crisis, but still in the very early stages of the industry lifecycle. Geographical and political forces are still shaping the industry, and supply chain capabilities and strategies will remain a major competitive factor. Nonetheless, long-term fundamentals will make the PV market attractive to a wide variety of players for the next few years and a growing list of well-financed, global players will not retreat from a segment that may offer 30–50 years of growth. New technologies – many of which will be disruptive – will continue to emerge, and the solar industry will likely evolve into several highly differentiated segments and niches.