Paula Mints, Director, Energy at Navigant Consulting, in Palo Alto, California wonders what will happen in the solar PV industry after 2010’s Winning Year.
She writes: There is a special magic that sometimes happens with sports teams, particularly young, struggling teams, when the right group of talented, hungry people, who believe in something come together and, well, make magic happen. Examples are the 1982 49ers and more recently, the 2010 San Francisco Giants winning the World Series with guts, talent and again, magic.
The PV industry, (the entire solar industry, really), is made up of talented, hungry people who believe in something, and 2000 through 2010 was a magic decade for solar. Industry demand moved from megawatts to gigawatts, surging rapidly in the second half of the decade to multi-gigawatt level.
The photovoltaic industry’s compound annual growth rate from 2000 through the end of 2010 will be >50%, while the CAGR from 2005 through 2010 will be >61%. In 2010 over 2009, industry demand will grow >100%. It’s been a giddy ride filled with polysilicon shortages, surges in feed-in-tariff driven demand, technology achievements, increases in system sizes from kilowatts to multi-megawatts, shortages, over supplies, and an increase in announcements of the impossible to boggle a mind. Prices went up and then prices came down. Feed in tariff incentives stimulated significant market growth and then had to be reined-in as the bill came due.
The important issues facing the PV industry in 2011 are not new, but as with demand over the past five years, they are accelerating. These issues are: increasing prices for polysilicon accompanied by constrained supplies of crystalline technology, rapidly decreasing FiT rates accompanied by downward pressure on prices and margins, and political obstacles (particularly in the US).
It’s bad timing for higher raw material prices as decreasing tariffs − and other interesting developments − such as a retroactive solar tax in the Czech Republic, and the acceptance of lower tariff rates for some installations in Spain (those which may or may not have broken the rules) force margins even lower. China is considering a tender system for setting FiT rates, and California has already adopted this protocol for its new FiT. Prices are slightly up in Q4 2010, but with the incentive pressure, this cannot last.
Finally, there is the U.S., a market that is ever-promising and often-disappointing. The November elections saw the Republicans (along with Tea Party Candidates) take control of the federal House of Representatives and many state governorships, which may slow progress for renewables in the U.S. However, recently, several utility scale projects got the go ahead to build on public lands. Though, these projects are principally CSP, which means that they will be built over the course of years instead of months, it does signify forward momentum in the U.S. market.
With Proposition 23, which would have overturned California’s 33% RPS, losing in the November elections, and California’s Cap & Trade program, which must be adopted by the California Air Resources Board by January 1, 2011, and begin in 2012, California will remain the largest market for, and installer of solar projects in the U.S. for some time to come.
Players Cautious about 2011 Demand Outlook
Ted Sullivan, Lux Research, Boston, MA USA
2010 was looking like a solid up year for the U.S. market and German installations were on a rampage before subsidy cuts. 2011 remains a different story, however, and there is concern about a significant disparity between the expectations of cell and module manufacturers and their materials suppliers. The difference is subsidies. Germany is reducing subsidies in 2011, which some speculate could lead to a declining market for the first time in recent memory, and players are stressed about which markets will make up for Germany in driving demand in 2011.
Further, Italy, France, and Ontario are reducing subsidies, while the U.S. ITC grant subsidy renewal remains in limbo. In light of the pessimistic outlook on subsidies in core markets, and the lack of new markets in 2011 capable of maintaining multi-GW growth, materials suppliers are understandably cautious of buying into the optimism of device makers. In the event of a downturn, which seems possible, materials players will be insulated from pressure; in an upturn, new bottlenecks in the solar value chain may emerge.
Installers are looking increasingly to the U.S. as a source of demand, with stalwarts like Phoenix Solar and Colexon building U.S. subsidiaries to branch out from their European home base. Though there is cause for concern about extension of the U.S. ITC grant, most market participants we spoke with seemed rather blasé about the prospects of non-renewal. Continue to keep an eye on ITC grant renewal, but expect the conversation to get louder as industry organizations continue to seed the press with articles favoring renewal, especially given continuing news about the tightness of tax equity financing.
On the bright side, anticipate new markets opening up, from Israel and Morocco to Malaysia and Thailand – though the industry is still concerned that multiple small markets will not be able to make up for the German behemoth. Lux Research’s 2011 forecast remains at 16.8 GW until further notice, with the expectation of a U.S. ITC renewal, increased subsidies in China, and emerging markets in India and the Middle East beginning to bear fruit.
The U.S. Market: Growth and Growing Pains
Alfonso Velosa, Gartner, Tucson, AZ USA
Gartner forecasts PV system installations in the U.S. to reach 1.6GW in 2011. Half of this will be projects for the utility end market. We expect the U.S. Market to reach 2.6GW of installations by 2012. Again, we see a significant level of business in the utility end market, which we expect to exceed 60%.
Given the slower growth of the U.S. relative to the European markets over the past decade, this growth merits some discussion of the incentives and sub-markets we see in the U.S.
Incentives: At the federal level, the Investment Tax Credit will be the main source as the Grant program appears to be set to expire. Many projects are completing the minimum infrastructure necessary in 2010 so that they can leverage the grant program, with final construction in 2011. Thus, the most interesting attention remains on the state level RPS programs. Solar Renewable Energy Certificates (SREC) are getting significant interest in the northeast, led by New Jersey’s SREC-based incentives.
The rise of the rest: California has traditionally been the center of the U.S. PV market, and will continue to be the leading PV market. Yet strong efforts by regulators, solar companies, and utilities in multiple states are starting to lead to a more vibrant U.S. market. New Jersey and Arizona show strong growth on multiple fronts. Other states have been updating their renewable energy requirements and implementing new standards and/or incentives; we expect this will drive growth across the country.
Utility involvement: Utility firms are playing an increasing role in the PV market, both as customers and as suppliers. We see a multiplicity of business models in the U.S. PV market. As utilities explore the technology and how it fits into their energy fleets. Just one example out of many is Public Service Electric and Gas Company (PSE&G) buying PV based electricity from SunEdison as well as establishing PSEG Solar Source to sell PV-based electricity to AEP, JEA and Mars.
These domestic trends form strong drivers for the U.S. PV market. They go hand-in-hand with global trends such as the increasing interest of finance firms in the PV market, shrinking installation costs, improved technology and increasingly sophisticated global players.
The biggest obstacle for the U.S. PV market will remain its high transaction costs. Examples of these include legal fees, onerous permitting and environmental requirements, lengthy interconnection processes, and of course, sales development efforts. This will be the biggest area for efficiency and cost reduction efforts for the U.S. PV industry and its customers over the next five years.
Competition Mounts for the Worldwide PV Market
We see strong demand matched by strong competition in 2011 for the PV solar market. Gartner forecasts PV module shipments of 19GW and installations reaching 15GW in 2011.
It is worth taking a step back to consider the environment we are in that drives these estimates. The PV market in late 2010 exhibits strong exuberance. Vendors had to expand their capacity throughout the year, and are making claims that they are sold out for 2011, based on “solid” contracts. This is a very different environment than we saw at the end of 2009, where vendors also had a strong final quarter, but were wondering about governmental stability in Europe and the direction of the end markets.
We still see some uncertainty about government incentives. However, the core markets for 2011, Germany, the U.S., Italy, Japan, and France continue to show support for the PV market. While they may trim their incentives further, there is no indication at the moment that they will drastically change their support for PV systems.
The four themes we expect to see for the PV industry in 2011 are:
Growth in the extremes: We see a slight increase in global demand for PV systems, with 6% growth on a gigawatt basis to 15GW. This growth will happen at the small and the large ends of the PV market. We see continued and strong interest in the residential market for PV systems, with a focus on high efficiency modules and small inverters. The other main area of growth is the large system segment, with many announced projects exceeding the 10MW scale on a regular basis. These projects will drive demand for large numbers of panels and large inverters, but their owners will push pricing into new lows.
Germany: Germany will remain the largest PV market, and the most competitive. As of November, 2010, the 13% projected cut for incentives in Germany, and a bit of a tilt towards rooftops, points to a slightly contracting market there. We forecast 6 gigawatts of installations.
The US: The U.S. will be the fastest growth market. While chances for the renewal of the federal cash grant program sink with the current congressional class, state-level mandates remain strong drivers. A significant number of utility scale projects, as well as continued activity in California, New Jersey and Arizona, will drive the market. We forecast 1.6GW of installations in 2011.
Excess capacity: An extraordinary amount of investment has happened in the PV market in 2010, and will continue through part of 2011. Consider a few announcements. Suntech Power plans to close 2010 with 1.8GW of manufacturing capacity. First Solar has plans to reach 2.1GW in 2011 from its Q3 2010 level of 1.4GW. LDK is targeting 2GW of module capacity by the end of 2011. JinKo Solar expects to end 2010 with 0.6GW of manufacturing capacity. Clearly, not all of the announced capacity will come online, but the GW level neighborhood has gotten crowded. Taken as a whole, this excess supply will be a major factor in depressing PV module pricing.
PV Advantages May Minimize the Need for Incentives
Robert H. Moran, Research Analyst, BCC Research, Williamsburg, VA USA
After unprecedented increases in product shipments and installations over the past decade, we see photovoltaics continuing to grow in 2011, but at a slightly lower rate. The effects of the global financial crisis and ensuing recession are still with us and may have a limiting impact on companies’ alternative energy plans. Economic problems in Europe, in particular, can put a damper on demand, production and installation growth. Other nations, such as the U.S., are still struggling to get businesses back to their regular operating levels.
In addition, many governments plan on decreasing incentives for PV installations in 2011 to meet budget shortfalls. Revenues are down and governments and other agencies look for cuts anywhere they can. Incentives attract attention and represent targets for savings. To date, exact numbers have not been determined, but the general consensus is that incentive cuts are in the picture for most countries in 2011.
But the positives of the photovoltaics industry can outweigh the economic concerns. The many advantages of PV soon will overshadow incentives as a drawing card to buy. PV cell efficiencies are increasing and costs are decreasing at dramatic rates. Costs of some modules fell below the one dollar mark in 2010. This kind of success has been achieved through the use of thin-film technology. We estimate that thin-film cells and modules will represent about one-third of all PV shipments by 2015. In the long run, better efficiency and lower costs top incentives as reasons to install PV systems.
We think that these PV advantages will become more apparent from 2011 forward, minimizing the importance of incentives, boosting demand and driving the traditional growth of the PV industry. Manufacturing capacity continues to increase as major companies, such as First Solar, add new plants and China continues to increase production capacities at a brisk pace.
Competitive Thin-films Make 2011 Interesting
Mark Thirsk, Linx Consulting, Mendon, MA USA
2011 will be an exciting year for the global PV industry. Huge progress in manufacturing technology, module cost reductions added to growing manufacturing scale have brought the industry significantly closer to being a viable alternative to grid power. Public policy continues to offer returns on projects, and sustain demand. Against this backdrop, the technology development of PV cells and modules in 2011 faces some new challenges, but many well known ones too.
Since the cell and module manufacturers spend only a few percent of their revenues on R&D, an actively engaged supply chain is vital to supply innovation. While some commentators have recommended a Moore’s law-like progression for PV cell development, this approach is inappropriate for solar cell technology; saying that, a technology roadmap remains entirely consistent with industry needs.
The roadmap communicates the needs of the manufacturing community to their suppliers of equipment, material and process. This highlights gaps and defines the direction of development efforts within the equipment and materials supply side, which in turn, optimizes the spend on delivering technology needed. On the opposite side of this coin, PV modules are expected to perform for almost unprecedented periods of time for sophisticated electronic devices. This imbues the module suppliers with a level of caution in adopting changes or innovative technology that reflects the 20+ year lifetimes expected from their products.
While the industry has made great strides in reducing the cost of modules, more remains to be done to supply economically viable power from large scale or distributed PV installations. The technological conservatism means that grid parity will be reached with essentially the same technology that is available today. In terms of innovation we have called this WYGIWYS: What You Get, is What You See. This is not meant to imply that development will be static, but that in general, c-Si cells and modules will be variations on the current theme, with few significant changes that have not already been tried, and a few twists on processes and materials that enhance performance, made on well understood toolsets. The strength of this incremental approach is in refining well understood methods to achieve performance enhancements and cost savings.
Another result of the industry’s low tolerance of the risk is that well-known technology dominates, and thus for the next few years, the various flavors of c-Si will remain the top selling module type. For this reason, innovation in this space remains the most commercially attractive since enabling technologies have a large addressable market. Recent examples of successes in this space include diamond wire sawing, plated grids, double printed Ag paste, selective emitter processes and multiple back contact technologies. While significant capacity for all of these approaches has been installed, it is not certain if any or all will be favored in meeting industry goals.
It is critical that any technology implemented must be consistent with, or enable cost reductions in line with achieving a cost of energy at or below grid costs. A concerning trend in the latter half of 2010 is the slowing, or increase in the sales price of modules. In the current economic environment, it is vital that module prices move in concert with the subsidy digression in the major markets. If subsidies continue to reduce, and prices do not, project returns will quickly reduce, and possibly fall below investment thresholds. At this point, projects will simply cease.
Progress needs to be made in scaling thin-film technologies. Huge efforts in deposition technology and process improvement have lead to very competitive costs for thin-film silicon and CI(G)S technologies. These modules are increasingly bankable, and insurance companies are willing to cover the installations. The cost advantages of these modules have yet to translate into rates of return at or above those of c-Si or CdTe modules, but the competition they offer can only help make 2011 very interesting.
Polysilicon Glut Could Increase Pricing Pressure
Charles Annis, VP, Solarbuzz, Tokyo, Japan
Polysilicon is the key raw material used to manufacture crystalline silicon (c-Si) solar cells. c-Si based cells account for over 80% of all cells currently being produced. Raw silicon feedstock alone accounts for around 1/4 of the cell cost and about 1/10 of the total PV system cost, which makes it the single most expensive material in the PV system bill of materials. The price of poly correlates to supply/demand and in turn has a significant influence on end market module prices.
Poly is sold in fixed quantities on the spot market or through supply contracts ranging from several to up to ten years. The amount purchased on the spot market compared to contracts varies by company, relationships between companies, timeframe and supply/demand. From a macro perspective, spot market sales account for a small minority of total sales.
Polysilicon spot prices went on a roller coaster ride as the end market for solar systems exploded from 2004 to 2008; rising from less than $70/kg in 2004 to over $450/kg in the 1H’08. Not surprisingly, high prices and profitability encouraged silicon producers to rapidly add capacity.
At the same time, high prices encouraged cell makers to reduce silicon consumption by improving efficiency, adopting thinner wafers and increasing yields. With only modest demand growth between 2008 and 2009, polysilicon spot prices collapsed to less than $60/kg by the end of 2009. In 2010, polysilicon production has kept pace with cell production, and spot prices fell below $55/kg in the first half of the year. Extremely robust end market demand that is expected to reach 15.2GW this year has helped push a small recovery in silicon prices, with spot prices moving back into the range of $60-69/kg or even higher in the second half.
But this reprieve is expected to be short-lived. For next year, Solarbuzz is forecasting end-market demand scenarios that range from 11.7 to 18.3GW. A likely outcome is that module demand will remain flat in 2011. Polysilicon capacity is still being added at high rates in 2010 and 2011, and a glut of silicon capacity will put further pressure on pricing. Blended polysilicon prices of $40/kg or even lower may be realized in 2011.
If that’s how 2011 plays out, it’s bad news for silicon manufacturers, especially smaller producers with less than 5000tons/year of capacity and higher production costs. Some may no longer have viable businesses. But larger, more efficient silicon manufacturers are expected to still be able to maintain positive margins. And the good news is that lower polysilicon prices substantially influence module prices. A $20 reduction in polysilicon pricing translates to an approximate cost savings of $0.14/W for modules. In the highly competitive module market, cost savings essentially equals price savings. And lower prices can only help drive end market demand to higher levels.
Materials Demand and Supply Strain
Lita Shon-Roy, Sr. Managing Partner, Techcet Group, LLC, Del Mar, CA
The increase in PV demand in 2010 has been a welcome relief for many cell manufacturers that were running <30% of capacity in 2009, but this has put a strain on several material supply chains that are much slower to react to the uptick resulting in price fluctuations and availability problems. Market analysts who track GW produced all agree that 2010 will outpace 2009 by >50%. This amounts to more than 11 GW produced for 2010.
How does this translate into materials demand? Techcet Group’s analysis of millions of square meters of cells has revealed a 60% increase in overall cell produced for 2010 or a total of 83 million square meters (Mm2) of cells manufactured. Of this total, 67 Mm2 (or ~22% of total solar cell production) is attributed to CdTe, 6.8 Mm2 (or ~8%) is attributed to other thin film PV devices, and the majority, 56.8Mm2 (or ~70%) is attributed to c-Si cell production. The two largest contributors, c-Si and CdTe, have grown approximately 60% over this past year, wreaking havoc with polysilicon availability and causing growing concerns with regard to tellurium.
Polysilicon, which was anticipated to be oversupplied in 2010, was so constrained that some suppliers had to allocate product and many solar end users were encouraged to take lower grade product to fill their needs. Evidently, many polysilicon producers that were scheduled to increase capacity in 2009 either delayed or experienced problems in their ramp schedule and so, capacity is not quite as plentiful as expected. For example, although China has been touted as having capability to produce huge quantities of polysilicon, estimated at 100,000 mT/yr by the end of 2010, only 57,000 mT of capacity has been constructed and actual production was only 20,230 mT at the end of 2009.