Before the industry celebrates a banner year, industry stakeholders should take a moment to consider what out-of-control growth, high levels of inventory, and severely constrained margins might bring in the mid-term, writes Paula Mints from Navigant Consulting.
by Paula Mints, Navigant Consulting
September 21, 2010 – The PV industry is booming — despite changes (current or announced) to the FiTs in Germany, the Czech Republic, France, Italy, and Ontario, and announcements of (though yet no clarity about) China’s promised FiT. Manufacturers are still shipping significant megawatts, and by year’s end the industry is likely to see 97% growth in shipments to ~15.6GWp, along with a 48% increase in commercial capacity to >20GWp, and the best capacity utilization that the industry has enjoyed in several years (78%).
Yes, the PV industry has a lot to celebrate. But before industry stakeholders break out the Chex Party Mix and balloons and champagne, we should also take cautionary looks at inventory levels, particularly in China’s distribution channel but also held on the demand side; carefully consider shipment announcements in the face of significant tolling and outsourcing; and constrained margins because of downward incentive pressure and aggressive pricing for share.
Oh well, into every sunny day a stray cloud or two will usually pass by. (This is an appropriate analogy given current utility concerns over transmission intermittency — and yes, transmission is a potential barrier hovering on the sidelines of all this booming growth.)
Figure 1 presents an estimated snapshot of 2010, from beginning inventory to ending inventory and including shipments, production, announcements, installations, and modules removed from the field for various and sundry reasons.
|Figure 1: Snapshot of 2010 estimates.|
The PV industry will remain a volatile start-up sector for quite some time, with growth rising and falling on government mandated incentives. What the government giveth, the government can taketh away — or at the very least reduce significantly. Current reductions in FiTs will not likely have a significant effect on demand in 2011; there is simply too much capacity out there, and for better or worse (not to mention even lower margins) it will go somewhere. Though 2011 should be another strong year, 2012 is a question mark.
There is a high likelihood that Germany will again experience strong growth in 2011, which means that in 2012 there will be an additional 3% tacked onto the 9% annual tariff reduction. Or, maybe the German government will get fed up and change the law to eliminate the tariff altogether. Figure 2 presents shipments and capacity data from 2000-2010, with capacity utilization above each bar. The compound annual growth rate in shipments from 2005 through estimated shipments in 2010 is ~62%.
|Figure 2: PV industry commercial capacity and shipments, 2000-2010.|
2010’s annual top-10 list will heavily favor technology manufacturers from China and Taiwan, likely including First Solar and Suntech fighting it out for first place, along with Motech, Yingli, Trina, Gintech, JA Solar, Sharp and potentially SunPower (though it is too close to call at the moment for others). Given the high degree of tolling and outsourcing (and this is worth repeating) an accurate estimate and count will be both important and challenging. In any case, shipments from China and Taiwan will be 55% to 60% of total shipments.
An accurate count of what was really shipped into the market is important strategically and competitively — not to mention what it means in terms of establishing trends over time.
Figure 3 presents industry growth from 1990-2010. Every year represents challenges, anxiety, and hard-won progress for an industry that must fight again and again to retain needed incentives while conventional energy sources face far fewer challenges to keep their subsidies (unless you count oil spills and gas line explosions).
|Figure 3: PV industry growth, 1990-2010 (estimate).|
Before the celebrations begin, industry stakeholders should take a moment to consider what out-of-control growth, high levels of inventory, and severely constrained margins might bring in the mid-term. During the heady dot-com days, dark fiber was not considered problematic and companies with no clear path to revenue got funding sometimes just for being cute (remember the Pets.com sock puppet?), and nobody thought the bubble would pop and the party would end. During the stratospheric rise in housing values, very few (including experts) thought that the coming correction would put the global economy at risk. The moral of the story: Let’s not count our megawatts before they are connected to the grid.