London, UK — New analysis suggests that the surging PV market will withstand public budget restraints and the weakening of the euro in currency markets to continue its expansion into 2011, with over 19 GW of installations, before softening only slightly in 2012.
Consensus is now growing that at least 15 GW of PV systems will be installed globally in 2010, up from 7.2 GW in 2009.
Transparent project pipelines, emerging clarity on feed-in tariff (FIT) clarity, and overflowing advance order books for suppliers are conspiring to make this a reasonable possibility, iSuppli for example is forecasting a 15.7 GW market this year.
However, debate over how 2011 will shape up for the industry is rife, with questions raging over possible market dips in Germany and Italy as FIT cuts take effect. But analysis suggests this will not be the case, with aggressive growth in both set to continue.
A notable drop-out during 2011 is likely to be the Czech Republic, where new installations are set to plunge from the gigawatt level to just one fifth of that. After introducing a moratorium on grid connections in 2010, the government in September said it would reduce FITs for ground installations and restrict funding to systems of 500 kW or less from March 2011.
San Rafael California, USA (9kW) (Source:Solar City)
Price Cuts Set to Keep Projects Attractive
Concerns over the PV market next year reflect several considerations. Public budget problems seen in Greece could also affect Spain and Italy, and potentially dull the appetite for higher FITs, while the weakening of the euro against the Chinese yuan, which is itself linked to the US dollar, could also push up the prices of modules and other system components.
But these risks could be mitigated by a further drop in system installation prices, with a price drop of at least 10% on average in Europe predicted, continuing a long-term trend.
It is also believed that the French government will not reduce its FIT by more than 20% in 2011, following the policy revision in Italy, where cuts of 10%-27%, depending on segment, were agreed in August 2010.
In France, speculation concerning future PV regulations are becoming something of a source of derision. In September the country’s environment ministerJean-Louis Borloo said that France could reach 5 GW in 2011 and quadruple its 2020 targets. However, Christine Lagarde, the industry and economy minister, interpreted the 2010 dynamics the other way round, saying: ‘A large part of our 2020 goals have been achieved — we can reduce our efforts.’
In September iSuppli revised down its installation forecast for France from 1080 MW to 700 MW.
Figure 1. Worldwide PV installation forecast (Q3 2010) (Source: iSuppli)
Return on Investment Holds Up
The bottom line is that the average return on investment for projects installed in the major market countries of Germany and Italy during 2011 will remain attractive and will, in fact, stimulate substantial demand. The average FIT will be cut by 13% in Germany, according to our forecasts, while the projected return on investment (ROI) will range at about 8%. Likewise, Italy’s FIT reduction will be 10% to 27% and will be split over the year. Our models assume ROIs will average 10% for projects completed during the year in Italy.
Next year could be the year the PV industry begins to wean itself from German market generosity, with other markets stepping up to complement it. Some 19 GW will be installed in 2012 worldwide, according to our forecast, down slightly from 2011’s 19.5 GW.
German installations are expected to cool off from a pace of 9.5 GW in 2011 and reduce further for a number of years into the 4-5 GW/year range. This will result, we believe, from the government’s aim of maintaining an orderly progression towards its ultimate goal of about 80 GW of installed PV capacity by 2028.
Meanwhile, countries like Italy, the US, China and Canada, specifically Ontario, will fill in the gap partially in 2012 and more completely in 2013.
PV channel inventory (Source: iSuppli)
Managing Inventory While Riding a Bucking Bronco
Operations managers at PV module companies are often under great pressure to maintain production levels and inventories at optimal levels and to ensure that the product can be easily accessed by its buyers. In addition, currency fluctation can be a key concern, especially if the supply chain is in yuan. There is also pricing pressure against a sliding euro.
Although in some quarters these could be considered minor issues for a rapidly developing industry, those who fail to take into account these challenges could find themselves permanently relegated to the minor leagues of the sector.
Channel Visibility in a FIT-Driven World
Channel inventory, as iSuppli defines it, includes modules that are on ships, in customs, with distributors, with installers, on trucks and on the job site, including those awaiting inspection, commissioning and official approval. Collectively, this constitutes the largest cache of inventory for modules. Modules can flow through part of the chain in days — for an expedited shipment, right to the job site — or sit installed for months until grid or legal issues are worked out.
Unlike electronics, where communications and supply chain practices and technologies are fairly mature, the PV industry is still in a rudimentary state, struggling with ill-timed capital spending (or its absence), over- and under-production, and nationalistic government efforts to create local jobs without considering the global supply picture. Electronics suffer the same afflictions, but to a lesser extent.
In electronics, the bulk of the inventory is typically held by upstream suppliers like semiconductor firms, even for products that flow through distributors and electronic manufacturing services (EMS) contractors. This adds cost to the semiconductor supplier, but has greatly reduced oversupply risks downstream and has helped control pricing from the supplier’s point of view.
A PV production facility (Source: SOEN)
Can PV Learn from Electronics?
Most inventory in the PV industry remains piled up in the later stages of its market flow and it can be argued that until uncertainty over changes to FITs is resolved and installer operations become more efficient, reducing the oversized inventory swings will be hard.
But an interesting trend from an inventory perspective is that, as more module companies move into system installer/developer/EPC roles, overal inventories should become easier to manage and the industry can look forward to more subdued swings.
Another trend that could emerge is that module manufacturing contractors — such as EMS — could help supply to match demand. EMS companies dislike being used in this way but are better placed to aggregate demand across their customers and smooth out industry-wide production levels.
The PV inverter market is set to grow by 98% in 2010 and PV inverters are on track to become one of the world’s highest volume ruggedised electronic systems with annual shipments of more than 10 million units and 32 MW by 2013.
Revenues should also top $7.2 billion by then. PV inverter suppliers are straining to keep up with system installations this year as they roughly double. Consolidation is expected, we predict that the current 200 inverter companies worldwide will settle into 15 companies controlling 90% of the market by 2012.
PV cell printing (Source: SOEN)
Trying To Escape the Cost-per-Watt Treadmill
The average price per watt for inverters will be down by 13.5% this year, our analysis predicts. Considering the strong demand and catch up on supply, this may seem to contradict the laws of supply and demand.
But digging beneath the surface reveals a shift towards large inverters with a lower price per watt, as well as a challenge for inverter suppliers on the market’s expectation of price reductions.
It is expected that inverter suppliers will increasingly be valued for their impact on the levelised cost of energy (LCOE), which takes into account total energy production — not just the acquisition cost of an inverter but the lifecycle costs of the inverter over 20 or more years within an installation.
As the inverter industry closes in on efficiencies well above 90% this figure is unfortunately becoming just a prerequisite to compete and less the overwhelming selection criterion it once was.
Factors like total energy harvest and advanced features — such as those for the utility segment — as well as lifetime and uptime guarantees are increasingly defining who wins a supply deal.
Utility-Scale Inverters in Demand
High-power inverters rated 500 kW or more that target utility-scale operations on the ground and on large building rooftops are one of the market’s fastest growing segments.
This range of inverters will average a 61% Compound Annual Growth Rate (CAGR) on a MW basis over the next five years. These systems must incorporate considerable capability to help utilities manage the grid, including low voltage ride through (LVRT) for tackling outages as well as ways to smooth out harmonics and to correct the power factor when voltage and current get misphased.
A PV installation (Source: Solar World)
Last year and for part of this year, adequate production capacity to make inverters was a key issue. But a lingering shortage of electronic components has now solidified into an ongoing challenge for inverter companies.
The most troublesome components to source include IGBT modules, of which many inverter companies are already complaining of a short supply. Market leader SMA has cited component shortages as a factor in limiting its shipments over recent quarters. DSP-based controllers and certain high cap value capacitors have also been running in short supply.
PV inverters are estimated to be a $1 billion market for semiconductor suppliers by 2014. In addition to IGBTs, MOSFETs, rectifiers, DSP controllers, FPGAs, ASICs and even flash memory will be used in high volumes for inverters — creating a very respectable market opportunity that is worthy of investment.
Henning Wicht is senior director & principal analyst, photovoltaics, iSuppli.
Stefan de Haan is senior analyst, photovoltaic materials & systems, iSuppli.
Greg Sheppard is chief research officer at iSuppli.