At Solar Power International (SPI), North America’s largest solar trade show, two divergent visions of the U.S. solar PV market competed for the limelight. The first was an optimistic perspective that highlighted strong historic growth and the tremendous future potential of solar electricity in the U.S. The second was a decidedly more pessimistic view that highlighted the powerful competitive force of high volume, low cost, tier one Chinese module manufacturing.
How Has Chinese Manufacturers’ Market Share Changed?
Given widespread discussion over the impact of tier one Chinese firms, it is interesting to consider how their market share has changed from 2009 to 2011. Obviously, the answer to this question changes from market segment to market segment and from region to region. For the purpose of this article, we have decided to look at distributed generation (DG) installations (defined here as any solar PV facility less than 1 MW in size) in the two largest U.S. markets, California and New Jersey.
Note: The data presented below runs from Q1 2009 through Q2 2011.
Clearly, tier one Chinese manufacturers are increasing their presence in the U.S. market. In California these firms have increased their combined market share by 28 percent annually since 2009. In New Jersey, growth has been even more significant at 34 percent. With prices continuing to fall and brand recognition for leading Chinese manufacturers increasing, it is reasonable to assume that these firms will continue to expand their US market share. The question is: will price alone be enough to make gains in the 60-70 percent of the market that is currently served by other manufacturers?
What are the Implications?
At the right price all customers are willing to consider new suppliers. Manufacturers that are not cost-leaders will only succeed if they can effectively combine low-enough prices with other attributes. Manufacturers who are unable to clearly define the value they offer potential clients (and this may not be easy to do) will not survive.
- How low is low enough? In this market, it is clear that every manufacturer must continue to reduce their costs and prices. While not everyone can be a price-leader, all players need to bring their prices within a reasonable range of the lowest-price product on the market. The question each manufacturer must ask themselves is, how low is low enough?
- Low prices are not everything. Listening to many industry commentators, one could be forgiven for thinking that price is all that matters to solar customers. That is not the case. The data above (which is consistent with installer/integrator surveys conducted by ClearSky Advisors) indicates that while offering low-prices is an effective way to gain market share, the majority of the market places significant importance on other factors when making their purchasing decisions.
With industry consolidation certain to occur in the short- to mid-term, now is the time for effective strategic planning. The list below outlines some of the factors that manufacturers should consider when positioning themselves for success in the US market.
- Solar markets in North America are local: the U.S. solar PV market is made up of over 50 smaller markets (e.g. the 50 states, District of Columbia, Puerto Rico, etc.), each with its own unique set of drivers; understanding the niches that exist across the country can help manufacturers allocate resources and develop effective targeted sales and marketing strategies
- Amongst many U.S. consumers, there is a preference for U.S.-made products; having a strong U.S. presence provides a modest advantage that must be fully leveraged
- For large projects, bankability is king; diversified players with strong balance sheets and long histories offer more stability than newer, solar-specific manufacturers who are more susceptible to adverse market, technology, or trade risks; some large players may be able to inherently benefit from this fact while smaller players should look for partnerships that can convey this advantage
- A substantial market share is available for brands that can convince developers, installers, and consumers of a quality premium; while this will be more and more difficult in a market that is seen as increasingly commoditized, an opportunity remains
- This helps to explain the fact that Sharp, SunPower and Kyocera continue to hold approximately 40 percent of the DG market share in California,
- It has also been apparent in a series of installer and developer surveys conducted by ClearSky Advisors that, in at least some regions, a large portion of the market is willing to pay a premium for preferred brands
Now is the time for module manufacturers to identify and solidify their competitive position. As a relatively young industry that is experiencing rapid growth, consolidation is certain to occur over the short- to mid-term. In that context, though competition will be fierce, the U.S. poses an important growth opportunity for all players in the market. To succeed, manufacturers will need both excellent products at competitive prices as well as the ability to leverage smart sales and marketing strategies into an appealing and enduring value proposition.