Who’s on first for the PV solar industry?

Year-end rankings might not tell the whole story about who’s most successful in an industry, but they give enough insight to who’s figured out what the market needs, notes Navigant Consulting’s Paula Mints.

by Paula Mints, Navigant Consulting

January 19, 2010 –  There is an old Abbott and Costello joke, which is also a useful annual PV benchmark:

“Who’s on first. What’s on second. I don’t know is on third.”
“…Who’s on first?”
“I mean the fellow’s name. Who.”
“The guy on first.”

In one sense, the PV version of “Who’s on First” can be just as confounding (and sometimes as funny), particularly in 2009 — a year that started with 2GW of inventory on the demand side, almost zero shipments from the manufacturer in 1Q, crashing prices to or below the point of cost, and booming sales into Germany to almost 3GW by the end of the year (about 1.5GW more than the government wanted to see installed). For many manufacturers it was simply cheaper to buy inexpensive cells from Taiwan or China than to produce technology in-house. This was particularly true if a manufacturer had wafer capacity — why not make a wafer-to-cell agreement with a pure-play cell manufacturer and shed an expensive step in your manufacturing process at the same time?

Tolling is nothing new to the PV industry, but the scale of it began to increase in recent years. Particularly in 2009, with prices out of Taiwan and China hitting bottom or below it, cell shipments (significant degree of tolling) were ~40% of total. In 2009, the average price of cells/modules combined was ~$2.45/Wp. In some cases, prices for modules were as low as $1.40/Wp. Cells averaged $2.00/Wp in 2009, in some cases dipping to <$1.25/Wp. Times were good if you were buying technology, but not so hot if you were selling it.

Again, in 2009 around 40% of technology was shipped as cells, and many times the buyer was a technology manufacturer. Then, of course, everyone counts and recounts, and by the end (including the forgotten 2GW of inventory) you have an overinflated industry size that presents a false picture to its stakeholders. It is important to get an accurate count of shipments to the first point of sale so an accurate count can be achieved, and so the market can be correctly sized. The task of accurately sizing the market each year leads to an annual investigative voyage of discovery along with, of course, the annual top ten lists.

Particularly in the immature solar industry, observing manufacturer behavior over time (including who’s on first) offers insights as to how it is maturing. Nothing changes overnight (with the possible exception of pricing) and often things change, then change back, then change then change back, with each iteration announced as new and final. True change happens over time and can be subtle. For example, the degree of toll manufacturing has increased over time, obviously viewed as beneficial by manufacturers with wafer capacity. In this time of industry disaggregation, it may be to the cheapest manufacturing process goes the spoils. We may yet arrive at a point in PV when manufacturers focus on what they do best, or, simply choose the pieces of the value chain where they can be most profitable and leave the rest to, well, the rest.

So, then … who’s on first?

Candidly, all the numbers are not in yet, though some calls are easy to make. CdTe manufacturer First Solar will be the number one shipper of technology to the first point of sale in 2009, followed by crystalline (and soon thin-film) manufacturer Suntech. The top 10 manufacturers shipped 71% of total product in 2009, nearly half of that (42%) was produced by manufacturers in China and Taiwan. In 2009, 37% of all technology (not just the top 10) shipped to the first point of sale came from China and Taiwan — in 2010 this number is likely to rise as tolling comes out of the closet (so to speak) and into the sun (pardon the pun). Again, if China and Taiwan can produce a cheap high quality cell, some manufacturer will buy it and assemble it into a module — maybe even some manufacturer in China or Taiwan. It is a global industry after all, and this is a good thing.

Observing the change over time in the top 10 lineup tells you a lot about what was working, when it worked, and why. Sharp Solar became number one in 2001 with an aggressive pricing strategy and held the lead until 2008, when Q-Cells (a pure-play cell manufacturer at the time) and Suntech (an aggressive competitor) took over the No.1 and No.2 spots. Over time, shifts have taken place, with several manufacturers pushed to lower rungs by the 2004-2008 silicon shortage. The table below presents the top 10 manufacturers from 2004-2009, along with the percentage of total shipments represented by each year’s top 10. In 2010, it is likely that First Solar, Suntech, and Q-Cells will continue to battle it out for first place.

Top 10 PV manufacturers, 2004-2009

Some manufacturers will argue that placement on a top 10 list is meaningless. What it actually means is pretty simple: these manufacturers shipped more product from their facilities than any other manufacturer in a given calendar year. It does not mean that these manufacturers necessarily made more money. In a year where demand is soft (such as 2009), or there is only one significant market (Germany in 2009), it may mean that margins shrink and profit is almost abandoned in order to make sales. It does mean, however, that a manufacturer has executed in some specific fashion in order to achieve success — and this means knowing how to reach your market and being willing to do what it takes to do so.

There will likely be some shifting on the list in the above table — again, all of the numbers are not tallied as of yet. However, the top three will remain the same and the cell manufacturers from Taiwan and China will still be on the list when the dust settles — and maybe even higher up. As an ending analogy, a line from Abbott and Costello’s “Who’s on First” suffices:

“What’s the left fielder’s name?
“I just thought I’d ask ya.”
“Well, I just thought I’d tell ya.”

Paula Mints is principal analyst, PV Services Program, and associate director in the energy practice at Navigant Consulting. E-mail: pmints@navigantconsulting.com.

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