Sizing up the PV market in 2009 including shipments, production, and installations is made difficult by the availability of extremely low prices and product changing hands at an accelerated rate. Paula Mints from Navigant Consulting looks at how to define an incentivized market for photovoltaic systems when it is cheaper to buy than manufacture.
by Paula Mints, Navigant Consulting
It’s that time of year when top 10 lists are created from the flotsam of the current year’s sales — and there was a lot of flotsam in 2009. Cell and module prices have crashed by (in some cases) 50% from 2008 levels. In many cases it is much cheaper to outsource or toll than it is to manufacture product in-house. This means arriving at an accurate count of what was sold will be difficult, the potential of overcounting the industry significantly more probable, possibly rendering the usefulness of the annual top 10 lists moot.
For the reader of these lists, the first important point is to figure out what is being counted. Does the list reflect the top 10 shippers of technology to the first point of sale in the market? This can be a module assembler, an installer, an end user or another manufacturer. As many manufacturers of technology will count outsourced product as their own production, this is an important point; 1MW cannot morph into 10MW no matter how many times it is bought and sold.
A top 10 list can also reflect production (a different figure from shipments/sales), capacity, and also installations (important as installations lag shipments/sales). Top 10 lists are often more PR than industry metric, and these lists are both hated and anticipated by the manufacturers that appear on them. They say that they do not care — but, really, they do.
Before a top 10 list can be developed, a good deal of careful counting and analysis should go into it. An accurate sizing of the industry must be in place in order to identify trends (manufacturing, technology, market), establish market growth or shrinkage, and to provide information to governments (the entities that legislate incentives for this incentive-driven industry). Top 10 lists provide a quick overview of the competitive landscape, and accurately state the correct market size. Over time, these lists offer a history of a specific industry which, when accompanied by appropriate analysis, can highlight when past strategies waned and new strategies and directions successfully took hold — provided that the reader knows what is being counted and why, and that care is taken as to the accuracy of the information. It’s a dull job, but someone has to do all of this counting.
With the availability of extremely low-priced product in 2009, in many cases it is cheaper to buy cells and modules than to manufacture them in house. Toll manufacturing (or outsourcing) is nothing new in any industry, and is certainly not new to solar. In the photovoltaic industry, cells and modules have always flown around like playing cards on poker night. In 2009, quite simply, the availability of low-priced high-quality technology (cell or module) primarily from China and Taiwan has made the choice a simple one for many: Buy it. Module prices are currently less expensive than cell prices were in 2008. Even manufacturers that complain about the influx of inexpensive product from Asia are buying and rebranding instead of manufacturing in-house — while still complaining, of course. So, the problem with counting shipments, production, and perhaps even installations for 2009 is that product is changing hands at an accelerated rate, making an accurate market sizing and development of a top 10 list very difficult.
Take pizza as an example. Making a pie from scratch at home involves the expense of buying the materials and expending the energy and time, and though the result will be satisfying it comes at the cost of time and money that could (potentially) have been spent on other activities. Manufacturers of frozen pizza or the local pizza parlor have economies of scale and incentives to offer product at a cost to the customer lower than those that can be obtained in-house. Granted, the fun of making the pizza might outweigh the lower cost of buying it. But in the case of manufacturing, I expect the fun of operating machinery with the potential of increasing inventory and ultimately pricing at cost to get rid of it might be overrated.
In many cases, the low cost of outsourced cells and modules is an efficient method of surviving a period of soft demand — let someone else bear the cost of inventory and manufacturing, and if a particular region has manufacturing subsidies in place sufficient to support a low product price, then it seems like a win-win situation. Development and manufacturing of photovoltaic technologies is significantly capital intensive. As the market for photovoltaic systems continues to require incentives, and as these incentives are expensive to support, continuing to invest in manufacturing capacity is a downright brave act. An incentivized market is not a secure market. So, when it is cheaper to buy than manufacture — you buy, and let all those tasked with counting sales, production, installations, or whatever figure it out later.
Paula Mints is principal analyst, PV Services Program, and associate director in the energy practice at Navigant Consulting. E-mail: firstname.lastname@example.org.