This week’s RE Insider is Tom Zarrella, vice president and COO of RWE-Schott Solar, formerly ASE Americas. In his column “The PV Industry: From R&D to Full-Scale Manufacturing” Zarrella discusses the evolution of the PV industry from a research and development-heavy industry to present day, high-tech and large-scale manufacturing operations.Four years ago, I received a call from a headhunter asking if I would be interested in exploring a job as Vice President of Manufacturing in the photovoltaic industry. I thought for a minute and responded that I didn’t know there was a photovoltaic industry. Little did I know, that four years later I would be involved at this level with one of the world’s fastest growing industries. An industry that has clearly transitioned from R&D to full-scale manufacturing. Several key issues are effecting the current business environment the PV industry has entered: the market continues to grow at a rate greater than 20 percent annually; the “big six” manufacturers continue to evolve; there have been several important mergers and acquisitions in 2002; systems are getting larger and productivity and innovation are rapidly improving. The industry also faces several challenges as it continues to mature. The industry has experienced phenomenal growth over the past 20 years. Over the last three years, most of the growth worldwide has been in the grid-tied PV market. The shipment projections for 2002 are 415 MW, an increase of 23 percent over 2001. Looking forward, using the past 20 years as a baseline to attempt to project the future, it is clear that under a business as usual scenario, the industry in 2010 is projected to be almost five times what it is today growing to 1872 MW, with accelerated conditions, it could grow ten fold to 4123 MW. As a result of this projected market expansion, the “big six” are getting bigger.” Not only are Shell, AstroPower, RWE-Schott Solar, Kyocera, Sharp and BP Solar getting bigger, but they are getting bigger at a faster pace than the industry as a whole. These manufacturers have spent hundreds of millions of dollars on expansions over the past year and a half. That is what it is going to take to be competitive in this industry. With the exception of AstroPower, all of these manufacturers have backing from major corporations. AstroPower has successfully been able to raise its capital for expansion on the public market. AstroPower opened the world’s largest solar powered manufacturing and office building this year at its headquarters in Newark, Delaware. BP Solar doubled its wafer manufacturing capability in 2002, adding 30 percent more module and cell production worldwide. They also opened a new 30 MW facility this year in Madrid, Spain. My own corporation RWE-Schott Solar opened a new 60 MW fully-integrated wafer, cell and module manufacturing facility in Alzenau, Germany. Additionally, the Billerica, Massachusetts facility is being expanded to produce 20 MW of wafer cells and large area modules. Lastly, Sharp has announced plans to expand their cell manufacturing to 200MW and to manufacture modules here in the United States. The industry has reached a point where its technologies have been commercialized and large-scale manufacturing to achieve economies of scale is occurring. With all this new capacity coming on line, the gap between available capacity and market demand has increased. The market is estimated to absorb only 63 percent of available capacity this year. As the demand to expand manufacturing for competitiveness continues, so will the likelihood of acquisitions and mergers. This process has already begun: Shell Solar completed the acquisition of Siemens Solar this year; AstroPower and Spanish Manufacturer Atersa merged this year; RWE Solar and Schott Glas completed a joint venture in October; and polycrystalline silicon manufacturer Advanced Silicon Material (ASIMI) and Silocon Technologies recently completed a joint venture to produce solar grade silicon. With ever increasing investment requirements, we will continue to experience the partnering we have seen this year. Unfortunately, I think, we will also begin to see manufacturers exit the PV industry as they succumb to the investment requirements needed to remain competitive. Not only are manufacturers getting bigger but systems are also getting bigger. This year produced some of the largest system installations in North America and in some cases the world. As manufacturing becomes mainstream in the industry, traditional manufacturing practices have been quickly adopted. Major advancements in throughput, yield and material cost have occurred, along with investments in workforce training. Clearly, the R&D focus has shifted from large investments in long-term breakthrough technology to commercialization of short and mid-term technologies. Extensive engineering resources are additionally being invested in manufacturing technology as the manufacturing process becomes more and more automated. So, what benchmarks has the industry achieved over the past 20 years? – Technology has clearly moved from R&D to full scale commercial manufacturing – We have met 1975 pricing objectives of US$2.50 to US$3.00 per Wp (peak Watt) for system which in 2001 dollars is equivalent to US$7.80 to US$9.30 per Wp – Prior to the new millennium, the industry completed more than a gigawatt in terrestrial shipments -From 1976 to 1999, worldwide shipments totaled 1,027 MWp. Where is the industry heading? In 1975, we saw module prices in the US$60/Wp range. In 2000, the actual prices fell to a range of US$3.65 to US$3.80/Wp. By 2005, forecasted module prices will range between US$2.52 and US$2.89/Wp and forecasted prices for 2010 are US$1.69 to US$2.11/Wp. Only time will tell if these forecasted prices can guarantee a sustainable market for PV. The PV industry faces many challenges in order to keep the market growing at a rate that will support large investments in manufacturing and R&D. Without continued growth in manufacturing and breakthroughs in R&D, it will be difficult to reach forecasted cost levels. For 25 years, PV has been primarily and R&D industry. During the last 5 years, the technology that was developed over the last 25 years has been commercialized. During that time period, long-term R&D expenditures have taken a back seat to the large financial requirements required by manufacturers to expand operations. I question what effect this will have on the rate of cost improvement. Manufacturers face a significant challenge as we face the need to come to standardize system performance. We are beginning to see more and more examples of systems that do not perform to expected levels, simply not producing the kWh that are initially advertised. Modules need to be rated accurately and uniformly throughout the industry so systems can be rated accurately and fairly. Incentives, specifications and warranties need to shift focus from kW/installed to kW/produced. The consumer should always understand how many kWh they should expect over the life of the system and the systems should deliver.