PV Market Set for Sunnier 2010
Installations to rise by 68 percent for the year.
The year 2009 was tough on all industries, and the solar energy business wasn’t immune to the global recession and the financial market upheaval. And although 2010 is likely to be a better year, it won’t be without challenges.
Demand Back on Track—but Not Profits
iSuppli forecasts that worldwide installed watts of Photovoltaic (PV) systems will grow by 68 percent in 2010 to reach 8.6 Gigawatts (GW). This represents a return to the pre- downturn rate of growth of 2008 as the global recession recedes and as new geographies and segments of demand emerge.
However, 2009 brought tremendous price erosion, with average crystalline module prices declining by 38 percent, solar wafer prices declining by 50 percent and polysilicon spot prices down by 80 percent. iSuppli believes this represents a permanent ratcheting down of pricing that will transform the industry into a very competitive marketplace with weaker players dropping out and a select few commanding larger pieces of the market.
One of the major implications is that industry players will need to continue to accelerate cost-reduction roadmaps in an effort to keep up with the price declines and to adjust to compressing profit margins.
After suffering losses for much of 2009, iSuppli’s analysis suggests that profits returned in the fourth quarter. Profitability is expected to continue to improve during 2010 but not reach the levels enjoyed prior to the recession. iSuppli is projecting that the average profitability for most segments of the PV industry will rise back above 10 percent by the fourth quarter of 2010. However, the oversupplied polysilicon segment will be left behind from the return to profitability.
The major factor driving the improving profitability for cost-down programs is catching up with the rate of price declines.
PV System Prices will Not Decline Nearly as Quickly as Module Prices
In 2009, the average price of an PV system declined about 11 percent, while the average price of a crystalline module dropped by 38 percent. For 2010, iSuppli is predicting that system prices will fall another 10 percent while modules will drop another 20 percent.
There appear to be three drivers for this divergence in price reductions. One is that prices for the Balance-Of-System (BOS) elements and installation-related costs—i.e., Engineering, Procurement and Construction (EPC)— are declining more slowly. Another reason lies in the fractured nature of the installation business, where there is less motivation to pass along the cost savings. The third driver, which is related to the second, concerns the very act of providing incentives for PV electricity projects—such as Feed-In-Tariffs (FITs), rebates and tax credits—which helps keep system prices higher. The thinking behind this last point is that project developers and installers just need to show the system owner sufficient Return on Investment (ROI) and payback periods—not necessarily the lowest price—to make the deal.
FITs Causing a Fit
A great deal of uncertainty has been injected into the market by the world’s largest solar nation, Germany. Like Spain in 2008, the threat of a potential additional reduction in the FIT has generated a spike in German market demand for PV systems. Germany is estimated to have accounted for 50 percent of total worldwide PV installations in 2009.
Enter Even more Players
Expect more players to enter the PV space in 2010 as they try to leverage potential competitive advantages from other industries. At the top of the list are Samsung and LG Electronics—the largest shareholder of LG Displays. They are already the world’s largest LCD panel makers and at—or near—the top of world in televisions, mobile phones and appliances, to name just a few products.
The manufacturing of LCD screens, in particular, possess similarities to making solar panels. Both involve working on large glass substrates depositing layers of thin-film polysilicon and other materials. These companies have vast experience in reducing costs, raising quality and ramping to high volumes. Both these companies potentially can benefit by leveraging the procurement of items like glass, wafers, polysilicon and manufacturing equipment. These companies are also well versed at moving into established areas and then eventually dominating them.
Too Much Capacity for an Industry that Hasn’t Figured Out its Cycles Yet
Although the PV industry has done a good job of reducing its inventories, the improvement is tenuous because of big swings in utilization rates on existing capacity. It is very hard to plan given all the FIT demand bubbles hitting the industry—with the German market being the latest. True, modules are getting absorbed now, but by the middle of the year, the industry could be swamped again with excess supply.
From polysilicon to modules, companies have curtailed production by idling lines and running fewer shifts. iSuppli estimates that average capacity utilization across all nodes was 70 percent in 2009. Some companies were sold out all year, while others where swimming in excess. Furthermore, there were many capacity expansions during the year. And while there is a lot of debate on how to measure capacity, iSuppli’s definition assumes 24/7 utilization of lines/equipment that is already in place. iSuppli believes ongoing excess/near excess capacity in 2010 will keep prices flat.
Enter the Dragon, the Eagle, the Tiger and the EMS Provider…
For 2010, iSuppli expects several significant new geographic growth markets to emerge as competitive battlegrounds. Most significant are China, the United States and Italy, which iSuppli is predicting collectively will account for 50 percent of the growth that takes place in 2010. Germany will remain the biggest market, but these other countries will rise in importance during the year.
China is the latecomer as it races to inject more renewable content into its energy portfolio. Companies positioned strategically in these markets now stand the greatest chance of grabbing share over the next years. Some companies are using EMS providers to build modules as a way of minimizing capital outlays and for positioning locally. Jabil Circuit’s relationship with SunPower is one such example.
Going Fishing Downstream
Continuing the trend begun in earnest during 2009, iSuppli expects more PV industry companies to shift closer to adding value for the users of PV electricity. PV supply chain companies are investing directly into long-term and development-time ownership of solar installations as well as taking control of EPC or installation services. Prime examples are MEMC buying SunEdison and LDK investing in solar farms in China. One company, Conergy, has returned from being a supply chain player to being a project developer. There are multiple benefits to this downstream focus, including creating more developed sales channels, creating their own customers, and in some cases—but not all—improving profitability.
The year 2009 was tough on all industries, and the solar energy business wasn’t immune to the global recession and the financial market upheaval. And although 2010 is likely to be a better year, it won’t be without challenges.
Demand Back on Track—but Not Profits
iSuppli forecasts that worldwide installed watts of Photovoltaic (PV) systems will grow by 68 percent in 2010 to reach 8.6 Gigawatts (GW). This represents a return to the pre- downturn rate of growth of 2008 as the global recession recedes and as new geographies and segments of demand emerge.
However, 2009 brought tremendous price erosion, with average crystalline module prices declining by 38 percent, solar wafer prices declining by 50 percent and polysilicon spot prices down by 80 percent. iSuppli believes this represents a permanent ratcheting down of pricing that will transform the industry into a very competitive marketplace with weaker players dropping out and a select few commanding larger pieces of the market.
One of the major implications is that industry players will need to continue to accelerate cost-reduction roadmaps in an effort to keep up with the price declines and to adjust to compressing profit margins.
After suffering losses for much of 2009, iSuppli’s analysis suggests that profits returned in the fourth quarter. Profitability is expected to continue to improve during 2010 but not reach the levels enjoyed prior to the recession. iSuppli is projecting that the average profitability for most segments of the PV industry will rise back above 10 percent by the fourth quarter of 2010. However, the oversupplied polysilicon segment will be left behind from the return to profitability.
The major factor driving the improving profitability for cost-down programs is catching up with the rate of price declines.
PV System Prices will Not Decline Nearly as Quickly as Module Prices
In 2009, the average price of an PV system declined about 11 percent, while the average price of a crystalline module dropped by 38 percent. For 2010, iSuppli is predicting that system prices will fall another 10 percent while modules will drop another 20 percent.
There appear to be three drivers for this divergence in price reductions. One is that prices for the Balance-Of-System (BOS) elements and installation-related costs—i.e., Engineering, Procurement and Construction (EPC)— are declining more slowly. Another reason lies in the fractured nature of the installation business, where there is less motivation to pass along the cost savings. The third driver, which is related to the second, concerns the very act of providing incentives for PV electricity projects—such as Feed-In-Tariffs (FITs), rebates and tax credits—which helps keep system prices higher. The thinking behind this last point is that project developers and installers just need to show the system owner sufficient Return on Investment (ROI) and payback periods—not necessarily the lowest price—to make the deal.
FITs Causing a Fit
A great deal of uncertainty has been injected into the market by the world’s largest solar nation, Germany. Like Spain in 2008, the threat of a potential additional reduction in the FIT has generated a spike in German market demand for PV systems. Germany is estimated to have accounted for 50 percent of total worldwide PV installations in 2009.
Enter Even more Players
Expect more players to enter the PV space in 2010 as they try to leverage potential competitive advantages from other industries. At the top of the list are Samsung and LG Electronics—the largest shareholder of LG Displays. They are already the world’s largest LCD panel makers and at—or near—the top of world in televisions, mobile phones and appliances, to name just a few products.
The manufacturing of LCD screens, in particular, possess similarities to making solar panels. Both involve working on large glass substrates depositing layers of thin-film polysilicon and other materials. These companies have vast experience in reducing costs, raising quality and ramping to high volumes. Both these companies potentially can benefit by leveraging the procurement of items like glass, wafers, polysilicon and manufacturing equipment. These companies are also well versed at moving into established areas and then eventually dominating them.
Too Much Capacity for an Industry that Hasn’t Figured Out its Cycles Yet
Although the PV industry has done a good job of reducing its inventories, the improvement is tenuous because of big swings in utilization rates on existing capacity. It is very hard to plan given all the FIT demand bubbles hitting the industry—with the German market being the latest. True, modules are getting absorbed now, but by the middle of the year, the industry could be swamped again with excess supply.
From polysilicon to modules, companies have curtailed production by idling lines and running fewer shifts. iSuppli estimates that average capacity utilization across all nodes was 70 percent in 2009. Some companies were sold out all year, while others where swimming in excess. Furthermore, there were many capacity expansions during the year. And while there is a lot of debate on how to measure capacity, iSuppli’s definition assumes 24/7 utilization of lines/equipment that is already in place. iSuppli believes ongoing excess/near excess capacity in 2010 will keep prices flat.
Enter the Dragon, the Eagle, the Tiger and the EMS Provider…
For 2010, iSuppli expects several significant new geographic growth markets to emerge as competitive battlegrounds. Most significant are China, the United States and Italy, which iSuppli is predicting collectively will account for 50 percent of the growth that takes place in 2010. Germany will remain the biggest market, but these other countries will rise in importance during the year.
China is the latecomer as it races to inject more renewable content into its energy portfolio. Companies positioned strategically in these markets now stand the greatest chance of grabbing share over the next years. Some companies are using EMS providers to build modules as a way of minimizing capital outlays and for positioning locally. Jabil Circuit’s relationship with SunPower is one such example.
Going Fishing Downstream
Continuing the trend begun in earnest during 2009, iSuppli expects more PV industry companies to shift closer to adding value for the users of PV electricity. PV supply chain companies are investing directly into long-term and development-time ownership of solar installations as well as taking control of EPC or installation services. Prime examples are MEMC buying SunEdison and LDK investing in solar farms in China. One company, Conergy, has returned from being a supply chain player to being a project developer. There are multiple benefits to this downstream focus, including creating more developed sales channels, creating their own customers, and in some cases—but not all—improving profitability.
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