This article is taken from the November/December 2012 issue of Renewable Energy Focus (REFocus) magazine. For a free subscription, click here. (Please note accompanying tables will be available as a download shortly...)
2012 turned into an auspicious year for the photovoltaic industry. On one hand, installation growth will show solid gains. Unfortunately, on the other hand, the year was marked by manufacturer failures, tight margins for most participants, the temporary idling of necessary intellectual capital due to layoffs, and the migrating of trade disputes from the US to the EU to India.
Trade disputes among nations is hardly new, nor was this political tool specific in 2012 to the solar industry. In September 2012, the EU asked the WTO for $12bn per year in sanctions in a dispute over subsidies for plane manufacturers Airbus and Boeing. It seems that wherever you look someone is being unfairly treated by someone
else.
After the counting is done, the two most likely scenarios for 2012 shipment growth are an increase of 4% (essentially flat) to 23.5GWp, or, the highly likely scenario of a decrease of ~10% for 21.3GWp. A decrease of 10% would represent the first time in the history of the photovoltaic industry that annual shipments have decreased.
There have been slow years, with fairly flat growth, but never a downturn. At the beginning of 2012 it appeared as if the industry would again, experience strong growth of >35%. However, as the ensuing quarterly reports grew more depressing, and the failures mounted, PV technology manufacturers began temporarily shutting down lines, as well as rethinking expansion plans.
It would be a sign of industry maturity to make a choice to slow down instead of selling one underpriced watt after another. It is also worth noting that most industries have lower growth expectations, in the teens at most. The PV industry has enjoyed many years of extremely strong growth. It may be time to set expectations at a lower, and hopefully, more profitable level.
A tale of four regions
Overtime there have been shifts in manufacturing leadership. This refers to the region that shipped the most technology during a calendar year. In the solar industry, shipment leadership and market leadership (where the technology is installed) have traditionally differed. For example, Europe has been the largest global market
since 2004; however, manufacturers in Europe enjoyed manufacturing leadership only during 2007 and 2008.
The US was the manufacturing leader through 1998, from a significantly smaller base. In 2012, US shipments are estimated at 3% of the global total. The US has enjoyed strong demand growth in recent years. This growth was driven by a patchwork of incentives that make it a difficult country to do business in, though at the same time, unlikely to see its market overheat.
One foundation for growth in the US is its renewable portfolio standards. As US utilities near fulfillment of their RPS
requirements, a pullback in enthusiasm should be expected.
Technology manufacturers in Europe held the shipment leadership in 2007 and 2008 and are estimated to have a 5% of global shipments in 2012. Europe’s feed-in tariff (FIT) incentive model began in Germany and spread rapidly to other countries leaving several burned out markets in its wake. Initially seen as a stable investment, it proved less so overtime as governments enacted abrupt and sometimes retroactive changes.
The European FIT model is responsible for driving the PV industry to multi-gigawatt levels of growth and
created many demand side jobs. Given the strong market, and the need for jobs to fulfill it, this tool cannot be called a failure. Unfortunately, globally, industry participants did not plan for its eventual end and are now left with too much capacity, too much inventory and technology prices that are too low to support necessary R&D.
Asia surge
Japan, meanwhile, initiated its residential rooftop program in the late 1990s. It took over the shipment leadership from the US in 1999, holding it through 2006. Japan has, overtime, demonstrated a stronger commitment to its manufacturing sector than, for example, the US. Its market was considered closed to outside manufacturers
for many years.
The country is experiencing strong demand growth due to its FIT, and, a commitment to non-nuclear sources of energy following Fukushima. In 2011, Japan’s manufacturers are estimated to have an 11-12% share of
global shipments.
China’s manufacturers had a 1% share of global shipments in 2004, took over the leadership in 2009, and are estimated to have a 46- 50% share of global shipments in 2012. With trade disputes either in process or decided in the US, the EU and India, the domestic installation market in China has recently accelerated and is expected to remain strong through 2015. As the country has ~50% of global capacity to manufacturer technology, the majority of installations will likely use technology manufactured in China.
2012: The year of pricing dangerously
Though it seems as if prices cannot go any lower, until most of the inventory works its way out of the channel, it can, and it may. Technology manufacturers, unfortunately, find themselves competing with their own inventory at extremely low average prices.
The average price to the first buyer in 2012 will be $0.93/Wp with inventory averaging $0.78/Wp. Currently, prices for inventory are averaging $0.55/Wp. The PV industry will not be able to enjoy a solid recovery until technology prices recover - that is to say, prices must stop falling.
There is a high likelihood that 2012 will be the first year in the history of the terrestrial photovoltaic industry to see a decline in shipment growth. The industry will still have sold over 20GWp of technology, most of it at a loss. This cannot be considered a healthy situation, nor should it be allowed to continue. Many have tried to shift the focus from manufacturer failures to low system prices. They should remember that these low system prices come at the expense of manufacturer failures, low to negative margins, little (or no) budget for R&D, and a growing acceptance of lower quality cell and module technology.
These things are not signs of a maturing industry. They are signs of an industry that grew too fast, with too few controls and which must now take stock of itself, repair the damage and start again.
Time to come of age
At this juncture, it may be worthwhile for the PV industry (and all of solar) to ask itself what sort of industry
it wants to be when it grows up. Does it want to be known as an industry that develops a high quality, reliable energy technology that serves its customer base well and provides value to all its stakeholders?
Or, does it want to give up on innovation, manufacture commodity panels and accept low margins as a necessary evil?
Doing good and making a profit are not mutually exclusive goals. It will be a long, hard slog up the down staircase
to get back to the point where investment in R&D is robust, and the green shoots of startup companies can be sighted crowding out the out-of business auctions. But it will happen…why, somewhere even now, an idea is growing and a whiteboard is filling up with formulas.
About: Paula Mints is Founder and Chief Market Research Analyst, Solar PV Market Research/Strategies Unlimited