The last quarter of 2010 reflects the closing decade - complete with pricing volatility; material shortages; anxiety over whether incentives will go up, go down, be capped or disappear; whether vertical integration is a fad or here to stay - you name it, the industry experienced it multiple times.
Global shipments to the first point of sale (essentially, demand and supply) will grow by more than 100% in 2010 (over 2009) – and by the end of 2010 the cumulative size of the industry will be around 40 GWp, with over 40% of the cumulative total shipped in 2010. In 2010, despite doom and gloom at the beginning of the year, the PV industry came close to doubling in size.
The 10-year period from 2000 through 2010 has created 97% of the industry's cumulative total volume. This does not mean that the PV industry can afford to forget its megawatt and kilowatt roots. It does mean that the closing decade – or more correctly the period between 2005 and 2010 - put the PV industry in a place where there is as much to lose as there is to gain.
The hard-learned lessons of the first three decades of terrestrial PV industry history should not be forgotten. All of these lessons – necessity of incentives, quality, a significant amount of money and on-going investment over time, the importance of vision and the need for courage in the face of outside pressures – came home in a decade that will be remembered for one specific thing: volume.
Everything solar got bigger in the 2000 through 2010 decade, from conferences, to system sizes, to manufacturing capacity, to module sizes, to investment to incentives – even the failures got bigger. A great deal also got better in the departing decade, but, bigger is the word that best defines 2000 through 2010.
The recent global financial collapse could not stall growth in the solar sector for long. After a flat two quarters in 2009, and despite skittish capital markets, industry demand surged forward, continuing strong into 2010 even with the German Government promising (and finally following through) with the consequences for over-burdening its market (see news analysis, page 4). Lest the industry forget, the consequences are significantly lowered feed-in tariff rates, a move that may preserve this multi-gigawatt market, but will constrain margins for all operating within it.
Q4 2010 – the problems
Most manufacturers say that they are sold out for the foreseeable future, and, most are, indeed, lacking in shippable product. The recent supply shortage has much to do with quality problems attributable to fast-tracked polysilicon capacity. Since the start of the solar boom in 2004 c-Si technology manufacturers have vertically integrated at a rapid pace…too rapid?
Meanwhile, the solar boom also turned a spotlight on the solar industry and drew entrants from many different industries, most notably semiconductors. Many new entrants believed that they could significantly speed up commercialisation of technology with the power of money, also believing that the power of money trumped the traditional timeline from R&D to commercial capacity.
Many investors, private and public, believed that meant better and faster.
|Everything solar got bigger in the 2000 through 2010 decade, from conferences; to system sizes; to manufacturing capacity; to module sizes; to investment to incentives – even the failures got bigger.
Back to quality for a moment…growth such as the solar industry has experienced in the past five years, which pushed the industry to multi-gigawatt levels, is destabilising. This is particularly true in an incentive driven industry with downward price pressure. Manufacturing costs are simply not low enough to support the margins needed for the industry to continue enjoying healthy growth AND technological advancements. Healthy growth requires positive margins.
Current expectations that new entrants will commercialise faster and cheaper are simply not coming true. Significant degressions in Feed-in tariff rates will lower margins for all, and create anxiety in the already-anxious capital markets. And the new utility scale installations (particularly in the US) are extremely expensive to install.
Recently in the US, several multi-megawatt installations received the go-ahead. With the majority of these systems being CSP, it will be at least two years before a cost/benefit analysis can be done. One thing remains true for all solar projects though – there is a high upfront capital cost to build, and someone has to provide finance.
In a brief roundup of recent industry bad news:
- Some investor systems in Spain face bankruptcy;
- Quality problems abound industry wide;
- A new polysilicon shortage hits just in time for lower incentives;
- The Czech Republic instituted a retroactive (back to systems installed in 2009) tax that will act like a significant degression on top of the announced degression;
- France announced a 500 MWp cap;
- The Government of Spain convinced owners of around 900 solar installations totalling >64 MWp to accept reduced tariffs to avoid investigation over permit violations;
- Masdar City scaled back its ambitious plans and many Governments began instituting controls on Feed-in tariffs to stall out-of-control growth;
- In the US, the November elections brought a significant change to the federal congress, with Republicans (specifically, extremely conservative Republicans) gaining control of the House of Representatives. One likely result of this is that the use of the ITC as a grant (instead of tax equity) will not be extended.
Along with all this unfortunate news, the likelihood of a federal renewable portfolio standard along with cap and trade legislation coming to pass simply does not rise to the level of likelihood. California however, is well on its way to instituting a state carbon trading scheme, and fought off an attempt to roll-back its 33% RPS.
How big can the industry get in 2010 and at what price?
With demand remaining strong, even with slightly higher prices and because of the polysilicon quality problems experienced by vertically integrated c-Si manufacturers, and others, there is a whole lot of outsourcing going on. In 2009, another strong year for outsourcing, this was because technology prices out of China and Taiwan were too low to pass up.
Indeed, at the end of 2010, even some Chinese manufacturers are buying cells from Taiwan.
Despite slowing in Germany in the last quarter of 2010, growth in shipments and demand will still be around 100%, from 7.9 GWp in 2009 to around 15.6 GWp. It is difficult to imagine that the PV industry can double in size again in 2011, and it is also highly unlikely. With Feed-in tariff rates decreasing, along with other measures taken by the Governments of the Czech Republic and Spain, growth at this level simply cannot continue, nor would it be healthy in an industry that is already destabilised by rapid, uncontrollable growth.
Expectations by PV manufacturers for the US market may be stalled by CSP, which has earned some momentum in the US southwest, though even this nascent industry has barriers ahead (see page 40). In truth, growth will slow eventually (as it does in all mature industries) and the best the PV industry can hope for is a long slow, soft landing.
The image of a kindly landing brings to mind the recent financial collapse, wherein another sector, housing, expected that the worst could not possibly happen.
A year in the life of the solar industry is made up of manufacturers, installers, investors, system owners, Governments and other stakeholders and people. It is also made up of a lot of numbers and categories of numbers all of which are important to understand. The four figures in this article present the various numbers that will be talked about until mid-2011.
These numbers and their categories are inventory (both at the beginning and the end); defective modules (which may eat up a bit of the end of year inventory levels); shipments (to the first point of sale); production (always higher than shipments); installation capacity; and of course, those pesky announcements which tend to cloud clarity and distort industry statistics.
In 2009, thin-films (primarily First Solar) achieved a 17% share in a multi-gigawatt market. In 2010, forced back by inexpensive crystalline product and bankability concerns from the capital markets, thin-films (other than First Solar) have faced a difficult competitive situation. Total thin-film share will decrease in 2010 to approximately 13%, still significant given total market size. Even at around a 13% share, this still represents about 97% growth for thin-films in 2010 over 2009.
Figure 3 presents technology shares for 2009, with 2010 estimates.
What can we expect in 2011?
The PV industry faces significant challenges in 2011.
Feed-in Tariff rates have decreased and Governments are becoming leery of this successful and difficult-to-control market incentive. Political changes in the US (other than California) may slow progress in terms of legislation and continuing willingness to fund. Governments such as China, California, and Chile are showing an interest in auction processes (tenders) to set tariff rates.
As the PV industry is still in its start up phase, this change in tariff setting may well further destabilise it. Further, this process is not likely to lead to healthy margins – something all industries need in order to continue innovating. Globally, but especially in the highly-promising, still-developing US market, transmission looms as a significant roadblock to future growth – and it must be solved now.
So, 2011 will begin with lowered tariffs, quality problems, slightly higher prices as a result of quality problems, and, for PV, competition from CSP for multi-megawatt installations in the US.
In this landscape, 20% growth would be a significant achievement. The most likely outcome for 2011 will be 22% growth, around 18.9 GWp.
The PV industry is in for a challenging few years. It is going to have to install faster and cheaper, which means that balance of system components will become more important moving forward. It will have to become smarter in its use of incentives, particularly if the auction process becomes the standard for setting incentive rates, and it will need to develop new business models to help it continue to compete with subsidised conventional energy.
Indeed, another sobering thought is that moving into 2011, natural gas could become cheaper.
About the author:
Paula Mints is the principal analyst for Navigant's PV Service Market Research Program, executive editor of the Solar Outlook Newsletter, and Director of the Energy Division.
The PV Services Department at Navigant Consulting was founded in 1974 at Strategies Unlimited, and Ms Mints moved it to Navigant in 2005. The practice is based on classic market research principles; that is, all data are primary, not secondary, and the analysis is independent and not based on the work of others.
Renewable Energy Focus, Volume 11, Issue 6, November-December 2010, Pages 32-34