Solar PV in perspective 2011

Paula Mints

Part one: Paula Mints looks at the background of the great solar squeeze, pre Solyndra.

All Solar technologies face significant challenges going forward. To maintain growth, the industry needs lower component costs - and decisive action.

Germany simply cannot save the PV world again. Yet the German Government will eventually have to take significant action to control demand. For any accelerated demand scenario to continue, at least for a few more years, prices for all components must go even lower and every last dime must be squeezed from manufacturing costs (including consumables) while yields increase.

Efficiencies for all technologies must increase; new business models need to mature; and new markets must be developed.

Price elastic customers must also be developed and, because substitutes exist, ways must be found to compete and/or partner.

Moreover, for healthy markets to develop, all technologies (CSP, CPV and flat plate PV) must contribute. That is, they must be installed in the appropriate DNI (Direct Normal Irradiance) and in applications that use the most efficient system design and topography.

Now that solar is a big business, companies need sustainable margins and, yes, profits. Table 1 below this article offers a scenario for continued accelerated growth in the PV industry. Though it may not seem particularly aggressive, the point is to be realistic. In that context, the bigger an industry gets, and the higher its manufacturing capacity rises, the more problems it faces.

Solar is at the beginning of a painful change in the way incentives (the driving force for grid-connected application) are designed and administered. As if rapid and sometimes unexpected decreases in Feed-in Tariff (FIT) levels were not enough, auction-based incentive rates indicate a trend leading to margin declines for entities along the solar value chain, from manufacturing to projects.

Industries are made up of people reacting to market forces and pressures, and as such they exhibit behaviours specific to these pressures. Reliance on incentives to drive demand has led to specific behaviours, including frantic buying when prices are low and frantic installing into any available market.

The industry continues to behave erratically and can be difficult to size accurately. One reason for the sizing difficulties are the different metrics that are available for measurement, along with the lack of definition of what is being measured and how it is being measured. For example, in some cases industry size is defined by the “announcements of projects”; or by non-transparent state or country databases; or, by installations, manufacturer capacity or shipments to the first point of sale in the market.

To be clear, what is being measured here is actually industry size - by counting shipments to the first point of sale in the market and factoring out double shipment of a given technology. Also measured are installations, which are a different metric. The methodology for measurement (the core of market research) is primary research of the demand and supply sides of the market along with a certain amount of end user research.

Accelerated growth

Accelerated growth in the PV industry continued in 2010 at 120% over the previous year, from 7.9-GWp to 17.4-GWp. In 2011, despite a flat first half, growth is expected from 4% (conservative estimate) to 27% for the accelerated forecast. Table 2 offers PV industry growth from 1990 through 2012.

The incentives that the industry relies on come with downward price pressure, which is a significant constraint on both the supply (components) and demand (systems) sides of the market. Simply put, some degree of margin control should be considered so that Government incentives are not threatened.

The industry also needs an increasing number of highly-trained installers, sales personnel, engineers, et. al., and this comes at a cost. Downward pressure on prices (from lower incentives), along with upward wage pressure, are leading to lower margins for industry participants. The advent of the FiT model of incentives drove solar industry demand to multi-Gigawatt levels.

With industry capacity at ∼35-GWp, and the current state of industry incentives, new business models are required to move solar into the next phase of its lifecycle: lower or no incentives. Price-elastic customers (such as mining operations) need to be nurtured and business models for off-grid applications need to be developed along with, of course, financing options for grid-connected applications.

Although the grid-connected application remains driven by Government subsidy programmes (Europe's feed-in tariffs, U.S. tax, production and capacity incentives, for example), as incentive rates decrease and budgets run low, Governments are increasingly looking to the solar industry to keep the grid parity promise. Without Government subsidies, the market for grid-connected PV products could fall, margins would be constrained, and investors could decide to step back from the sector.

The challenge ahead for the solar industry, including all technologies, is to develop markets in which incentives either do not exist (or if not yet robust, to develop innovative system installation design, practice and topographies, and innovative balance of system components). Financing and business models that reduce the high upfront cost of installing solar are crucial, and in the U.S., utility involvement remains vital [article continues under the tables - ed].

Table 1: Accelerated regional forecast 2011 – 2013 (MW)
Accelerated Demand 2011 2012 2013 2 yr CAGR
North America 2789.9 4795.8 7140 60%
Europe 15477 14509.2 12794.2 -9%
Japan/China/India 2761.2 4796.2 7537.8 65%
ROW 1001.8 978.6 1351.2 16%
Total Demand 22029.9 25079.8 28823.3 14%
Table 2. PV industry growth 1990 – 2012 estimate
Year Annual Demand (MWp) Cumulative MWp
1990 42.7 78.9
1991 48.2 82.7
1992 54.1 86.5
1993 55.7 90.4
1994 61.0 102.0
1995 71.5 111.0
1996 82.6 122.6
1997 114.1 161.4
1998 134.8 203.2
1999 175.5 271.6
2000 252.0 399.8
2001 352.9 609.5
2002 504.9 947.8
2003 675.3 1432
2004 1049.8 2262.7
2005 1407.7 3423.9
2006 1984.6 5131.2
2007 3073.0 7894.1
2008 5491.8 13040.7
2009 2009.0 20580.6
2010 17402.3 37554.9
2011 Accerated 22029.3 59584.2
2012 Reduced Incentives 13711.4 73295.7
2012 Conservative 18982.0 78566.3
2012 Accelerated 25079.8 84664.1

The future

All solar technologies face significant challenges going forward. For PV, significant downward price pressure and lower incentives will force near term vertical integration and consolidation decisions.

Quite frankly, more manufacturers may follow the likes of Solyndra and Evergreen. This is unfortunate, because innovation is key for PV to drive necessary changes to the way the world gets its electricity. Innovation in PV - and all solar - is an incremental process, and this is often misunderstood.

The FiT incentive model drove demand into the multi-Gigawatt range, and like it or not, on the PV side, significant manufacturing capacity levels will force uncomfortable compromises.

Without FiTs, it is highly doubtful that solar would have enjoyed the current growth rates. To keep them going, new ways of doing business - and some degree of sacrifice - will be required of industry participants. Gloomy as this may seem, the path ahead could be a successful one, but the journey may at times seem treacherous.

In Part 2 - despite the solar squeeze, history tells us this should be no time to panic...

NB: This article is excerpted by Paula Mints from Navigant's 2011 Analysis of Worldwide Markets for Solar Products and Five-Year Application Forecast.

About the author: Paula Mints is the principal analyst for Navigant's PV Service Market Research Program, and executive editor of the Solar Outlook Newsletter. She is widely recognised as an industry expert on photovoltaic (PV) technologies and markets.


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