Thursday, October 8, 2009

Solar Outlook.

The PV (photovoltaic) industry has been hit hard during these challenging economic times with demand dropping approximately 50% this year from 2008 levels and a severe oversupply situation occurring, giving rise to fear, uncertainty, and doubt as to the future of the industry.

But there is reason for hope, industry insiders assert.

To set the stage, it helps to understand how the PV industry got to this point. Jim Hines, research director for semiconductor and solar at market research company Gartner Inc explained that three major events coincided to thrust the PV industry into a severe oversupply situation. First, there was a build up of capacity that had been going on for a couple of years and culminated at the end of 2008. Second, overall economic conditions collapsed. And third was the situation in Spain, in which market players got ahead of themselves and local legislation changes altered the PV playing field there.

“The Spanish market was really a surprise last year," said Dr Henning Wicht, senior director and principal analyst at iSuppli Corp Deutschland GmbH. "There was much more installed than anybody could think. In one year, they installed approximately 2 to 2.5GW. This was the largest amount of solar to be installed in one year.

“The consequence was that there was a rush to get hardware to install solar power parks by a very precise date, which was the 28th of September, because every installation put in place after this date would apply to a lower feed-in tariff. So everybody was rushing for this date which led to a continuous strong demand of hardware modules, which made module producers believe that there was close-to-infinite demand. They were ramping every year. It’s not that they were relying on their production but everybody was ramping at 50 to 100% every year, for three to four years," he continued.

"From the supply/demand data we saw that in 2008, there was already more produced than installed, but this didn’t get through to the market because there was such strong demand, and people didn’t realize there was already more modules on the market than could be absorbed. Seeing a market increase by 50% in just one year makes people dream,” he said.

Indeed, iSuppli has reported that there are close to 8GW of modules to be produced but only 4GW to be installed in 2009.

“The question is, how can that happen? That means that every second module is going to the inventory,” Wicht pointed out.

In trying to assess a forecast, Gartner analysts said they discovered that the major drivers for the solar market are starting to realign themselves. “Even though this is a phenomenally horrible market for vendors right now, it has turned into a fantastic opportunity for end users," explained Alfonso Velosa III, research director for semiconductors at Gartner. "There were two things that needed to happen: end users wanting to buy the systems and the financing pipelines starting to loosen up. We are finally starting to see movement on both sides.

“It’s actually really starting to get good in that deals are starting to happen. The complication though is that, whether you are talking about the US or Europe, the sales cycle takes a long time,” he said, noting that European sales cycles usually take between 12 and 15 months, while US cycles typically range from 12 to 24 months.

Gartner global PV forecast on a gigawatt basis
2007 3.4GW
2008 5.4GW
2009 4.6GW
2010 6.3GW
2011 9.9GW
2012 14.3GW
2013 20.0GW
CAGR 2009-2013 44%
That said, Gartner currently forecasts relatively severe contraction based on a number of projects that are being completed in the second half of the year, Velosa said.

On a revenue basis, with the excess capacity in the PV supply chain, ASPs (average selling prices) have gone through the floor, leading revenue forecasts to be cut in half for modules.

Gartner estimates that right now the oversupply of polysilicon is on the order of 2.5 to 3 times the demand, and expects this pricing environment to continue for some time – certainly through next year and well into 2011. The situation is the same in the solar cell module market with almost 3X excess capacity, Velosa noted.

“We see excess capacity going through 2012," he said. "We so don’t see prices firming up, either on a polysilicon basis or a module basis until 2012 at the earliest, possibly even 2013 because we continue to hear about more expansion plans.”

Gartner also believes the stimulus money from the Chinese and US governments have the potential to keep the PV ASPs in a degraded state, which, when combined with all of the work going into improvements on technology, efficiency, and processing, will drive the competitive dynamics of the industry, with more attractive products for end users. In essence, the ASP erosion is helping the industry remain competitive.

Gartner global PV module forecast on a revenue basis
2007 $11.3B
2008 $18.8B
2009 $9.2B
2010 $10B
2011 $14.1B
2012 $18.6B
2013 $23.3B
CAGR 2009-2013 26%
“This is bad news in the short term for a lot of the suppliers and companies trying to get a foothold in the PV value chain, but longer term, it is going to be a positive for growth and for uptake in demand for solar energy, particularly PV," Hines pointed out. "It is what is needed to happen to drive costs down. The question becomes how to cross the chasm as a company that wants to participate in this market."

From a vendor point of view, Applied Materials Inc’s Jonathan Pickering, VP of marketing and business development for solar, said, “2008 calendar year was a banner year for the industry with tremendous growth in the end market. I think there’s still some lack of clarity about what the final numbers look like this year because it got off to a bit of a slow start and then there’s the seasonality effect.

“One of the challenges was that people were seeing pretty rapid declines in module pricing," he continued. "It’s like all of us: If we see prices going down, we tend to wait and see if they go down again the next month. On the flip side of that, for example, in Germany the subsidies are going to be ramped down and adjusted every year. People are watching that."

Pickering said that while it is too early to say for sure, it looks like the end market will be flat to down 10 or so percent this year. "What we are seeing is that several of the big manufacturers, certainly in China, are running pretty close to capacity – so people are really ramped up now, which wasn’t the case in the March-April timeframe,” he added.

Impacts on PV production widespread

In order to realign their businesses with the current market conditions, producers of solar modules and cells are reducing their expansion plans and even their current production, observed iSuppli’s Wicht. “This is why the original production roadmap, which was at 12GW for 2009, is coming down to the 8GW range,” he said.

Further, hardware prices are coming down significantly. “Last year, the average selling prices of modules was around $4 per watt. What we see and what our model forecasts is it in the $2.30 to $2.50 per watt range at the end of 2009, and we see that already now. For 2010, we expect that the market will start to stabilize in the sense that the demand will continue to grow and the supply/demand scissors is likely to come closer again,” Wicht offered.

“We still see that module prices will come down again in 2010 because there is a lot of capacity still ramping. Once the factory is built and the decision is made, the entrepreneurs and CEOs, by a large majority, are forced to continue, otherwise they lose their credibility. If they cannot achieve their announcements, that’s bad credibility. So they try to keep to their plans and try to sell at any point. It’s easier for the entrepreneur to say to his investors, ‘We are not making much profit this year as everybody else, but we continue with our expansion plans and we try to grab market share.’ This is the strategy most companies follow and only in extreme cases, they start to reduce their production,” he added.

Seeing signs of some pretty big orders being put into the system, Gartner is forecasting a stronger business for 2009 because of continued demand in the core German market, as well as the growth US and China markets.

“It really looks like the pipeline is picking up … with 2010 being a sharp recovery on a gigawatt basis,” Velosa said. “However, let’s be clear, this is still lower than the existing capacity, and we still see a 20% reduction in ASPs for next year.”

Since September 2008, there has been a 40% drop in ASPs and Gartner expects that number to fall further.

Applied is seeing a similar trend. “We are seeing signs of life. In Asia, there are continued levels of investment in crystalline and thin-film technologies. That’s encouraging,” Pickering said.

Other programs that many believe could help the PV market recover are certain provisions of the US government’s economic stimulus bill. These include an advanced energy Manufacturing Tax Credit, which is a new 30% investment tax credit to promote the manufacturing of clean energy equipment in the US. As well, a grant in lieu of the Investment Tax Credit or Section 1603 claims to be an alternative for businesses that could otherwise claim the production tax credit or the investment tax credit for certain qualifying renewable energy projects.

Further, Pickering noted that the American Clean Energy and Security Act of 2009 could help the industry. The act was passed by the US House of Representatives in June and contains certain solar provisions, including a national Renewable Portfolio Standard meant to encourage solar and other forms of renewable energy, along with a “Green Bank” to provide rebates, loan guarantees, and other financial mechanisms to finance solar energy technology and demand.

For more on the solar market, visit EDN's solar power Hot Topic page and view this "Solar's changing climate: Photovoltaics and the legislative effect" Webcast.
In addition, many states are considering feed-in-tariffs or performance-based incentives to accelerate the deployment of PV power.

“For the market to recover means margins building up in the market,” Wicht said. “What we have seen in the last years was that the hardware makers had the good margins – from polysilicon up to modules. And the installation and project developer companies they had to reduce their margin because the purchase price was high. What we see right now in the market is that the margin is not disappearing but it is shifting downstream.

"This is the message we try to pass: The market overall is not bad, it is a good market, and it’s very interesting if you’re in the solar installation business or even a solar investor … and can, for example, in the modules segment, buy modules at prices they never believed is possible.”


No comments: