Global ambitions09 / 2011, Industry & Suppliers | By: Jonathan Gifford/Shamsiah Ali-Oettinger
Taiwan: Export industries in the island economy have progressed since the 1960s from petrochemicals to semiconductors, then to electronics and now energy and PV. At least that is how the logical progression was set out in the 2008 SEMI Taiwan PV Industry Overview. But in a competitive PV market where rapidly falling prices have jolted the industry, Taiwanese players face a challenge in providing a genuine point of difference to their rivals over the Taiwan Strait and beyond.
The Taiwanese PV industry is ranked fourth in the world and prominent companies such as AUO Solar, Gintech Energy, Neo Solar Power, Motech, DelSolar and E-Ton Solar Tech feature in production right across the PV supply chain. EuPD Research believes Taiwanese PV manufacturing comprises 13 to 14 percent of global production, with particular strengths lying in crystalline cell production.
The Taiwan Photonics Industry & Technology Development Association (PIDA) says that the market value of the Taiwanese solar industry will increase to NT$253.1 billion in 2011 (approximately 6.12 billion euros). This value and rapid growth was predicted in part by the Taiwan PV Roadmap, produced in 2009 by the Industrial Technology Research Institute, which set out an optimistic schedule for growth in the PV manufacturing sector.
When reviewing the document today, many of the comparative advantages the Taiwanese industry possesses and the development trends set out in the roadmap remain true. These include moves towards vertical integration and the securing of raw materials and manufacturing machinery. Some of the challenges set out in the roadmap have been addressed by the industry. However, tough subsequent market conditions challenge Taiwanese PV afresh.
As is true for many parts of the worldwide PV industry, the first half of 2011 was difficult for Taiwan. Uncertainty and then downward revision of Feed-In Tariff (FIT) schemes in Europe stymied demand and prices dropped accordingly. Facing longer-term polysilicon contracts with prices locked in anticipating module price stability, some cell and module manufacturers were particularly squeezed. “It made it very challenging for the cell and module manufacturers in the Q2 time frame,” explains AUO’s Vice President of the Solar Business Group James Chen. AUO is one of Taiwan’s largest vertically integrated PV companies.
In part, the challenge Chen speaks of was related to cost. As gross margins were seriously squeezed, reducing costs right across the supply chain became a priority. Across the Taiwan Strait, Chinese manufacturers enjoy lower labor and some consumable costs, making direct competition on cost for the Taiwanese very difficult. AUO’s Chen says that while steps could be taken to compete on these grounds, simply not enough could be done. “I think in cost we can provide very good competition, but not enough.” During this period, Taiwan’s PV industry saw revenue streams drop off. In April and May, Gintech Energy and Neo Solar Power reported sequential revenue drops of 24.32 and 32.45 percent respectively. Motech saw a 47.51 percent sequential drop. The atmosphere did not spare other Taiwanese companies like DelSolar and E-Ton Solar Tech either. However, most companies did report some recovery in June.
Meanwhile, the Chinese PV giants keep expanding regardless of demand patterns. Heavyweights like Suntech, JA Solar, Trina Solar and Hanwha SolarOne all continued to increase production. Furthermore, with the announcement of a domestic FIT scheme on August 1, an additional boost has been predicted for Chinese suppliers.
As if to further highlight the situation, in a recent Reuters interview, the Head of Alternative Energy at Yuanta Securities Min Linm said that unless Taiwan can reduce costs by adding scale, stand-alone producers will have a hard time competing against bigger integrated players on price.
Taiwanese companies like Motech and E-Ton do however have had a longer run in the market compared to a large number of their competitors on the mainland. An important point to note is that while manufacturing costs are cheaper in China, Taiwan remains the hub of semiconductor manufacturing. Cell producer TSEC’s Robin Chien says that Taiwanese manufacturers have competitive advantages flowing from this. “TSMC and UMC, they are well-known Taiwanese semiconductor companies.”
Level of competition
However, while there is direct and vigorous competition between Chinese and Taiwanese manufacturers, EuPD Research offers a word of caution when accessing its nature. Consultant Veit Robert Otto says the competition between the two East Asian PV manufacturing nodes isn’t necessarily more intense than competition on a global scale: “We will always have this type of manufacturer race […] and we are convinced that at least the big ones in Asia, are very likely to survive the upcoming turbulences.” Lead Analyst on Lux Research’s Solar Team Matt Feinstein believes that there is room for Taiwanese companies in the market, even with a big and growing Chinese PV industry. But he does warn that some Chinese manufacturers have certain advantages. “Most of the Chinese players do have scale,” explains Feinstein. “At the very least they’ve got first mover advantage and the trusted [Chinese] companies are bankable even here in the U.S.”
As is becoming the worldwide trend for PV manufactures, Feinstein believes vertical integration is an important step for Taiwanese PV manufacturers to take. “It’s become more of thing that’s a necessity, rather than a nice benefit. It’s become just the nature of cost reduction in crystalline silicon particularly,” explains Feinstein.
Taiwanese manufacturer AUO Solar has taken a range of measures to pursue vertical integration and it’s a process that the Solar Business Group Vice President James Chen is happy to elaborate on. “By integrating the supply chain from polysilicon, ingot wafer, cell module and downstream, then we can reach very powerful supply chain integration,” says Chen.
While Feinstein may believe that such a strategy is almost self-evident, Chen doesn’t believe that it’s common to all Taiwanese manufactures. Cell manufacturer TSEC is one such producer and Sales Vice President Robin Chien actually argues that a lack of vertical integration will help TSEC survive rough financial periods. “Less vertical integration and less financial burden during down trend means that Taiwanese manufacturers have more flexibility,” says Chien.
Despite this sentiment, vertical integration can be seen amongst many players in the Taiwanese industry. Motech has been in solar cell production since 1999 and recently expanded from cell production into polysilicon, wafers and modules. Taiwan Semiconductor Manufacturing Company Limited (TSMC) owns a stake in Motech and along with the vertical integration strategies of players like AUO, has given the whole supply chain of the Taiwanese PV industry a boost. AUO also acquired M.Setek, a Japanese producer of polysilicon and wafers and now AUO Crystal operates as a subsidiary company supplying its parent at this stage of the production stream.
On the polysilicon front, the biggest name remains Taiwan Polysilicon (TPSI). TPSI has embarked on an 8,000-ton polysilicon production plant that the company claims will be ramped up to 28,000 tons. On the wafer front, Taiwan has two big players, Green Energy Technology and Sino American Silicon or SAS that supply cell producers Gintech, Neo Solar, DelSolar, E-Ton and SolarTech.
Key points of difference
Besides vertical integration, geographic diversity of operations may also be an important factor in the success of Taiwan-based PV companies. AUO Solar has module-manufacturing operations in Taiwan, but also on mainland China and in the Czech Republic. It is also looking for partners in North America and India to continue this expansion. The Czech facility, established in quarter three 2010 and at present running at 100 megawatt (MW) capacity, serves the European market. The advantage for AUO Solar in this operation being, that domestic content requirements under some European FIT schemes are satisfied because of this location. By being close to market, naturally transport costs are also reduced.
“China’s players can lower their prices ten or 15 percent to compensate for the local content requirement,” says Chen. “But for AUO we can support our customers with a premium capacity and solution from the Czech Republic.” AUO hope to ramp the plant up to 150MW production by the end of the year and can “easily” ramp up to 250MW if demand facilitates.
Another point of difference between the Taiwanese and Chinese PV players may be in the creation of PV modules with integrated components such as micro-inverters. In July AUO Solar released its AC Unison product, in partnership with SolarBridge Technologies. Targeted at the North American market, AUO Solar claims that the module’s microinverter increases energy harvest by 25 percent. It also has the potential to reduce labor costs in installation, which is significant in North America as, in Chen’s words: “Labor costs are really high, even higher than the labor costs in Europe!” The AC Unison also provides monitoring systems and some mobile data transmission allowing homeowners to monitor their installation’s energy production. With its recent experience in information and communications technology Taiwan can be seen as having an advantage if PV develops further in this direction. “I think for this it is easier for us and we are quite familiar with this type of technology,” says Chen.
Taiwanese PV players such AUO Solar have its sights firmly set on overseas markets. This is a necessary strategy according the Lux Research’s Feinstein: “I don’t think that the Taiwanese market on its own is big enough to support as many companies as want to be successful in the solar market.” Indeed support of the domestic Taiwanese PV market, through schemes such as a FIT, has been weak. The PV Roadmap advocated for a FIT scheme in support of the industry. However Feinstein is plainly dismissive of the steps taken by the government in this regard: “We’ve seen the recent Chinese announcement, [but] we haven’t seen anything groundbreaking coming out of there [Taiwan].” AUO’s Chen attributes this to the low cost of electricity in Taiwan, produced by a combination of coal, nuclear and gas. “At this moment the electricity cost in Taiwan is really low, […] so the government feels that they need to subsidize solar three-fold the price compared with grid electricity costs.” In comparison to other parts of the world where electricity prices are high and rising, Chen says: “In Taiwan we have a long way to go to reach grid parity for solar energy.”
In the 2009 Taiwanese PV Roadmap, expansion into downstream services was advised as an potentially high value added area of business. But with a limited domestic market, installed capacity was forecast to be only one-gigawatt (GW) by 2025 in the Roadmap, Taiwanese PV has looked overseas for opportunities. AUO have been involved in numerous ground-mounting projects in Germany and elsewhere in Europe including Italy, the United Kingdom and Slovakia.
Materials and plant
Two other elements pinpointed as being of significance to the success and growth of the Taiwanese PV industry in the 2009 Roadmap, is that industry can secure primary resources in silicon and has a good supply of manufacturing machinery. These factors appear to have been addressed well by the industry and heading into 2012, analysts and the Taiwanese PV industry itself appear confident these challenges have been met.
In terms of the supply of manufacturing machinery, AUO point to the country’s experience in production facilities that utilize similar equipment, as a demonstration that it is in a strong position in this regard. “In Taiwan we already have a very strong industry in semiconductor, LCD or flat panel display. Also we have a PC industry[…] so I don’t see that production equipment will be an issue,” says Chen.
In terms of raw materials, AUO have been leveraging its subsidiary companies and Otto from EuPD Research explains, “I think capacities are ramped up around the silicon sector and therefore we don’t see a comparable shortage as in 2008 and 2009.”
Many factors within the Taiwanese PV industry seem to indicate an increasingly global approach to going about expansion in the industry. Seemingly as evidence of this major Taiwanese players such as Motech are engaging with SEMI in its third edition of the International Technology Roadmap for PV. Stephan Raithel, Director PV Europe at SEMI PV Group says that “We have received positive feedback as well from Taiwanese manufacturers to join the international road mapping activities.” Pursuing this and other global strategies up and downstream and addressing some of the materials and equipment challenges highlighted in the PV Roadmap, Taiwan looks set to remain a prominent player in the PV industry. EuPD’s Otto says: “Despite some possible turbulences in the upcoming months or years, we are convinced this strong manufacturing base is likely to remain in Taiwan.” Lux Research’s Feinstein agrees: “As long as there’s the availability of financing then in manufacturing another country like Taiwan could definitely be competitive.” While its near neighbor China also expands operations, Taiwan looks set to follow its own path, PV strategies, products and progress.