PV in 2012: The year of truth22. December 2011 | Top News, Applications & Installations, Global PV markets, Industry & Suppliers, Markets & Trends, Forum Solarpraxis | By: Nicholas Stone
The photovoltaics industry is going through some major changes. A still deteriorating global economic situation, government belt-tightening and a number of corporate incidents have left the industry in an unfamiliar, unhealthy state at the end of 2011. With the end of the year fast approaching, it is time for a change.
2012 will be the year that these awkward market factors will have to be answered and many industry players are, thankfully, already taking steps to do so.
Overcapacities, in particular, will present many companies with significant problems, as will the SolarWorld trade case and continuing falling prices.
Increasing diversification and the proliferation of market penetration, consolidation and fast-approaching grid parity are the major upsides that will allow photovoltaics the opportunity to eventually emerge from the very real challenges it is currently facing.
"2011 was a devastating year," Matthias Fawer, director of sustainable investment at Bank Sarasin, tells pv magazine. "Except for one short period at first. There was a big boom and high expectations, but by the end of April that was all gone. After April everything went down."
Compared to the 170 percent growth rate for new photovoltaic installations in 2010, 2011 was not as strong for the industry. Newly added capacity in 2011 is estimated to have reached 23.8 gigawatts (GW), up 34 percent from 17.7 GW in 2010. But 2012 is not expected to see as much growth. Predictions from Sarasin say that the year should see around 25 GW installed. Sam Wilkinson, a photovoltaics research analyst for IMS Research, also tells pv magazine that they expect installations to remain flat in 2012.
The January FIT cuts in Germany, the expected expiry of cash grants in the U.S., and tariff cuts in places like Australia and Taiwan will all also contribute towards keeping the market flat. Subsidy decisions in some of the larger European markets like Italy and Greece could also have a detrimental impact, with the Eurozone crisis and austerity measures expected to lead to major cuts in 2012.
Fawer defines these main issues that will lead to a sluggish year in 2012 as a lack of elasticity in demand and a tremendous drop in investment. But he said that the photovoltaics market was still an attractive one.
Overall, new sales markets and additional applications for solar energy mean that newly installed photovoltaic capacity is predicted to rise by an annual average of 18 percent up to 2015.
One of the key developments in 2012 will be the diversification of the marketplace. Although emerging markets such as those in the Middle East and North Africa, Asia and even the United States have been on the rise for a while, next year they will become more important.
According to IMS’ Wilkinson, growth around the world of 43 percent will offset the major declines expected within the European market, which is only predicted to grow six percent in 2012.
This shifting marketplace will also help drive overall market growth, as demand from countries like India and China start to have a real value effect on the market. Bigger companies will also look to have major operations in all three of the key European markets, Asia and the United States.
"2012 will have a huge change in terms of market shift and increase," says Fawer. "The old money in Germany, Italy, Spain and France is still important in terms of absolute figures, but the new markets of the U.S., China and India, and emerging markets will be tremendous."
IMS Research further predicts that demand from Germany and Italy alone will fall by three GW in 2012, and Europe’s share of global demand will fall from its levels of 80 percent in 2010, to 56 percent in 2012.
Sarasin forecasts that more than 10 photovoltaics markets will achieve an annual installed capacity of 500 megawatts (MW) by 2013, signaling the emergence of a much more diverse industry. As a result, many of the larger companies are looking to realign their strategies to more sustainable development, rather than the current model of chasing government subsidies.
Like the majority of its peers, First Solar announced recently that it would be following this shift in the marketplace and putting more emphasis on these emerging markets. "We will shift revenue from subsidy to sustainable markets beginning in 2012," said chairman and interim CEO, Mike Ahearn during a recent telephone press conference. "We will be targeting markets that are underserved and growing at a macro level."
While there is a big shift away from Europe, within the continent there were also some rumblings. After years as the world's biggest photovoltaic installer, Germany is being deposed by Italy, according to various sources, such as IHS iSuppli and Italian electricity regulator, GSE, largely due to more favorable government subsidies.
According to the most recent figures, Italy has installed 6.9 GW of photovoltaics in 2011, followed by Germany, at 5.9 GW. The U.S. is said to place third, at 2.7 GW, while China has installed 1.7 GW, Japan 1.3 GW and France 963 MW.
Italy, under new leader Mario Monti, shows no real sign of slowing down in 2012 either, despite the projected subsidy cuts. The country’s renewable-energy regulator approved 507 commercial and utility-scale solar plants, or about one in every six projects seeking permits for the first half of the year.
Corporate ups and downs
In terms of the corporate side of the industry, this year saw market conditions adversely affect a number of industry heavyweights. A number of major U.S. solar companies declared bankruptcy, including Solyndra LLC, which received $535 million in government loan guarantees, Evergreen Solar, Beacon Power and SpectraWatt. Arise Germany, Solar Millennium and Solon have also recently filed for insolvency. Meanwhile, a plethora of production cutbacks and redundancies have been announced by such companies as SolarWorld, PV Crystalox, Day4 Energy, SunLink, Conergy and REC.
"More companies are bound to fail in view of the enormous surplus capacities," says Bank Sarasin. "This is not particularly surprising given a solar value chain that includes roughly 250 wafer producers, just as many cell manufacturers, and more than 400 module producers."
Overall, Fawer expects 2012 to be a successful year for larger companies like General Electric, Shell and Solar Frontier, which are all developing a burgeoning solar portfolio and making sure they remain financially viable in the post-subsidy market. Companies like China’s Suntech Power, Trina Solar and Yingli Solar will emerge triumphant, as will U.S.-based First Solar and SunPower, and Germany’s SolarWorld.
Meanwhile, those companies which are "small", "uncompetitive" and "inadequately financed" will be pulled under. The companies it believes to be most under threat are small to medium in size, and with "comparatively modest growth prospects, such as Germany's Conergy, Q-Cells, Solar-Fabrik and Sunways."
"While market share growth was the predominant corporate strategy at the beginning of the year, companies must now improve their financial viability, or they risk not being able to participate in the strong growth expected by grid parity now being established in key markets," says Craig Stevens, president of Solarbuzz. This view is also backed up by Bank Sarasin and HF Bank’s Goetz Fischbeck, who, following the 12 Forum Solarpraxis, wrote that due to the "excessive" production capacities across the entire photovoltaic manufacturing chain, the key to survival will be a strong balance sheet and adequate financing over the next two years.
The SolarWorld Trade Case has also cast an ominous shadow on how big companies are dealing with the shifting of supply lines to China, and will really come to the fore in 2012.
Andrew Beebe, chief commercial officer at Suntech, tells pv magazine that much of 2012’s direction for the big companies rests on the SolarWorld trade case. "A global solar trade war will increase the price of solar products, from silicon and capital equipment to cells and modules," said Beebe. "Trade barriers would act like a tax on solar electricity and therefore limit the growth of demand, particularly in highly-elastic markets on the cusp of grid parity."
Despite the United States’ International Trade Commission’s unanimous ruling that the importation of cheaper products from China harmed U.S. retailers, it may prove to be only a minor victory for SolarWorld and other U.S. companies. Being able to deal with the flooded marketplace is an issue that will remain.
Both the Coalition for Affordable Solar Energy (CASE) and the Coalition for American Solar Manufacturers (CASM) exclusively presented their arguments on the trade dispute to pv magazine. While Gordon Brinser, president of SolarWorld Industries America Inc. says he is fighting for an all American vision, Jigar Shah, co-founder of the Coalition for Affordable Solar Energy and the founder of SunEdison, argues that if successful, SolarWorld’s survival will come at the expense of the U.S. solar industry.
The trade case has caused ripples across the world, with many adding their thoughts to the debate. The latest word on the street is that India may also be looking to instigate its own trade case against both China and the U.S., and China has said that it is launching an inquiry into U.S. renewable energy imports. 2012 will be an interesting year in terms of who will rule the day.
For many companies, the major downturn expected will provide the sternest test in many years. And one of the major stumbling blocks in 2012 will be dealing with overcapacity. "2012 will be the year of truth for a lot of companies," comments Sarasin’s Fawer. "The biggest danger will come from overcapacities." While solar module producers are already in a precarious position, he says that companies operating downstream in 2012 would have a particular issue in dealing with the overcapacity that marred 2011.
Massive capacity increases are still occurring and if all of them are realized, the worldwide production capacity or solar cells would exceed 80 GW at the end of 2012, according to a report by the European Commission’s Institute for Energy.
"Leading into 2012, the industry is braced for another challenging year," says Solarbuzz in a report looking to next year. "Manufacturers are preparing to raise cell capacity by 50 percent over 2011 levels, while end-market demand is forecast to increase by less than half that level."
This tremendous overcapacity, unless dealt with early in the New Year, will see a number of other companies shutting their operations down. "Producers - both solar cell and module producers - cannot keep up that rate. They will have to file for Chapter 11 [bankruptcy]," says Sarasin’s Fawer.
In a similar vein to oversupply, another factor moving forward, according to larger companies like First Solar, is how to deal with the proliferation of smaller companies that are delivering this oversupply. As entry barriers drop and good technology becomes easier to produce, a number of start-ups are emerging to compete with the larger companies.
Furthermore, the polysilicon supply chain structure has changed markedly and will become a real issue in 2012. As volumes usurp demands, only the most resilient producers will be able to stay in operation next year.
Bank Sarasin states in its recent report, 'Solar industry: Survival of the fittest in a fiercely competitive marketplace', that two major changes have occurred in the polysilicon sphere. Firstly, photovoltaics now represents its main customer, having "comfortably" outstripped the semiconductor industry. Secondly, on the back of cell manufacturers’ attempts to raise efficiencies, silicon purity is becoming increasingly pertinent.
The report also found that more than half of the world’s polysilicon production comes from the U.S. and China. Based on the bank’s latest figures, which show an overview of market share in 2010, at 22.4 percent U.S. company Hemlock constitutes the biggest polysilicon player. It is followed closely by Germany’s Wacker Chemie, which holds 19.8 percent of the market, Korean-based OCI, with 8.9 percent, and China’s GCL-Poly with 8.7 percent.
These four producers currently comprise 60 percent of the market. However, according to Sarasin, their share is expected to jump to 70 percent in the coming years. Even in light of the overcapacity in the solar industry, it believes they will not experience sales problems, due to both their cost and quality advantages.
However, Ahearn from First Solar, believes that, "In an industry without entry barriers, which we believe is now the case for the polysilicon PV module industry, the easy reentry of competitors and the expansion of capacity will keep downward pressure on prices and margins indefinitely."
For Sam Wilkinson of IMS Research, the oversupply and "unsustainably low" prices, will mean 2012 will be tough for many companies to outlast. "2012 will undoubtedly be a year of consolidation," he says, "with many companies unable to last the difficult period that will continue into 2012.
"The companies that are likely to survive are those that have established strong brands, have strong balance sheets and that are able to control their cost structure over the next few quarters. Those that have positioned themselves well in emerging markets are also better placed."
Pricing and technology
One of the major effects of oversupply is the rapid drop in pricing and the market reaction to this in early 2012 will be key. "2011 was characterized by rapid capacity growth combined with weaker than expected demand in some key countries," continues Wilkinson. "This led to a severe over supply of products throughout the supply chain which has forced prices down significantly throughout the year."
2011 had the largest number of price reductions of any year during the last decade. There were 1,159 reductions in total.
Those price cuts have begun to stimulate demand, however. The analyst firm Solarbuzz is predicting a further 18 percent module price decline in the closing quarter of 2011 - something that will also have an effect on thin film solar module prices as rival photovoltaics technologies compete with silicon modules. The drop in prices has resulted in slashed margins for companies and 2012 is likely to see that trend continue.
There are already cases in Europe of modules selling for less than €0.80 per watt (/W), while in China, prices have been as low as €0.70/W, according to Sarasin. Overall, module prices are forecast to reach €0.65/W in March 2012, according to IHS. "Prices are dropping so quickly," says Sarasin’s Fawer. "All this means that competitiveness for modules will go up next year."
The weak demand in Europe will lead to further price battles in 2012 and companies will need to consolidate their revenue streams to deal with this emerging trend in the industry. While some companies may struggle with these new revenues as prices drop, those not able to match the drops in 2012 will be fighting to survive.
In terms of what this means for technology sales, the New Year shouldn’t hold too many surprises. "The huge supply of attractively priced c-Si modules means that crystalline will continue to hold a majority share of the market," explains Wilkinson of IMS Research. "First Solar and its low-cost CdTe technology is also well placed. Other thin film technologies that are not able to achieve significant cost reductions are likely to struggle in the tough conditions that 2012 will bring."
According to Beebe from Suntech, a potential stabilizing of prices in mid-2012 would bring about major benefits for the industry. "We expect that price stability will encourage customers to develop project pipelines quickly and stimulate a renewed wave of solar demand beginning in mid-2012," he tells pv magazine.
The price of polysilicon dropping below US$30 per kilogram, perhaps somewhat indefinitely, means crystalline silicon technology will be an increasingly attractive option moving forward.
Storage technologies are additionally expected to play a bigger role in the New Year. A report from Pike Research from earlier in the year predicted that photovoltaic and wind energy production will be the main driver for US$122 billion in investment in energy storage projects over the next decade.
Suntech, meanwhile, sees a burgeoning utility sector as having a greater sway for larger companies in 2012. "The utility segment will grow by leaps and bounds," says Beebe, "driven by greatly improved project economics. In some cases, utility installations are now projected to deliver electricity over 25 years at less than US$0.10 per kilowatt hour, without government subsidies."
A report by Solarbuzz, however, predicts that equipment suppliers from the crystalline-silicon wafer, cell and module expansions of 2011 will be hit the hardest in 2012. The worst hit will see their year-on-year revenues fall from between 30 and 79 percent in 2012.
Moving forward without subsidies
The impact of government regulation will again play a critical role in the proliferation of the industry during 2012. "This year saw quite a break," says Fawer. "There was a slowing down in the market due to cuts in subsidies and FITs." As such, many larger companies are now talking about operating in a post-subsidy marketplace.
The cuts made to feed-in tariffs in a number of countries like the Czech Republic, Slovakia and France, Italy, the U.K., and Germany have continued in 2011 and will likely be compounded by big subsidy reductions in 2012, primarily expected in countries like Greece and Italy. "Overall we are confident of a broader fundamental level," continues Fawer, adding, "The whole industry will be less sensitive to FITs." With little government help, an increase in demand and falling module prices mean that solar will only be "close to competitive in 2012."
How the industry deals with these issues in 2012 will dictate its success. As Wilkinson concludes, "2011 will end with low utilization, and almost zero profits." It will be the challenge for 2012 to turn this around as quickly as possible, but it will remain a challenging year for the industry.
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