While China is obviously the worlds largest supplier of all things solar, the major role played by Taiwanese firms in the global marketplace is less well known.
Taiwan is the worlds second largest maker of solar cells and a major supplier of upstream wafers and downstream modules and systems. Between them, China and Taiwan accounted for more than three quarters of solar cell output in 2011, according to analysts at Solarbuzz, and include some of the worlds largest solar firms such as Gintech and Neo Solar Power in Taiwan and Trina Solar and GCL-Poly Energy Holdings Limited.
But with pricing continuing to plumb ever deeper depths in the last five quarters, even the massive scale of Chinas tier 1 players, as well as the vaunted efficiencies of Taiwanese manufacturers, has not spared them the ravages of the market, and nearly all have bled red ink for over a year.
Jifan Gao, chairman and CEO of Trina Solar discussed the struggles facing the global industry. He noted that while prices may continue to drop, the floor may not have been reached and that red ink may well flow for the foreseeable future. All of the players will have problems managing cash flow regardless of scale and he noted that with demand lethargic in the EU and U.S., his firm will increasingly turn towards emerging markets.
Everyone agrees overcapacity remains the biggest obstacle facing the industry and called for effective integration across the Strait to alleviate the problems associated with it.
Hua Shu, executive vice president, GCL-Poly Energy Holdings Limited, noted that access to Chinas surging installation market is another reason for Taiwanese firms to climb on board the China train. As part of its 12th five-year plan, China has included developing not only the solar industry but also solar power installation. Taiwan has significant opportunities in not only accessing the larger scale offered by Chinese solar manufacturers, but also getting in on Chinas domestic market. China is seeking 50 gigawatts by 2020, 65 times the current installation.
Others are more cautious regarding China-Taiwan integration. Hur-Lon Lin, CEO of Green Energy Technology, noted his firm had been seeking Chinese partners in the past but backed off with the onset of anti-dumping tariffs levied by the U.S. and EU. He says they are outsourcing some production to Chinese firms, but going slowly with further integration.
Pushing for vertical integration
Quincy Lin discussed various market forces that alternately pushed for vertical integration and market segmentation.
He says the relatively low technological complexity of solar PV and companies' desire to expand in the value chain are market forces pushing the industry towards vertical integration. Also, longer supply chains are prone to oversupply in the upstream.
He noted that while prices dropped about four times for midstream modules and systems between 2008 and 2012, they dropped 20 times in the same period for upstream polysilicon. This lack of coordination among individual players favors more integrated and coordinated strategy across segments more easily done in a single vertically integrated firm.
However, he also noted equally powerful forces favoring specialized market segments. He said the broad variety of technologies deployed in solar favors specialization over vertical integration, as does the increasing complexity of technology. He noted even a single player dominating a particular segment could have a disintegrating force on the industry, as TSMCs dominance in foundry services eventually dismantled the vertically integrated character of the semiconductor industry.
He foresees the industry breaking down into four segments based on similar technologies materials (polysilicon/wafers); components (cells and modules); engineering (including engineering, procurement and construction); and installation; as well as, increasingly, recycling as the industry ages and older modules need to be scrapped.
Walt Cheng, managing director of DuPont Electronics and Communications, Greater China, noted the durability of systems not just conversion efficiency should be an overarching concern for the industry. He noted no other industry produces components expected to last for more than 25 years and that ultimately, return on investment comes down more to costs per installed kWh than to the lowest price per module.
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