PV Taiwan: Strategies, cost structures and the way forward07. October 2011 | Markets & Trends, Global PV markets, Top News | By: Becky Stuart
While this year's PV Taiwan has attracted a predominantly Asian audience, the issues addressed have been very much global in nature.
The way forward from the huge price pressure and high inventories has been a focal theme. To gain competitive advantage, say Taiwan's top photovoltaic industry leaders, technological improvements must be made and new business models implemented. Meanwhile, polysilicon prices are set to nosedive in the next quarter.
The exhibition halls at PV Taiwan in Taipei are bustling, with many of the exhibitors reporting interest from visitors, despite the somewhat depressing market conditions.
At a CEO forum held on Monday, both the Taiwan and global photovoltaic market were addressed. Six of the country's top solar leaders took to the stage to discuss the current market situation, and present their ideas on how the industry can move forward.
Polysilicon hurricane looms
Kicking off the forum, Motech CEO, P.H. Chang, stated that the global solar industry encountered a "whirlwind" in the second quarter (Q2) of 2011, which is fast turning into a hurricane.
He believes that Q4 will see polysilicon prices nosedive. It will be a "troubling time" for polysilicon makers, he said, because of oversupply and high inventories, which will eventually force production cutbacks.
In an separate interview with pv magazine, Robin Chien, vice president of TSEC Corporation pointed out that polysilicon manufacturing methods are not flexible, meaning that cell or module production cutbacks - something Chang goes on to address - could have a real impact on the market. He added that the first quarter of 2012 will be particularly challenging for polysilicon, with prices falling to between USD$20 to $USD35 per kilogram (kg).
This is also a scenario that Motech's Chang sees. He said that worldwide polysilicon supply is likely to exceed sluggish demand in Q4 and that prices could be anywhere below $25 to $40/kg. Meanwhile, spot prices may decline to under $35/kg by year end."$35 is definitely possible at the beginning of Q4," said Chang.
TSEC's Chien added that Q4 is a critical time for polysilicon, due to the fact that if the price does not decrease, then the wafer industry will be negatively impacted.
Chang also addressed the wafer industry, stating that the trouble the sector encountered in Q2 2011 will continue into Q4. He said that, in the long term, wafer and cell manufacturers will see some relief, because of the expected polysilicon price drop, but the hurricane will linger in 2012, "pulling the entire manufacturing supply chain under water."
Talking about prices, while it was not widely discussed, OCI's executive vice president Minkyu Lim, said that he believed average module prices will come down to around USD$1.28 by the end of the year. When asked, many of theTaiwanese manufacturers, were cagey about releasing their prices or pricing strategies. However, most agreed that this seemed an accurate figure.
As has been widely reported, high inventory levels are causing "big problems". Chang stated that an inventory build up will continue into 2012. Levels could hit as high as 22 GW, he said, if production cutbacks are not implemented.
He went on to explain that production cutbacks may occur when the average selling price (ASP) approaches a manufacturer's variable cost, or when there is a lack of demand. However, he said "the pressure, and tendency, is to produce more." As a result, he said that prices will continue to be cut as long as they stay above the variable costs. The industry is "in a vicious cycle" due to the inventory levels, he added.
The industry's cost leaders, he explained, tend to produce more product if the ASP is above their variable cost - both for improved financial performance and market share growth. However, cost leaders may reduce their output when the market is significantly oversupplied, as is the case now, or when supply chain inventory is consistently huge, as is also currently happening. "The price is set by the desperate, not the cost leaders," he stated. "A huge inventory write down risk is looming."
He does not believe that "significant" production cutbacks are likely though. Therefore, high inventory levels are expected to persist until macro financial conditions improve to fuel project installations.
In an impassioned and well received speech, chairwoman Christine Young from Taiwan Polysilicon Power, the only Taiwanese polysilicon company, said that one of the key challenges is the mismatch between supply and demand. "The industry needs more discipline," she stated.
While an industry shakeout began in the West, continued Chang, with companies like Solyndra, Evergreen, Spectrawatt, REC, SolarWorld and Solon either having announced bankruptcy or production closures, the next stage to watch out for is the Chinese players shakeout. "Consolidation will make the Chinese more competitive than anyone else," he stated.
He added that in order to compete against Chinese companies, one needs: scale; technological investment; operational excellence; and corporate governance.
Christine Young believes that the solar industry is currently evolving from an infantile stage to enter adolescence. Furthermore, she stated that solar will become the most important alternative to fossil fuels, due to such factors as wind's unpredictability and geothermal's inability to develop in a scaleable way.
Reiterating Chang, she said that one of the most important factors for the solar industry is technological advancement. "Companies that are blindly overbuilding capacity will be penalized," she said, adding that larger is not always better, and that good technology, strategies and common sense will be rewarded. However, she said that technological advancements are slower than industry price reductions. Therefore, companies must work harder on their technology roadmaps.
In terms of specific technology improvements that can be made, Neo Solar's Sam Hong spoke at length about the need for higher efficiency cells, as did OCI's Minkyu Lim. "High efficiency cells are in shortage," Hong told the audience. He believes that there is "strong" demand for such product at the moment, and that only companies with high efficiencies can gain a better market position. Possible reasons for this demand, he said, are attractive feed-in tariffs for photovoltaic rooftop applications and an oversupply of low efficiency cells.
Again, speaking with companies in the trade show halls, it was interesting to note that manufacturers' definitions of high efficiency varied, and could encompass anything from between 16 to 19 percent.
Lim added that the strong demand for high efficiency cells will help to drive demand for higher purity polysilicon.
On another technology track, Walt Chang from DuPont said that a key challenge for the industry is to work on lowering material costs. He explained that the photovoltaic industry has a higher material content than other electronic products. Therefore, there is more work to do. This, he said, is both an opportunity and a challenge. The three key material areas to focus on are: efficiency, lifetime and cost reductions.
New business models
During her presentation Young said that new business models will be needed going forward. Praising Google for its recent residential solar fund, she said that these types of emerging business strategies could "greatly" help demand in the future.
DuPont's Chang added that grid parity should not be the end game for the industry, but rather the key to improve investment and, consequently, demand.
As Chang from Motech concluded in his speech, it is time for the industry to rethink its solar strategies.
For an in-depth overview of the Taiwanese photovoltaic manufacturing market, wathch out for November's edition of pv magazine.
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