The solar shakeout, and what to expect in 201211. January 2012 By: Matt Feinstein, Lux Research
With bankruptcies an unwanted but increasingly common feature of the photovoltaic landscape, questions abound as to what to expect from 2012. Lux Research’s Matt Feinstein investigates and picks a list of winners from the up and downstream markets. Innovation it seems, and not just when it comes to technology, is the key.
The year 2011 claimed a number of solar shakeout casualties; most notably Solyndra, but also Evergreen Solar, SpectraWatt, Solon, and Solar Millennium. Further, upstream tier-1 suppliers like REC and MEMC cut significant portions of their production. As suppliers continue to build capacity despite today's massive oversupply, and margins remain dangerously low, the solar shakeout is poised to continue through 2012 – and will claim several high-profile start-ups, and potentially even some large industry leaders.
Some of those likely to struggle in the near term (in no particular order) are:
1. Nanosolar. As we detailed late last year, Nanosolar's lack of progress is alarming. While we're skeptical of the company's aggressive cost roadmap – $0.40/W to $0.45/W for module costs at 2.5 GW capacity – its stated efficiency of 11 percent is not only uncompetitive with other copper indium gallium diselenide (CIGS) companies, it fares poorly against cadmium telluride (CdTe) panels from First Solar. That, combined with Nanosolar's misguided strategy – going after utility-scale projects rather than commercial rooftops – leaves tough times ahead for the company. On the other hand, several CIGS companies are well-positioned for success in 2012; for more on winners and losers in the CIGS space, see the Lux Research report "Sorting through the Maze of CIGS Technologies: Who Will Cash in on the Breakout Year?"
2. Solopower. When most other CIGS companies put flexible substrates and building-integrated (BIPV) applications on the back burner, Solopower forged ahead with them. As that segment has proven a small niche at best now and in the medium term (see the Lux Research report, "Building Integrated Photovoltaics: Moving Beyond Showcase Projects"), expect Solopower and its peers in BIPV, like Soltecture and Odersun, to struggle mightily.
3. Abound. One of the more prominent CdTe start-ups, Abound has been plagued recently by several departures from its management team and industry rumors that its modules haven't been performing as expected. Perhaps more importantly, First Solar has abandoned its research and development activities in CIGS to concentrate on its core CdTe technology.
4. Solarworld. Several other European manufacturers have found it difficult to keep up with the ever-decreasing margins out of China – Q-Cells and REC are well known to be struggling. With that in mind, Solarworld's lead role in the U.S. petition against low-cost Chinese manufacturers is a clear act of desperation. Indeed, imposing a tariff on Chinese modules would significantly hurt demand in the U.S., as evidenced by the installers and developers that have publically opposed the Solarworld petition.
5. Oerlikon. Thin-film silicon (TF-Si) players continue to preach their technology's effectiveness in warm climates, and some, like Astronergy, have significant shipments, but the market overall remains small – growing to only 1.8 GW in 2016. The lone major remaining production equipment supplier for TF-Si, Oerlikon, works closely with its customers, who regard it as more of a technology development partner than a supplier. Still, the question remains as to how often they can buy new equipment or improve their current production line processes in a niche market.
6. Suntech Power. The tier-1 supplier is beginning to suffer for its poor past choices. The same banks that doled out cheap credit to module manufacturers in the late 2000’s are heavily invested in China’s rapidly collapsing real estate bubble. Suntech in particular, has a market cap of $470 million and is $2.4 billion in debt.
As is often the case, a number of struggles will be countered by some shining successes. Among crystalline silicon players, Yingli is well-positioned to weather the storm. In thin-film, we expect Solar Frontier to lead the CIGS space, followed closely by Avancis and Solibro. Some of the quieter successes reign on the downstream front as well: SunRun and SolarCity continue to grow – an IPO from SolarCity might come in 2012 or 2013 – and Indian developers like Kiran Energy and SunBorne Energy are well-positioned to capitalize on that growing market (see the Lux Research report, “Swimming Downstream: Evaluating Up-and-Coming Solar Installers and Developers”).
Overall, look for 2012 to be a year of re-shuffling – both of the competitive landscape on a ‘macro’ level, and of individual companies on a ‘micro’ level. Pricing remains wildly in flux due to low margins and the fall of polysilicon prices to $30/kg, so suppliers are trying to both lower production costs to thrive in today’s environment, and immunize themselves against future heavy swings.
Shifts in strategy will be common in order to optimize internal processes and maximize margins. First Solar has already announced a re-focusing, rolling back production expansions and CIGS technology development (the "worst-kept secret in Silicon Valley") to focus on its core CdTe technology, and move into unsubsidized, stable markets.
Expect industry winners going forward to be those with innovative business models – not just innovative products – that can withstand volatile supply and demand dynamics by maintaining a lean, risk-averse company profile.
Matt Feinstein is an analyst who leads the Solar Systems Intelligence service at Lux Research. Lux provides strategic advice and on-going intelligence for emerging technologies. Leaders in business, finance and government rely on us to help them make informed strategic decisions. Through our unique research approach focused on primary research and our extensive global network, we deliver insight, connections and competitive advantage to our clients. Visit www.luxresearchinc.com for more information.
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