Two scenarios for PV shipments in 201210. October 2011 By: Michael Barker, Solarbuzz
There are few who would argue that 2011 has been a difficult year for photovoltaic manufacturers. Michael Barker from Solarbuzz runs through some scenarios, indicating that downstream is the new focus for many.
The past year has been a difficult transition for many companies as module oversupply, combined with lower than expected demand growth, caused prices to fall precipitously. These price declines squeezed corporate margins throughout the year. With the year now nearly over, two 2012 scenarios emerge for analysis.
The first, and preferred, outcome would be to see the pain of the past year come to an end as the market stabilizes through a closer alignment between supply and demand volumes. The second, causing concern in all parts of the industry chain, would involve a repeat/continuation of the 2011 imbalance.
Given the fact that current production capacity projections show total quarterly capacity of over 16 gigawatts (GW) of crystalline silicon and over two GW of thin film by the end of 2012, questions regarding quarterly shipments in 2012 have less to do with how much photovoltaic module manufacturers can produce, and much more to do with how much they can place. This means that past end-market demand and downstream integrators’ perception of future demand makes all the difference in terms of total shipments.
In the first outlook, end-market demand would see a significant uptick as would module shipments. This demand increase, projected at 53 percent over 2011 levels, would allow manufacturers to implement already scheduled capacity build-outs while concurrently increasing shipments so that inventory levels remain manageable. The demand increase would feed further into the upstream as downstream integrators regained confidence in short-term market growth, with shipments under this outcome projected to increase to 34.5 GW in 2012, almost 60 percent over 2011 levels. The reasoning behind this scenario assumes that due to the dramatic declines in module ASPs over the past year - approximately 30 percent - installed system prices will decline to a level where new markets are opened and established markets see reasonable internal rates of return even with declining incentive programs.
In fact, it is the recovery of established markets which would provide the biggest boost to photovoltaic shipments. Germany and Italy alone could account for approximately 45 percent of the total global market, indicating the majority of module shipments would still be headed towards Europe. This would allow time for further channel development in other areas of the world such as North America, encompassing the major markets of the USA and Canada, not to mention the expanding Latin American markets, and especially Asia, consisting primarily of China and Japan, but also emerging SE Asian markets such as Thailand and Malaysia.
Another product of this outcome would be a slowing of photovoltaic module ASP declines. As demand for photovoltaic modules aligns with overall module production, the rapid decrease in pricing could slow significantly. This would allow higher cost manufacturers - especially established Western and Japanese firms - breathing room for further cost reductions in manufacturing processes. It would also allow second and third-tier crystalline silicon and emerging thin film manufacturers to cover their variable costs while they ramp capacity to an acceptable level.
In the second outlook, the outcome would not be as bright for module manufacturers. In this case, end-market demand grows at a much slower pace - 16 percent compared to over 50 percent in the previous scenario - despite ASP declines, due to other factors affecting downstream installations such as regulatory and financing bottlenecks.
This outlook is credible given that several countries have already indicated that, due to the breakneck speed of photovoltaic installations in the past few years, curbs will be implemented to ensure grid integrity and to moderate end-user electricity price increases, which have been attributed to renewable energy incentive programs spurring more expensive generation. According to Solarbuzz research, a nine GW module shipment differential exists between the two outlooks.
The reduced shipments in 2012 will continue the challenges faced by the industry in 2011, but will potentially be even more painful as much of the scope for margin reduction has already been narrowed by declining ASPs and lower than expected shipments during 2011. This is especially true for higher cost manufacturers that have legacy production lines and less rapid cost reduction pathways or emerging thin film companies whose price differential with crystalline silicon moves towards zero.
The mix of shipments by manufacturer type varies quite a bit between these two outlooks. In the first scenario, Chinese/Taiwanese and other low-cost manufacturers maintain their dominance of total shipments - approximately 65 percent - while Western and Japanese manufacturers lose market share Y/Y and thin film and high-efficiency crystalline maintain, with 10 percent and five percent shipment shares respectively. The mix of shipments by manufacturer type remains similar to the profile seen in 2011, primarily due to stabilizing ASPs and high enough demand to sustain all manufacturer types. Even second and third-tier crystalline silicon manufacturers will be able to survive in this type of end-market demand growth environment, albeit at lower margins than their more established low-cost rivals.
In the lower demand outlook, however, the shipment mix will change considerably with more corporate consolidations and liquidations. In this outlook, only first-tier low-cost manufacturers - those with access to a stable downstream channels and pipelines as well as benign financing sources - will be able to emerge from a declining demand and declining ASP market situation.
In this outlook, Chinese/Taiwanese and other low-cost manufacturers could see shipment share increase to approximately 80 percent, while Western and Japanese firms will lose even more market share, halving their shipment shares Y/Y. Thin film manufacturers will also lose market share, down approximately 30 percent from 2011 levels, as their cost and price advantage in the market evaporates in the face of rapidly-falling crystalline silicon PV module prices. In this case, though, even second and third-tier crystalline silicon module manufacturers will be hammered with declining shipments as their entryways into the downstream collapse, leaving them with increasing inventories even as prices decline. This scenario would see ASPs continue the same pace of reduction as seen in 2011, thus leading to even cheaper photovoltaic power generation options and potentially pushing a demand boom into 2013.
In either scenario, module manufacturers that position themselves quickly to secure downstream access will be in the best shape to take advantage of any shakeout in the industry. Deals that see discounted prices on large volumes or dedicated developer/supplier relationships will become more common as the industry moves towards a commoditized product. Bankability will continue to play a key factor in placing product as developers, and especially financiers, must be convinced that any manufacturer they deal with will still be around to service their obligations in the years to come. Those firms that do succeed in positioning themselves appropriately will be rewarded with increased market share and first opportunity to develop emerging market segments that will have reached grid-parity.
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