Today, the solar module market is enormously oversupplied, with nearly twice as much manufacturing capacity as there is demand. According to the report, "Module Cost Structure Update: Path to Profitability," manufacturers have been forced to radically reduce their margins in the case of China-based LDK, to an unthinkable and unsustainable -39% during Q2 2012 (see chart). These record low prices are putting the squeeze on solar producers, thus causing significant net losses, consolidations and bankruptcies.
Indeed, on October 22, LDK was forced to sell a stake in the company of about 20% to Hen Rui Xin Energy, a state-run Chinese company, for around US$23 million (17.6 million). At that time, Lux Research analyst Matthew Feinstein told pv magazine, "LDK has received a lot of funding and is incredibly uncompetitive as far as holding performance and cost. It also has reached its ‘boiling point,' with banks refusing to extend its debt line any further."
And at $250 million in the hole in Q2 alone, LDK is not the only China-based crystalline silicon (x-Si) company bleeding money: Yingli reportedly is losing $90 million; Trina, $92 million; and JA Solar, $70 million, for the three months ending in June 2012. Prices between $0.70/W (0.54/W) and $0.80/W (0.61/W) are not viable, given current costs. Manufacturers need to bring module cost of goods sold (COGS) down to realize some degree of success.
Luxs recent research on past and current COGS reveals why competition remains so cutthroat in the industry:
- Multicrystalline (mc-Si) and monocrystalline (c-Si) COGS reductions ($0.82/W and $0.92, respectively) are largely a result of crashing polysilicon prices. However, future price cuts must be realized within other parts of the value chain. Lux predicts that significant, long-term improvements in x-Si will be driven by perfecting and scaling up dramatic technological changes, such as kerfless wafers, silver metallization replacements, selective emitters, heterojunction with intrinsic thin layer (HIT) cells, and back contact modules.
- Copper indium gallium diselenide (CIGS), one of the most recent entrants to the industry, has outpaced its crystalline silicon (x-Si) and cadmium telluride (CdTe) competition already in terms of year-over-year cost reductions, but CIGS still falls short of its full potential in terms of yield and efficiency. Lux forecasts that, as the emerging CIGs industry hones its processes, it will spearhead one of steepest cost reduction curves in the industry, becoming cost-competitive with c-Si and mc-Si in 2013 and 2015, respectively. And, while it wont catch up with CdTe, by 2017 it may be priced at $0.64/W (0.49/W).
- Thin film silicon (TF-Si) is the least competitive technology due to poor yield, capacity utilization and module efficiency. Lux anticipates that TF-Si will fall even further behind the pack, as companies such as Switzerland-based Oerlikon exit from TF-Si equipment development.
- Cadmium telluride (CdTe) remains the industry COGS leader, but shrinking capacity utilization, low efficiency and high non-active material (frontsheet, encapsulant, backsheet) costs have made CdTes cost curve the flattest over the past four years. It is possible that more efficient x-Si and CIGS technologies could close the price gap. However, Lux believes that, even considering the travails of the sectors leader, U.S.-based First Solar, CdTe will maintain its position through 2017, at a price tag of $0.48/W (0.37/W).
Finally, keep in mind that, for the near future, nearly every manufacturer will be forced to survive the storm in any way possible. According to Lux, whether companies choose to cover their heads until conditions improve, or actively seek innovative solutions to reduce COGS below current prices will determine how well-positioned they are once the clouds clear.
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