Solar margins improving, but a long way to go

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Michael Fuhs: Who is earning money in the solar industry at the moment?

Jenny Chase: Lawyers, some product developers and a few inverter makers but nobody else, really.

But if I look at your chart, there are also some module manufacturers.

Actually no. There are a few module manufacturers that made money in the last quarter, or at least had positive EBIT margins, but few of these made a net profit in the quarter.

REC had a positive EBIT margin though, didn’t it?

Yes, REC Solar did. That is actually quite interesting!

Does REC prove the point that it doesn’t matter whether you are in China or Europe?

REC Solar has a big integrated factory in Singapore – a vertically integrated wafer, cell and module plant that is one of the most automated plants in the world. I think REC has benefited a lot from the uncertainty about anti-dumping tariffs on Chinese modules, because it is seen as a relatively competitive, non-Chinese option.

Do you think other European companies could benefit from the anti-dumping tariff discussion and the minimum price regulation, and could achieve positive EBIT margins?

I would suspect it’s more likely that other Southeast Asian manufacturers – so Taiwanese, Malaysian, Singaporean and Korean companies – will come in and take market share from the Chinese.

Why is it so difficult to have competitive production in Europe?

I’m not sure it’s impossible. I don’t think labor costs are such a big part of making a module, especially with the new generation of equipment, which is highly automated. But it’s also very difficult to do anything in Europe on a scale that it’s being done in Southeast Asia. Most of these new plants benefit from massive tax breaks. Malaysia offers pretty significant tax holidays. And if you’re going to build a 1 or 2 GW fab, then you’re going to do it where you have that sort of advantage.

Do those tax breaks conform to WTO regulations?

I think you’re allowed to give tax breaks to manufacturing, because nearly every government does it to some extent.

So there’s no excuse for European governments not to follow suit?

I think they would be joining the club. I mean there have certainly been European Union grants to solar manufacturers in Europe. I’m not a lawyer; I don’t know exactly when it starts becoming a problem for the WTO, but certainly countries implementing strategic support for their high-tech manufacturing industries, is very much the way of the world.

Regarding high-tech manufacturing industries, in your talk you showed that…

… solar isn’t actually that high-tech?

Exactly. Why, in your opinion, is solar more of a commodity than high-tech industry?

There are parts of solar which are high tech. Making silicon is a very high-technology process, in fact it consists of two high-technology processes end to end. Designing inverters is probably quite high-tech too, but making solar wafers, cells and modules is a commodity manufacturing business. You’ve got to have the equipment, and you’ve got to be good at turning out lots of goods that are all the same without wasting a lot of energy on materials. And you can buy the equipment off the shelf. I mean, if you and I decided to go into business making modules in the European Union and we could get ourselves, say €20 million to start with, we could probably do it within six months.

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