An Inflection in PV manufacturing investments

The solar photovoltaic (PV) manufacturers and the companies who supply them have been through tough times. Investments boomed between 2008 and 2011 to nearly $13 billion per year as solar PV makers raced to establish size and scale. A hangover of overcapacities and soaring inventories quickly followed, and manufacturing investments evaporated: capital expenditures (capex) plummeted 72% in 2012 followed by more than 30% in 2013 to end at less than a $3 billion annual run rate.

But the era of weak capital spending on solar PV appears at an end, as strengthening end-market demand finally closes the gap with solar PV overcapacity. Global PV installations rose 24% in 2013 to nearly 39 gigawatts and are expected to grow another 22% this year to 46 GW, largely driven by China and Japan but also emerging markets, says IHS Technology. Most tier-1 PV manufacturers have clawed their way back to full factory utilization and are planning significant capacity expansions, and to support these outlays overall capex is poised to increase more than 40 percent in 2014 to $3.8 billion, an upward revision from $3.4 billion the firm stated earlier this spring and well above the $3.0 billion it forecasted last summer.

"This capex cycle has a different feel," explained Jon-Frederick Campos, solar analyst at IHS, who is leading a panel of experts to discuss the suddenly optimistic and robust picture for solar PV manufacturing at the July 9th SEMI PV Advanced Manufacturing Forum at Intersolar North America. "The fundamentals are better, and there is a business case for those expanding." The industry’s massive overcapacity piled up to address demand in the largely developed markets of the U.S., Europe, and Asia, but demand is now rapidly increasing especially among emerging markets: Latin America, Africa, and the Middle East, individually small by comparison but whose appetites for solar are greatly expanding. Collectively, these markets increased their solar capital spending 23% in 2013; that will rise to "the low-40 percent range" annually from 2014-2017, Campos projected. They also account for nearly 8 GW of announced capacity for materials and products now, stretching to 11 GW by 2017.

The precise timeline of this upswing is still a moving target. Worldwide bookings for PV manufacturing equipment for the first quarter ($296 million) were 18% above 4Q13 and 44 percent higher than 1Q13, according to SEMI’s latest data. And at 1.24, the book-to-bill ratio surged above parity for the first time since early 2011. Campos agreed that capex increased in both quarters of this year, and predicts the backlog will keep growing through all four quarters and continue to gain momentum in 2015.

Others see the capex rebound occurring somewhat more gradually: NPD SolarBuzz predicts equipment spending will start accelerating again in 2015, surging back to the $10 billion mark in 2017.

Note that the previous plateau of solar PV capex generated $38 billion of revenues from 2008-2011, spread out over hundreds of companies up and down the supply chain, and across the breadth of solar technologies from crystalline silicon (c-Si) to various flavors of thin films. Today, following the industry’s consolidations, those investments will be concentrated mostly among tier-1 manufacturers and c-Si technologies. They’ll also come in much bigger gigawatt-size increments, initially to leverage economies-of-scale but later phasing in investments aimed specifically at technology improvements. That cycle is of course familiar to the semiconductor memory sector, though whether solar PV is a commodity technology is still hotly debated; ultimately, though, "what the end user wants is what the technology and capacity will produce," explained Campos.

While the silicon PV crowd ratchets up their activity, the market’s small minority of thin-film PV companies operate on a different cycle of technology upgrades and procurements. "The Si PV industry is at a critical juncture," as future significant cell efficiency improvements for the standard p-type screen-printed multi-crystalline silicon technology will require major updates to process technologies, equipment sets, and line retoolings, observed Raffi Garabedian, chief technical officer at First Solar, also a speaker on the morning SEMI panel. By contrast, investments to upgrade First Solar’s thin-film (CdTe) technology, he said, can be implemented on existing equipment platforms, addressing not only device efficiency but also line throughput to increase capacity without substantially more capex — decisions "essentially decoupled from the technology transitions that drive crystalline Si capital spending." (First Solar has its own n-type monocrystalline technology acquired from TetraSun, but it’s "still in the early days" of progressing commercialization, he added.)

Join speakers from IHS, Trina Solar, Hanwha Q Cells, First Solar, and Applied Materials as they discuss the return of capital spending in the PV industry during the morning session of the SEMI PV Advanced Manufacturing Forum at Intersolar North America. Learn more about SEMICON West 2014.