While not representing an outright boom, good times are returning for solar module manufacturers. In its latest PV Integrated Market Tracker, IHS predicts gross profits to hit a four year high this year, coming in at $5 billion.
What makes the predicted gross profits even more impressive is that the IHS figures do not take into account the downstream project business, which has proven to be a very profitable endeavor for many producers. In 2015 it is the norm rather than the exception for module manufacturers to also develop PV power plant projects.
The IHS analysis attributes the growth in gross profits from module sales to a combination of surging end market demand, slowing average selling prices (ASPs) and improving cost structures. Within the PV supply chain, wafer producers in particular are set to register impressive gross margins of 20% in 2015. Module producers will average gross margins of 13%.
This year we expect a good combination of high demand in a vast number of countries, no collapsing end-markets and stabilizing prices, said Ash Sharma, senior research director for solar at IHS. This positive market environment will cause marked improvement for the supply chain.
Amongst manufacturers, IHS concludes that tier-1 suppliers are better situated than their tier-2 and tier-3 rivals, with the smaller producers, barely breaking even or even losing money this year, Sharma told pv magazine.
IHS predicts that the global solar market will reach 61 GW this year, up from 48 GW in 2014. By comparison, rival analysts Bloomberg New Energy Finance (BNEF) concludes that 45 GW was the annual installed figure for 2014, with that growing to 58 GW in 2015.
This years improved PV market is not necessarily a return to the good times of 2009 to 2011, but it is certainly an industry turning point, Sharma said. In 2015 we can expect a much healthier year for the supply chain, after two very difficult years, when incentives were pared back in several countries, over-supply continued and prices collapsed. We now see far healthier and sustainable margins for much of the industry.
Looking to individual countries, 2014 saw end markets in 21 countries decline, resulting in a drop of 5.6 GW in demand. By contrast only seven countries will see a decline in 2015, according to IHS, translating into 500 MW of demand lost.
Germany is a key market in which declining market size is a factor, with annual installed capacity having shrunk from over 7 GW in 2012, to over 3 GW in 2013 and then 1.9 GW in 2014. While some estimates have German demand declining to around 1.5 GW, more bearish market observers believe the German market may retract to under 1 GW for the year. Figures for March installations in the former leading solar end market reveal that only 66 MW of PV was added to the German grid.
Fortuitously the German market is largely alone in this trend, and IHS data reveals that 73 countries experienced PV market growth in 2014.
The growth of PV end markets does remain largely concentrated on three major markets being China, Japan and the U.S. Together, those three leading markets will account for will account for well over half of the global capacity. IHS Sharma notes that while there are inherent risks in this level of end-market concentration, the tail [formed by smaller markets] is rapidly expanding.
China looks less risky now as Q1 was so strong and Government support is increasing and more policy emerging, said Sharma. The U.S. is not a big risk in 2015 or 2016 and in fact upside exists due to projects being pulled forward ahead of the Investment Tax Credit cut and the leasing model gaining huge momentum and raising more capital. Japan is probably the biggest risk and we could see a major shift in policy.