A central fact of today’s solar industry is that China and to a lesser degree Taiwan and Malaysia are the centers of global PV manufacturing. This was not always the case, as roughly five years ago the industry began shifting from its traditional bases in Germany, the United States and Japan.
Even leading American PV makers produce the majority of their products overseas, with Malaysia as a prime location for First Solar. However, this trend may be shifting, according to GTM Research’s latest report on the geography of global PV manufacturing.
The company’s Global PV Manufacturing Attractiveness Index 2015 finds that none of the 6.6 GW of new PV module capacity announced in the first three quarters of 2015 was based in China. Instead, half of it will be located in India and Thailand, with another 16% in Korea and 9% in the United States and Brazil, respectively.
Much of this is driven by the EU Minimum Price Agreement and U.S. duties on Chinese PV, both of which are pushing Chinese companies to locate overseas. However the report also finds advantages in locating manufacturing closer to demand centers, which are also increasingly geographically diversified.
And when SolarCity’s previously announced gigafactory and other projects are factored in, it is clear that the United States is beginning to attract a modest but growing share of global manufacturing.
This comes at an important time. The report also warns of a pending supply shortage, despite this 6.6 GW of new supply announced. GTM Research predicts that global PV module demand will rise to 135 GW annually by 2020.
GTM notes that the strong excess capacity, which peaked in 2012 at around 90% more than the market, has subsided. This year it estimates only around 25% capacity excess of demand, which the company says is below the 30-70% which is ideal for a stable supply and demand balance.
In high-case scenarios, this could get worse in 2016 and 2017, which GTM warns could lead to price pressure and even shortages of modules in some markets.
This need for additional capacity is being recognized in the solar equipment supply market, with equipment makers reporting a book-to-bill ratio of 1.58 during the second quarter. This is by far its highest level in four years.
The report’s findings in terms of manufacturing attractiveness re-affirms the dominance of East Asia, with China coming in first, followed by Singapore, Taiwan and Malaysia.
And despite strong incentives for manufacturing in China and Malaysia, GTM Research Senior Analyst Mohit Anand says that other factors are bigger drivers. (Solar manufacturers) will go where costs are low, and access to demand is high, Anand told pv magazine. For countries like Malaysia, the fundamentals for manufacturing come from the cost-competitiveness, and the access to global demand.
However, the United States came in fifth, with the report citing access to demand as a big factor, as well as a strong high-technology manufacturing ecosystem and ease of doing business, despite high manufacturing costs. "High-tech labor of the kind that is needed for solar is especially in short supply in the U.S.," says Anand.
India placed sixth, despite announcements of substantial new capacity. Anand notes that the nation’s attractiveness has increased substantially since the Modi Administration come to power, bringing with it increased solar ambition and new incentives.
India’s strengths come from its own cost competitiveness, its support for manufacturing, its balance of materials supply chain, and its proximity to demand, explained Anand. However, he cites a difficult business environment as a major impediment.