Discussions of module production in Europe tend to revolve around trade disputes, import duties and the question of whether minimum prices are justified. How poorly European manufacturers are doing also gets plenty of air time; whether because of the crisis in the German solar market, which began three years ago, or because of Chinese suppliers, who are now three to ten times bigger than European suppliers, and can deliver at cheaper prices.
But that is not the topic at hand. We want to present a completely different take on European manufacturers. We want to know where they want to excel, how high a premium they officially place on the quality of their products, and what they are doing to attain it. We also asked them what they saw as the biggest threats to their strategy, apart from the minimum price issue.
This is the basis of the third pv magazine Quality Roundtable. It begins with more cases from the Black Sheep series. We will present field test results in the panel discussion in part two. That will also include a discussion on the role quality can play for European companies along the value chain, including module manufacturers.
The first step, however, is to take stock of the current situation. Who is actually producing how much? Karl Melkonyan, a senior analyst at IHS, calculates a production capacity of around 4.7 GW for 2016. That is 20 percent more than in 2015. But this figure is not very significant without considering utilization. In 2015 utilization was at 50 to 60%. This means that European factories likely contributed less than 5% to global module production.
Nonetheless, manufacturers with production facilities in Europe are still on the IHS list. Most of them are in Germany. These producers occupy the top six slots on the list of European producers.
In preparation for the roundtable, we asked European module manufacturers about their strategies and the role of quality as a unique selling point. After all, that has long been one of the key arguments for why investors should spend a few cents more per watt for the Made in Europe label.
Reaching these companies was no mean feat. When we called manufacturers farther down the list, we often found ourselves on hold endlessly or learnt that the number had been disconnected. An Italian manufacturer told us that its plant had just shut down and would not be brought back on line for another three to four months.
Ultimately, we recorded ten manufacturers with cumulative production capacity of some 2 to 2.5 GW. Still, that represents nearly half of existing capacity and we presumably also included companies at the upper end of the utilization spectrum: Astronergy, Aleo Solar and SolarWorld.
SolarWorld is in an exceptional position. First, it has the largest production capacity by far. Second, the company is on the frontline in the battle over import duties and minimum prices. Third, the SolarWorld brand has high media visibility due to its legal dispute with Hemlock, where a figure of $770 million, and thus the company's survival, is at stake. A precedent-setting decision on the case could arrive as early as late June.
Wismar production facility back online
With regard to production capacity, only CS Wismar Sonnenstromfabrik which also participated in the survey has anywhere near the capacity of SolarWorld. Behind this capacity is the former Centrosolar production facility, with 525 MW of annual capacity, which was initially taken over by Solar-Fabrik. After its bankruptcy, production was shuttered for several months and has now been ramped up again. Standard modules as well as BIPV and off-grid modules will be produced in the factory. CEO Alexander Kirsch stated that the company will gain access to the market by focusing on OEM production for other manufacturers and distribution through wholesalers.
Aleo Solar and Astroenergy both have large parent companies in Asia and so are in a different situation to strictly European manufacturers. Solarwatt, which has a similarly large production capacity, is adopting a different tack and specializing in glass-glass modules. This fits with its strategy of positioning itself as a systems supplier and producing its own storage system.
Solarnova, which has part of its modules produced as OEM products at Sonnenstromfabrik, is targeting the even smaller BIPV market. The company can modify individual modules by adding a transparent backsheet film, for instance which sets it apart from the gigawatt-scale producers. Furthermore, BIPV has to meet more stringent standards. Energetica also focuses on the BIPV market segment.
Manufacturers not specialized in entirely niche segments almost all name PERC and bifacial modules as their fields technological innovation. They also mention glass-glass, 1,500 watt, AC and BIPV modules.
Under some circumstances, environmental issues may help companies to cast their profiles into sharper relief, which may motivate module purchasers to pay higher prices than the competition commands. SolarWorld cites the European module and social responsibility as part of its strategy. Sillia sees reducing the carbon footprint as a field of innovation and it is not the only French manufacturer thinking along these lines. This may also have something to do with the critical role that CO2 balance typically plays in the tender process in France.
Question of quality
Quality was a top priority for all of the companies surveyed. The question, however, is how quality can work as a unique selling point in the B2B business. "No one in the B2B sector buys something because it's high quality; everything is high quality," said Carsten Baumgarth, professor at the Berlin School of Economics and Law and branding expert, in an interview with pv magazine (November 2014).
A large portion of European production not exported to the U.S flows to the end consumer market. Other rules apply there. In the 2015 pv magazine installer and EPC survey, 29% of respondents said that the "Modules from Germany" label was a basis for recommending a product to their customers. Quality and reliability was cited by 45%, and 36% said that price was the basis of their recommendation.
But the old dilemma remains: buyers have trouble correlating quality and price. "The key factor is presenting the difference in quality credibly," said Milan Nitzschke, the SolarWorld company spokesman. "We do this with cars. It's even more important for solar modules, since they are expected to last for 30 years or more." Customers do not know who to trust to assess quality. What they do understand is that many things have to be done differently in Germany, where wages are significantly higher than in China, and that a higher degree of automation and better selection of materials can positively influence the service life.
Different rules apply to calls for tenders. Many survey respondents emphasized that investors are often only concerned with the lowest price without any consideration of reliability. The reasoning that it is part of the tender criteria for the invitation to tender does not hold water. Not least, because investors are generally looking for long-term returns. For resale products, the focus should also be on long-term target revenue. Nevertheless, market mechanisms obviously emphasize the very narrow view of low investment costs that is, "getting in cheap and getting out quick." This contradiction could not be resolved in conversations about the survey.
As expected, "unfair competition" was often considered the largest threat to sustainable business development. Policy uncertainty was frequently mentioned as a problem. This was a concern of Detlef Neuhaus, the CEO of Solarwatt. "For me, the question of how high subsidies are is explicitly not the issue." But the mere discussion of the EEG levy on personal use created major insecurity, even among those who are not affected or whose profits are not excessively burdened.
With regard to glass-glass technology, acceptance in the market is an issue as the panels are still relatively expensive. According to Neuhaus, marketing and patience are the only way forward. Neuhaus is not concerned that Chinese companies could also begin manufacturing glass-glass modules. "We've built a strong brand," he said.
Mastering the technology is also no mean feat. In the survey, SolarWorld and Sonnenstromfabrik also said they were committed to glass-glass technology. When asked about the introduction of new technologies, the respondents answered that limited market acceptance for innovations and a lack of financial resources were impediments. They also said that borrowing money to fund technological advances and keep development times as short as possible were further challenges.
Glass-glass modules lack market acceptance, for example. They still cost more than glass-backsheet modules. Still, they can pay off for buyers. Nevertheless, potential customers are often unwilling to stump up the extra money for them. This gets back to the discussion about whether low investment costs may be overrated.
Regardless of whether European manufacturers distinguish themselves from the stronger Asian competition through better development, a focus on niche segments or higher quality, there are good reasons to buy European that simply have to do with geography. Christoph Sekura, technical manager at Aleo Solar, sees the proximity of European production to the European market as a competitive advantage: "We have around 250 different items in our warehouse," he said. These can't be warehoused by companies that merely have a sales branch in the country.
At the roundtable, pv magazine will to address the following questions of manufacturers:
· How can we stimulate the self-consumption market?
· How can we raise awareness of quality?
· How important is Made in Europe for module buyers today, broken down by segment?
· How can European companies develop better cost structures to compete with Asian companies?
· Can European companies "afford" quality in view of the high price pressure, or is this in itself an opportunity?
· Update on current quality standards.
· What topics arise in the after-sales business?
More questions arising from the survey:
· Is the degree of automation among tier 1 Asian producers really lower than among European producers, such that it could be a distinctive feature?
· How great is the quality advantage arising from automation and how can this be communicated?
· What do investors in PV plants and EPCs say about the unique selling propositions they expect from European manufacturers, and what would convince them of higher quality?
· Why are low investment costs often overemphasized in comparison with long-term good returns based on low LCOEs? Or is the assumption correct that low investment costs are the number one driver in module procurement?
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