Author Archives: Edward Cahill

The Photovoltaic Market’s Return to Equilibrium in 2015 Drives Tomorrow’s Growth for Today’s Innovators

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The PV market has been a minefield in recent years, with shrinking margins, fluctuating subsidies and trade conflicts keeping executives across the globe awake at night. Beneath it all, the market has continued to grow, and will continue to do so in the next 5 years but with markedly different and healthier dynamics.

Due to the extreme price pressure experienced by manufacturers today, many will not survive the next two years. Uncompetitive tier-2 and tier-3 manufacturers, and some tier-1 manufacturers like Suntech, either will dissolve or be acquired. As a result, global module capacity will decrease from 65 GW in 2013 and 2014 to 58 GW in 2015. With demand increasing to 52 GW in 2015, overcapacity is reduced to 12%. As overcapacity shrinks, manufacturers will save up to $0.09/W by increasing utilization from 55% to 90%. Since prices remain mostly stable, manufacturers will be able to return to profitable gross margins. Projecting even further forward, with the U.S., China, Japan, and India taking over where Germany and Italy left off, companies looking for growth need to look no further than the PV global demand doubling from 31 GW in 2012 to 62 GW in 2018.

These projections depend on multiple large movements within the market, such as financing innovation for distributed projects, governments fast tracking utility-scale project development in emerging markets and discontinued government support for failing tier-3 manufacturers. Importantly, manufacturers will also need to reduce costs to maintain low prices while improving margins. These near-term incremental cost reductions will come from innovation such as double printing cell metallization to create thinner, deeper line widths and reduce silver paste use, or upgrading wafer saws to structured or diamond wire to reduce kerf loss and/or reduce wafer thickness. Business models need adjustment to not only survive the next two years, but also to adapt to the future market and come out on top in 2015.

Companies need to invest in their future now to develop products for the next generation of solar – the generation in which differentiated products such as back contact modules, passivated emitters, kerfless wafers, copper zinc tin sulfide modules, and numerous other technologies can earn large margins in a $155 billion market. Successful companies in the long-term will absorb cheap IP now and accelerate development.

Source: Lux Research report “Market Size Update 2013: Return to Equilibrium” — client registration required.

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GCL Doubles Down Downstream

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According to its 2012 annual report, GCL-Poly Energy Holdings lost $450 million in 2012. Chairman Zhu Gong Shan cited the primary reason for the large losses was crashing polysilicon and wafer prices. He said prices fell 56% and 54% for polysilicon and wafers respectively in 2012 relative to 2011. Meanwhile, GCL’s costs only decreased 6% and 42% for polysilicon and wafers respectively. The company quoted polysilicon costs reaching $19.7/kg and wafer production cost at $0.25/W by the end of the year, compared to average prices of $20.8/kg and $0.25/W. The company also increased production 26% to 37,000 MT, and sold 12,600 MT of polysilicon and 5.6 GW of wafers in 2012. As a result of the losses, GCL has tasked its managers to cut salaries by 30% to 50%.

GCL’s downstream project development business, GCL Solar Energy, sold 140 MW of projects in the U.S. and earned a $16 million profit before tax. GCL signed a cooperation framework agreement with China Merchants New Energy to develop 1 GW of rooftop solar projects in China by the end of 2015. The company also has two 75 MW projects under development in South Africa.

GCL’s performance summarizes the PV industry in 2012. Huge overcapacity, driven by Chinese manufacturers such as GCL, has resulted in losses for most upstream manufacturers. With the overcapacity, manufacturers have the choice to either idle lines and incur underutilization costs, or continue production and sell below cost to prevent inventory buildups; GCL chose the latter selling 5.6 GW of wafers and 12,600 MT of polysilicon in 2012. Meanwhile, the downstream business was profitable with relatively low project volumes. Numerous upstream manufacturers have moved downstream as a result (client registration required), such as MEMC, which is rebranding to its downstream arm, SunEdison. To drive short-term profits, GCL will increase downstream operations and take advantage of the booming Chinese solar market as the government targets 40 GW of installations before the end of 2015. Interestingly, the company targets distributed generation, which the State Grid is working to promote (client registration required). Upstream, the company aims to manufacture quasi-mono crystalline silicon (qc-Si) wafers – which are 1% absolute more efficient than the company’s multicrystalline silicon wafer – in an effort to gain back some margins with the higher efficiency product. However, little can be done for polycrystalline silicon with the exception of convincing the government to penalize imported polysilicon (client registration required).

GCL has announced a non-binding agreement to cooperate with Yingli on research and development, and along the supply chain. This could be an early indicator of what may take place as the industry consolidates. GCL-Yingli would be the most vertically integrated player in the industry ranging from polysilicon through project development and would have the greatest potential to profit throughout the value chain as the industry returns to equilibrium after 2015 (client registration required). This is merely speculation; mergers between operations-heavy companies are often messy and fraught with peril, but this early relationship could ease the transition if the two companies decide to take the risk over the next three years.

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CIGS Positioned for the Biggest PV COGS Reduction by 2017, but CdTe Remains the Undisputed COGS Champion

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Today’s solar module production capacity is nearly twice the demand, resulting in significant overcapacity and growing inventories. To compete, manufacturers have dropped prices to record lows, often at or below the module cost of goods sold (COGS). Companies choose to cover their heads until overall market conditions improve or actively seek innovative solutions to lower COGS below current prices. This decision will determine how well positioned they are once the clouds clear. Module COGS drivers like low-cost manufacturing locations, high efficiency, increased capacity utilization, and higher production yields will impact incumbent PV technologies in different ways making informed decisions critical throughout the value chain.

In mapping today’s landscape and analyzing for likely upside by technology, COGS are set to fall across the board between 2012 and 2017, but the rate of decline depends largely on the technology. The technologies with the most room to grow both technologically and strategically will have the steepest descending COGS, with CIGS falling fastest followed by CdTe, c-Si, mc-Si, and TF-Si, seemingly always the ugly duckling of the group, bringing up the rear.

Drilling down even further, manufacturing locations will not change significantly, as module overcapacity has forced companies to cut capital expenditures, making opening new facilities in low-cost countries unlikely. In addition, most technologies, with CIGS being the exception, already have the majority of their capacity in low-cost countries. Increasing capacity utilization will modestly reduce x-Si and CdTe COGS, not surprising given the extent to which these incumbents have taken the brunt of impact of today’s overcapacity. Yield improvements will modestly reduce CIGS and TF-Si COGS as the wrinkles are still ironed out of the manufacturing process. The largest driver reducing COGS in the next five years will be efficiencies increasing across the board, resulting in cost savings of $0.09/W for mc-Si, $0.10/W for c-Si, $0.21/W for CIGS, $0.05/W for TF-Si, and $0.08/W for CdTe.

In an environment where manufacturers need to hoard every penny to stay in the game, these cost savings are not just nice to have, but necessary for survival. Technology developers across the entire value chain – materials suppliers, equipment manufacturers, cell and module producers – can choose to be part of a winning, or losing, position.

Source: Lux Research report “Module Cost Structure Update: Path to Profitability” — client registration required.

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Concentrated Solar Power for Enhanced Oil Recovery Needs to Face Realities

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Glasspoint Solar, a technology provider that has developed a solar thermal system used for enhanced oil recovery (EOR), recently closed a $26 million series B financing round. Royal Dutch Shell was the newest investor, along with RockPort Capital, Nth Power, and Chrysalix Energy Venture Capital. Glasspoint uses a parabolic trough concentrating solar power (CSP) system enclosed in a greenhouse to generate steam that can be used in steam-assisted gravity drainage (SAGD) to recover heavy oil. SAGD pumps pressurized steam into heavy oil reserves that are too viscous to pump using traditional techniques; typically natural gas is used to produce the steam.

Glasspoint claims it can save the cost of natural gas used to produce steam for SAGD in areas where natural gas is expensive or non-existent. However, heavy oil reserves are primarily in Canada and Venezuela; both of these areas have large reserves of natural gas as well. Oil reserves in these areas will generally have natural gas pockets that companies often flare to save costs from collecting and transporting gas. Needless to say, there is an abundance of natural gas near most heavy oil reserves, making Glasspoint’s technology uncompetitive in the EOR market. Companies like Glasspoint may find niche markets away from most heavy oil reserves in Canada and Venezuela, where there is in fact little natural gas to burn, but do not expect CSP to take significant market share in the broader EOR market.

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Hangzhou First PV Material puts incumbent encapsulant suppliers under pressure

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Hangzhou First PV Material produces ethylene vinyl acetate (EVA) films and flouropolymer back sheets and is located in Hangzhou, Zhejiang province, China. Hangzhou First PV Material has more than 500 employees and sales revenue of $67 million. According to the Hangzhou First PV Material’s prospectus, before 2008, STR Solar, Mitsui Chemicals, Bridgestone, and Solutia (Etimex) were the dominant companies producing EVA film – taking 60% of the global market share. Hangzhou First PV Material exceeded Bridgestone and Solutia, and became one of the top three suppliers in 2008. In 2010, the company claimed 25% of the EVA market share; its primary customers are Suntech, Yingli Green Energy, Trina, and Jinko Solar, some of the largest module manufacturers in the world. The company experienced a net profit growth rate of 252.34%, 346%, and 10.76% in 2009, 2010, and 2011 respectively, according to the company’s annual report. This decelerating profit growth, reaching $94 million in 2011, is due to slower growth in the broader solar market, according to the company. Hangzhou First PV Material priced their EVA film at an average of $2.41/m2 in 2011, including a 37.26% gross profit margin (GM).This price is between $0.4/m2 and $1/m2 cheaper than EVA made in Europe or the U.S. (see the report “Module Cost Structure Update: Path to Profitability” — client registration required). Although market conditions are less than ideal for the greater solar industry, the tight-lipped Hangzhou First PV Material has been able to swim against the current. The company hopes to issue approximately 58.1 million shares on the Shanghai Stock Exchange to raise $179 million to ramp an EVA film production line with an annual output of 180 million m2, a backsheet production line with annual output of 2 million m2, and a PV material research center.

Historically, module manufacturers have chosen encapsulants based on the lowest cost, rather than performance, as long as modules pass IEC and UL certification tests; as a result, EVA has dominated the encapsulant market. Still, silicones, thermoplastics, and polyolefin encapsulants continue to compete with EVA. Dow Chemical started production of its ENLIGHT polyolefin encapsulant (client registration required) in Thailand in August aiming to replace EVA. Similarly, Wacker Chemie has rolled out a silicone-based thermoplastic film that claims better transparency and faster lamination times at a similar price to incumbent EVA suppliers (i.e., $3/m2 to 3.50/m2). While encapsulant suppliers with alternatives to EVA claim better performance and/or faster lamination times, success will ultimately come down to cost and how easy it is for module manufacturers to transition from EVA to the new encapsulant. Polyolefins have potential to be less expensive than EVA and Wacker’s silicone-based film can increase efficiency – which can reduce the overall cost-per-watt of the module – but capacity needs to ramp up in locations near module manufacturers to compete with players like Hangzhou First PV Material.

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GreenVolts crumbles and questions about the future of HCPV emerge from the rubble

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The high concentrating PV (HCPV) company, GreenVolts, is officially selling its assets after its primary investor, ABB, pulled support from the startup. GreenVolts outsourced its manufacturing to contractors such as Foxconn, so assets up for sale will largely be intellectual property.

GreenVolts obtained exactly what many small solar manufacturers are looking for: a large, well-positioned, strategic investor to add bankability and take responsibility for driving growth. Semprius found that in Seimens, and Miasolé had been looking for a buyer and recently closed with Hanergy. While the advantages of this gaining significant support from a strategic investor are numerous, there is also an inherent risk, as became apparent with GreenVolts and ABB. If the investor proves fickle and decides to cut losses, the solar company will not be able to survive. Strategic investors that invest in solar need to be willing to take a short-term loss for long-term gain.

For the broader HCPV industry, GreenVolts’ failure adds to concern surrounding the industry that has been growing since Amonix shut down its Las Vegas manufacturing facility (client registration required). We expect the situation to get worse before it gets better, but our favorites – Soitec, SolFocus, and Suncore as outlined in the Lux Research report, “Putting High-Concentrating Photovoltaics into Focus” (client registration required) – are still moving forward on capacity and installation targets, and can easily satisfy our 700 MW HCPV demand forecast in 2017.

As hype for HCPV dwindles, companies are starting to look into low concentrating PV (LCPV) as an intermediate technology between expensive, highly efficiency HCPV and cheap, less efficient flat panel PV. SunPower’s C7 product aims to do just that with reflectors that concentrate sunlight 7X onto SunPower’s interdigitated back contact (IBC) solar cells with 22.8% cell efficiency under 7X concentration. The company has an agreement with Tucson Electric Power to install 6 MW of the LCPV product. Low concentration allows for a broader range of reflector options as long as they are cheap and limit optical losses. SunPower’s C7 system uses parabolic trough glass mirrors, but startups like TenKsolar and Absolicon use 3M reflector films, Solaria uses patterned glass, and Cool Earth Solar uses a proprietary refractive film co-developed with Avery Dennison.

Monocrystalline silicon (c-Si) solar cells used in LCPV modules are many times cheaper on a per area basis than multijunction cells used in HCPV modules; however, c-Si cells are more susceptible to heat and UV degradation, and benefits from increased encapsulant transparency will multiply under concentration, which can translate to interesting opportunities for innovative material suppliers. Material and chemical companies may want to look to LCPV as a potential new market for innovative optical or encapsulation materials.

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Solar Module Prices Drop 36% in 2011

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After analyzing quarterly numbers from Yingli, Trina, Canadian Solar, and Suntech, we have determined that module prices declined 36% over the course of 2011. The average selling price (ASP) in Q1 of 2011 was $1.76/W. By Q4 2011, the ASP was $1.11/W for these tier 1 manufacturers. The ASP over the entire year of 2011 was $1.44/W.

The precipitous fall in module prices was caused primarily by declining polysilicon costs. In March 2011, the polysilicon spot price was around $80/kg, which fell below $27/kg in December. The polysilicon spot price rebounded to $29/kg in February 2012, but fell back below $27/kg in late March 2012. At the same time, the intense competition caused by a global oversupply of PV modules has eaten away margins for manufacturers, further reducing prices.

The margins are so low that, even if polysilicon prices continue to drop, we expect module prices will stay between $0.90/W and $1.00/W over the next few years as manufacturers restore margins. Make sure to note that these prices are for tier-one, crystalline silicon manufacturers, not smaller, less reputable manufacturers nor thin-film manufacturers who will sell at lower prices.

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