Category Archives: Solar Components

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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Steven Chu steps down at U.S. Department of Energy, leaving a mixed legacy

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Last week brought the widely expected news that Steven Chu will be stepping down as Secretary of the U.S. Department of Energy (DOE). Chu has been a hero to scientists and clean energy advocates, but on his watch the DOE has made some questionable decisions, particularly from a commercialization and business standpoint. That said, Chu has also laid the groundwork for a strong legacy of energy innovation – if those initiatives produce results, he may justly be regarded as one of the most important DOE Secretaries since the department was created in 1977.

Unfortunately for Chu and DOE, the name “Solyndra” will appear in the first paragraph of most appraisals of his term – the DOE’s ill-fated $535 million loan guarantee (client registration required) to the Silicon Valley solar panel maker became a rallying cry for opposition to the Obama administration’s clean energy investments. Other recipients of DOE loan guarantees and other largesse, including A123 Systems (client registration required), Beacon Power (client registration required), EnerDel, and Abound Solar (client registration required), have also filed for bankruptcy. While there was a case for deploying government funds when private investors largely stopped lending during the financial crisis, the DOE loan guarantee program mixed investments in reliable projects, like solar power plants using established technologies, with funds for firms like Solyndra that faced steep technical and market risks. It was highly likely that several would fail, but DOE either underestimated the risks or wasn’t well prepared for the political fallout (or some combination of both), and arguably hurt the cause of government support for new energy technologies – previously a point of bipartisan consensus.

Chu’s DOE also showed commercial naïveté in its claim that it could help bring 1 million electric vehicles to U.S. roads by 2015 – and President Obama personally cited Chu’s assurances in defending the administration’s focus on electric vehicles. While the DOE target included plug-in hybrids (PHEVs) like the Chevy Volt, as well as all-electric vehicles (EVs), only around 250,000 such vehicles will realistically be in operation in the U.S by the end of 2015 (see the report “Small Batteries, Big Sales: The Unlikely Winners in the Electric Vehicle Market” — client registration required). Anemic sales to date of PH/EVs also belie such optimism, and just before Chu stepped aside, DOE began publicly backing away from the goal – suggesting that DOE’s EV enthusiasm may not have been the best use of its resources.

What’s more, DOE has largely been on the sidelines of the most important energy story of Obama’s first term – the phenomenal boom in domestic gas and oil production, driven by technologies like hydraulic fracturing. To some extent that’s only right – by the time the technology (which had benefitted from DOE support in decades past) was ready for prime time, the industry hardly needed further help from DOE. However, given the impact this production will have on the energy and climate picture in the U.S., and the remaining technology and policy needs to help access these resources safely and make the best use of them, it’s surprising how little focus they’ve received (barely meriting a mention in Chu’s review of his term in his resignation letter).

Despite these stumbles, history may well look kindly on Chu’s tenure, because programs he’s championed have the potential to create a generation of impactful new technologies and keep the U.S. a center of innovation in energy. Through the network of 46 Energy Frontier Research Centers, and especially the new Advanced Research Projects Agency – Energy (ARPA-E), the DOE is funding research on really novel technologies with a breadth, depth, and purpose beyond its previous basic science efforts. ARPA-E, in particular, is well-positioned to help fill a void left by venture capitalists that are (wisely, by their financial standards) increasingly reluctant to invest in early-stage energy technologies. If these programs help shepherd along impactful energy technologies that that come to the market over the next decade, they’ll have a greater impact than even a successful Solyndra would have, and will validate Chu’s initiatives.

Given the ups and downs of Chu’s tenure, who should Obama tap to replace him? Some favor another academic, like Shirley Jackson of Rensselaer Polytechnic Institute, or Ernest Moniz of the MIT Energy Initiative, to continue to build DOE’s innovation efforts. Others argue that DOE’s commercial blind spot argues for a businessperson like Duke Energy CEO Jim Rogers. While a course correction is needed, and energy business acumen at DOE would be welcome, a utility executive may not be the best steward of Chu’s innovation legacy (and may sit uneasily atop what’s still largely a scientific agency). A business leader with more innovation experience could serve admirably – GE CEO Jeff Immelt has been floated, though seems unlikely to serve. Otherwise, given the controversies DOE has weathered and the need to defend its budget in an era of sequestration and discretionary spending cuts, a more seasoned politician might also be a wise choice to follow Chu. Someone like former (moderate) Republican governor and EPA administrator Christie Todd Whitman or past North Dakota Senator Byron Dorgan could serve to consolidate Chu’s gains in long-term innovation, but would still be inclined to pivot the agency more toward the pressing issues of the day.

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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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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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Cutting Through the Noise on Abound’s Bankruptcy

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Late last month, once-promising cadmium telluride (CdTe) start-up Abound Solar filed for bankruptcy. We pegged the company as one of five solar suppliers that would struggle in 2012 (Client registration required). Abound’s $400 million U.S. Department of Energy loan guarantee (of which it only used $70 million) to expand and build a 640 MW facility in Indiana has the wheels of political media turning – in most cases, likening the failed company to Solyndra. Such comparisons, in large part, are erroneous.

Solyndra was likely plagued by poor manufacturing yields (Client registration required), but more so by high costs that were exaggerated when polysilicon costs crashed, making it wildly uncompetitive on price. In mid-2011, the company’s manufacturing costs were between $3/W and $4/W while the x-Si market was barreling towards $1/W.

Abound’s problem was not manufacturing costs. The company claimed 97% to 99% electrical/mechanical process yields, and had begun expansion for 640 MW of capacity – surely enough scale to bring costs down significantly. Fellow CdTe supplier First Solar, though struggling today, is the cost leader in the solar industry. We’ve heard that Abound’s biggest problem was module performance. As of our last profile, the company was barely breaking the 10% efficiency barrier, whereas competitor First Solar documented average module efficiencies more than 12.5% in its Q1 2012 earnings call. Further, performance issues in CdTe are likely a function of copper present in back contact pastes, which diffuses across the CdTe/CdS junction and negatively affects performance (for more on this issue, see the Lux Research report “Key Issues and Innovations in Photovoltaic Metallization. Client registration required.).

Solyndra failed on cost and Abound on performance – and attributing either to Chinese manufacturing alone is incorrect. What they have in common is that both received loan guarantees from the U.S. government, and so both will remain political punching bags well into the 2012 presidential election – Solyndra more so, as it received more funding and has questions surrounding its political connections; whereas Abound’s expansion was also supported by the Republican governor of Indiana at the time. What should be more of a concern for the solar industry is that the shakeout isn’t over.

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Konarka Bankruptcy a Result of Technology Performance More than Market Shifts

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Driven by the promise of cheap, printed solar modules that could be made colorful and transparent, many technically unsavvy investors continued to invest in struggling Massachusetts organic photovoltaic developer Konarka (Client registration required) to the tune of $170 million, with an additional $30 million coming from grant funding. Konarka took that investment and built what it claimed was a 1 GW manufacturing line, although the line would certainly never come close to that capacity. The math never added up for Konarka’s “Power Plastic,” which cost 10-times more and delivered 10-times less efficiency and lifetime when compared to alternative solar technologies Now, Konarka has declared bankruptcy, validating Lux Research’s history of “strong caution” ratings.

Konarka’s underlying technology was never market-ready, and its failure was no surprise to those that read Lux Research’s profiles on the troubled company dating back more than three years. While taking a chance on its OPV technology in the early days arguably made sense, Konarka continued to burn through tens of millions long after it should have been clear that the technology wasn’t poised to be competitive in the timeframe needed for it to justify the investment. Konarka finally ran out of money, and creditors are now left to sell off the pieces to recoup a fraction of their sunken investment.

Konarka blamed the collapse on an inability to raise more funding. However, raising funding, more than solar module development, was where the company excelled. Finding market success in emerging technologies takes many factors, but a viable technology underpins all of them – something that Konarka never had and didn’t have a credible path to attain. A viable market helps, as well, and with a projected organic photovoltaic market size of a meager $159 million in 2020 (See the report “Looking for a Future in Organic Photovoltaics.” Client registration required.), Konarka won’t be the last to run out of investors who must be as long on patience as they are blessed with money. Buyers and investors beware.

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Solar’s Emerging Markets More Than Quadruple from 2011 to 2017

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After recent explosive growth capped by a 66% surge to 26.5 GW in 2011, new solar installations will stall at 26.9 GW this year, while industry revenues will drop from $110 billion in 2011 to $92 billion in 2012 due to crashing prices. Fortunately, the pace of new installations will rebound to 38.3 GW in 2017, fueled in part by growth in the emerging markets illustrated in this week’s graphic.

The graphic comes from a recent Lux Research report (Client registration required), wherein analysts size the market by applying the model and methodology used in the Lux Research Solar Demand Forecaster. The report’s conclusions derive from a levelized cost of energy (LCOE) analysis of 156 separate geographies, accounting for 82% of the world’s population, calculating internal rates of return, to determine the viability and competitiveness of solar in each market.

Among other things, it forecasts that emerging markets will be both a battleground for suppliers and a source of great demand growth. Overall, these markets more than quadruple in size, rising from 1 GW in 2011 to 4.5 GW in 2017. However, they will not all bloom at the same time or at the same rate. South Asia – and India independently – accounts for the overwhelmingly majority of growth through 2015. Once that market plateaus – as the National Solar Mission re-assesses its feed-in tariff rates and overall progress – Southeast Asia (ASEAN), Africa, and South America will take the lead as they progress toward “gigawatt” status: a one-GW annual market. These regions are expected to drive emerging market growth from 2017 to 2022, specifically Malaysia, Thailand, Kenya, South Africa, Brazil, Argentina, and Chile. Further, these markets provide significant opportunity for both thin-film module technologies, many of which are pursuing emerging markets, and for utility-scale-suited technologies in general – as most new markets begin ramping volumes with large-scale systems.

Source: Lux Research report “Market Size Update 2012: The Push to a Post-Subsidy Solar Industry.”

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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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New building norms can drive BIPV mainstream, with 6.6 GW market in 2021

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Building-integrated photovoltaics (BIPV) have remained a niche technology due to high costs and stringent specification requirements. Nor has their adoption been helped by the slow emergence past the developmental stage of thin-film solar modules – the best suited PV candidate for replacing traditional building materials.

As this week’s graphic shows, however, BIPV may yet enter the mainstream. Recent analysis by Lux Research projects a scenario in which BIPV sees a 1.2 GW global market by 2016, equivalent to $6 billion per current estimates, with a 69% share for Europe.

Currently, the European Commission’s Net‐Zero Energy Buildings (NZEBs) standards continue to fuel widespread adoption across the continent, and are on track to give Europe a lion’s share of BIPV installations in 2016 – assuming, of course, that the Euro Zone sees continued macroeconomic stability.

Primarily driven by greater adoption of LEED buildings, BIPV installations in the U.S. will grow at a steady clip, albeit slower than the EU. Meanwhile, growth in Asia will be limited to showcase projects driven by government and corporate sustainability goals.

Given that the EU directives on NZEBs all have 2020 targets, it is further likely that BIPV’s inflection point will occur in the 2017-18 timeframe as 2020 NZEB targets loom over EU member countries. In this scenario, the divergence between Europe and the rest of the world grows even larger, with Europe accounting for over 85% of global BIPV installations at 6.6 GW.

Source: Lux Research report “Building Integrated Photovoltaics: Moving Beyond Showcase Projects.”

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