Every year in early June, tens of thousands of fair-minded citizensconverge upon the fair city of Munich to take part in the world’s (after SNEC, second largest) solar trade fair, Intersolar Europe. As usual,GTM Research analysts were around to measure the pulse of the industryand get the latest dirt on industry developments. Below is a summary ofthe most noteworthy items.
Inventory Levels: Through the Roof, But Signs of Shedding
Inventory levels reached record levels across the value chain in lateApril, a direct consequence of hitherto weak demand in the two PVmarkets that matter the most: Italy and Germany. In the case of Italy, the culprit was subsidy uncertainty for the second half of the yearwhich led project finance (and consequently shipments) to all but dryup. Recognizing this, German developers adopted a “wait-and-see”approach towards module purchases. The thinking was that suppliers would be forced to lower prices in a bid to find a home for the gigawatts oforphaned modules that were expected to be Italy-bound – and, as isdiscussed below, the strategy appears to have worked. Recent signs,however, have indicated that demand in both these markets has picked upsubstantially. Italy’s feed-in tariff scheme for H2 2011 was finalizedin early May, and the revised FiT levels will still drive attractiverates of return. German demand also seems to have made a comeback, asprices have eroded substantially over the past three months (see below), and developers need to connect systems to the grid before the upcomingvariable-rate FiT cuts that will take place in July. As a result, allsigns point to a rapid pick-up in demand and shedding of inventorylevels through the end of June, although demand visibility in Q3 and Q4(especially) remains murky.
Module Prices at $1.30/Wp? Yes and No
The most talked-about tidbit doing the rounds of the trade show floorcentered on current module prices. It is well known that despite stableASP results from the public PV manufacturers in Q1 2011, componentprices fell a long way from March to May given the above-discussedbuild-up in inventory. However, the number thrown up, again and again,was shockingly low: Tier 1 Chinese crystalline silicon module prices inthe region of 90 to 95 Eurocents per watt, which at current exchangerates, amounts to U.S. prices of $1.30-1.35/Wp. Given that Trina’s current blended cost structure, for example, is roughly $1.16/Wp, thisimplies a gross margin of 10%-17%, and the numbers for smaller producers lacking vertical integration would be even worse. Were producers sohard up for sales that they were willing to give up this much long-termpricing power? Account for the fact that European demand has beenpicking up of late, and clearly something wasn’t right.
The answer lay in the nature of the contracts that were being signed at these prices; rather than long-or medium-term contracts, these werelargely inventory flush points representing one to six-week deliveryperiods, hardly representative of average sales price (ASP) trends;Trina itself revealed that its Q2 ASPs would come in at around $1.65/Wp(we think they’ll be closer to $1.55/Wp). Clearly, there is a danger inaccepting anecdotal numbers at face value, and rumors can spread quickly on the dance….err, the trade floor. Meanwhile, c-Si cell ASPs are inthe region of $1.10/Wp, while wafer ASPs, having held up for so long,have plunged to around $0.70/Wp. Again, spot pricing for both isconsiderably lower ($0.95/Wp and $0.60/Wp). While these numbers are notrepresentative of current blended prices, they do show how low pricescould go in an environment of structural oversupply.