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One thing is usually true in recessions and is especially true in this recession: Only the strong survive.
In the solar panel manufacturing industry, that means 3 names are likely to emerge from 2009-10 as the dominant players: First Solar Inc and SunPower Corp in the U.S. and Suntech Power Holdings of China.
Hard
times are certainly driving the industry’s consolidation but there is
another factor at least as important. Because of the shortages of
capital and financing, utilities are dominating solar energy
development. The utilities have a lot of capital and can finance their
own projects, even when the projects are in the billion dollar range.
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But
that billion dollars belongs to the utility’s investors and ratepayers.
No utility CEO is going to take on any more risk than is necessary and
therefore is inclined to select a solar panel supplier with the proven
ability to deliver a high quality product. High volume, low cost
foreign suppliers with a limited or compromised track record are far
less likely to sell panels in this market.
Utilities may also
take a close look at the financials of a panel manufacturer before
making a buy. The warranty on a solar panel extends 10-to-20 years (or
longer). The utility wants to be as certain as possible the
manufacturer is going to be around to service that warranty.
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First
Solar meets the utilities’ criteria because it has been in business 10
years, has been one of the 50 fastest growing businesses – not solar
businesses, businesses of any kind – in the U.S. for the last 3 years
and is the world’s biggest thin film solar panel manufacturer.
Facilitated by First Solar’s production efficiency, its cadmium
telluride (CdTe) formulation is emerging as the dominant thin film
technology. Estimates suggest it is taking about half of the U.S.
utility solar market right now.
SunPower Corp meets the
utilities’ criteria because it is the biggest solar provider in North
America and has been in business since 1985. It specializes in the more
time-tested, silicon-based types of solar panels. A recent drop in the
cost of refined silicon is putting SunPower’s more efficient panels
back in competition with the cheaper thin film panels from First Solar.
Suntech
Power Holdings, founded in 2001, is the newest of the big players. It
is the biggest manufacturer of silicon photovoltaic (PV) panels in the
world and is essentially as strong as China. In 2008, to move on the
U.S. market, Suntech formed Gemini Solar Development Company LLC, a
joint venture with solar developer Renewable Ventures. Gemini was
bought by Spanish power producer Fotowatio. The group recently moved
into Texas, signing onto a 30-megawatt project for Austin Energy,
probably the most progressive and respected U.S. municipal utility.
Anticipating the boom in utility demand for solar panels, Gemini is
also planning a U.S. manufacturing facility.
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All
3 companies have been expanding their manufacturing capacity throughout
the financial downturn, despite a slowing of gross sales and a
significant drop in revenues in the last months of 2008 and the first
months of 2009.
California’s major utilities (PG&E Corp's
Pacific Gas & Electric, Edison International's Southern California
Edison and Sempra Energy's San Diego Gas & Electric), driven by a
Renewable Electricity Standard (RES) requiring them to get 20% of their
power from New Energy by 2010 and expected to be expanded to require
them to get 33% by 2020, are building solar capacity as fast as they
can. SunPower and First Solar are getting the bulk of the work.
Yingli Green Energy Holding Co Ltd
is another Chinese panel maker making progress in the U.S. market,
through its supply deal with AES Solar, a U.S. joint venture between
AES Corp and private equity firm Riverstone Holdings LLC
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COMMENTARY
The
new round of consolidation comes at the same time as a remarkable
expansion of the industry. Already growing at unprecendented rates, the
solar panel manufacturing this year may go off the charts.
Several
factors are responsible, including (1) the 2008 investment tax credit
(ITC) extension, (2) funding for solar development in the financial
rescue packages and the Obama budget, (3) a drop in the cost of
silicon, and (4) state Renewable Electricity Standards (RESs).
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(1)
The investment tax credit (ITC) was extended for 8 years by the October
2008 financial rescue package. The ITC was also expanded dramatically
in 2 ways. (a) The cap was removed so that now the tax credits go to
30% of the entire system cost instead of 30% of a small part of the
system cost. (b) Utilities may now use the tax credits.
(2) A
variety of benefits were allotted to New Energy in general and solar
energy in particular by the 2008 financial package. Even more funding
came with the February 2009 American Recovery and Reinvestment Act
(ARRA). And the first Obama administration budget made good on the
President’s campaign promise by assigning funds to begin the doubling
of U.S. New Energy capacity over the next 3 years.
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(3)
The semiconductor industry finally advanced its capacity enough to
supply adequate quantities of refined silicon to sustain the electronic
chip market and at the same time meet rising demand in the solar panel
market. This had 2 dimensions. (a) The recession somewhat slowed demand
for chips. (b) The market for solar thin films formulated from
non-silicon materials is growing as fast if not faster than the market
for silicon-based panels, reducing demand for silicon from the solar
industry and having a competitive impact on prices.
(4) More
than 30 of the 50 states now have RESs, requiring regulated utilities
to obtain portions of their power from New Energy sources in the
foreseeable future. These RESs are driving demand up, price down and
utilities toward big investments in wind and solar energies, the New
Energies most likely to be cost effective in the RESs’ time frames.
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QUOTES
-
Vishal Shah, analyst, Barclays Capital: "I don't think the utility
landscape is going to become as competitive as the commercial market,
because the barriers to entry are much higher…It takes a long time to
prove your technology to the utility so they can be comfortable. So
from that standpoint it limits the competition only to a handful of
players."
- Mehdi Hosseini, analyst, FBR Capital Markets: "[With the
recent changes] the U.S. market could potentially (and finally) become
'the promised land' that investors have been waiting for since late
2007…"
- Steve Milunovich, analyst, Bank of America/Merrill Lynch:
"There is a perception of a quality difference [between U.S. and
Chinese panels but the U.S. utility solar market is becoming a race
between First Solar, SunPower and Suntech]...It will be a fairly
oligopolistic market…As Suntech moves up I don't think there is going
to be any difference there…They are going to be competitive."
posted by Herman K. Trabish
Handful of players seen ruling the solar roost
Nicola Groom (w/Patrick Fitzgibbons and Matthew Lewis), July 1, 2009 (Reuters)
