PV Industry Must Focus On Margins
Despite shipments of PV modules set to grow in 2011, rapid price erosion may see a decline in market revenues next year according to new marketanalysis.
IMS Reserach said analysis of key industry metrics revealed that although megawatt(MW) shipments of modules have grown at an average of 60% over the past 2 years, industry revenues have only grown by only 13%. As the industryprepares to enter a period of softening demand and decreasing prices,suppliers will need to concentrate on growing revenues and profits andnot just focus on who’s shipping the most MWs.
Module shipments are forecast to grow by over 65% to more than 16gigawatts (GW) in 2010. However, reductions in incentive schemes in theworld’s largest PV market, Germany, as well as a correction of thepulled-forward demand seen in 2010, are likely to bring about a slowdown in growth and IMS Research predicts that shipments will increase byless than 20% in 2011.
The slowing of shipment growth, combined with declining prices, meansthat PV module revenues may in fact decline in 2011, depending on howsevere the slowdown is in the first half of the year.
“The PV industry is currently in a period of very high growth, driven by robust demand from almost every area of the market,” commented SamWilkinson, PV Research Analyst at IMS Research. “However, the industryhas a dangerous tendency to only focus on MWs and GWs or capacity andshipments, rather than revenues and margins. Price declines driven byreductions in incentives and increasingly competitive market conditionsmean that whilst the module market may continue to increase in terms ofvolume, the outlook is quite different when measured in terms ofrevenues.”
In fact, 2011 is not the only time that the market has performed in this way. 2009 saw module shipments grow quickly in the second half of theyear and overall MW shipments increased by over 50%. However, rapidprice declines throughout a large part of the year meant that industryrevenues in fact declined. Whilst the PV market may seem on the surfaceto be a booming market, a closer look at the real bottom line makes PVmodule market growth look far less impressive.
This moth, leading U.S. solar company FirstSolar (Nasdaq: FSLR) saw its share price drop among green stocks after reporting narrowing margins for five straight quarters. SunPower (Nasdaq: SPWRA) also saw its gross margin shrink, but Chinese manufacturer JinkoSolar (NYSE: JKS) saw an impressive growth in 3Q margin.
Pressure on Thin Film
A separate PV market analysis by Lux Research shows that advances incrystalline silicon technology, and the falling cost of thepolysilicon raw material, have increased the pressure on manufacturersof emerging thin-film technologies.
Lux Research said many producers of thin-film solar modules are under the gun to improve margins or faceextinction.
The latest report compares incumbent multicrystalline silicon (mc-Si) technology(representing roughly 80% of the crystalline silicon market) on a $/W basis against threechallengers: thin-film silicon (TF-Si), cadmium telluride (CdTe), and copper indium galliumdiselenide (CIGS). T
he report surveys process changes and cost reduction efforts that moduledevelopers have undertaken, and forecasts which technology will gain a long-term costadvantage at the module level.
“Crystalline silicon is dominant by volume and remains the cost/price benchmark for solarmodules. Cadmium telluride is limited in efficiencies, but is the absolute leader in cost. Weproject these two technologies will continue to be highly profitable,” said Ted Sullivan, a senioranalyst for Lux Research, and the report’s lead author. “The profitability of thin-film silicon ismuch dicier, but CIGS is positioned to outplace crystalline silicon in profitability by 2013 asleading developers improve process stability.”
To forecast how module developers would reduce the key components of cost–capital,materials, utilities, and labor–Lux Research built detailed cost-of-goods-sold (COGS) modelsfor the four key technologies–mc-Si, TF-Si, CdTe and CIGS–through 2015, including bothglass and flexible substrates for CIGS.
Among the report’s key observations:
- Multicrystalline silicon remains highly profitable as COGS decline. The dominant technology will continue to be profitable throughout the value chain as vertically integrated players drive cost from $1.45/W in 2009 to $0.93/W in 2015, assuming poly pricing at $70/kg. Efficiency will be a key driver of cost reduction, rising from 14.0% in 2009 to 16.1% in 2015.
- Oerlikon (OERLF.PK) will give thin-film silicon new legs. Improvements enabled by Oerlikon’s new ThinFab line will push thin-film silicon efficiencies from 9.0% to above 11.0%. Significant improvements in output will cut depreciated capex per watt, and help to reduce TF-Si costs from $1.32/W in 2009 to $0.80/W in 2015.
- CdTe technology remains the long term leader in terms of COGS. Led by First Solar, CdTe has a significantly lower cost structure than mc-Si, and its cost reductions will march onward, keeping it the most profitable solar technology, as COGS falls from $0.80/W in 2009 to $0.54/W in 2015.
- Costs for select CIGS technologies drop dramatically. CIGS sputtered on glass–which is Lux Research’s benchmark given its critical mass of developers–will see COGS plummet from $1.69/W to $0.76/W as efficiency improves from 10.0% to 14.2%, and factory nameplate capacity and yields grow, allowing the top developers to earn gross margins over 30%.
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