Here is an analysis of the solar power industry that recently appeared in the Sunfind Solar Products newsletter, it shows we must be very cautious about investing in the solar industry.
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All of us “PV Producers” are giddy with the fact the days are now getting longer! To kick off 2012, we are going to continue to discuss the state of the PV manufacturing industry, as 2012 is going to bring massive changes. Ultimately, the industry will continue to grow, but the next couple of years will be very rocky with much upheaval.
Current PV Module Pricing
Q1 Pricing in 2012 is the lowest in history. Average range at the first point of sale pricing is $1.30/W to $1.40W for Tier 1 manufacturers of c-Si technology. This results in a end user price of around $2.10/W We can also see, as shown by the bar graphs, shipments from manufacturers continued at a record pace in 2011, even though demand in 2011 is significantly softer than 2010, which is creating a severe over supply of PV modules. This, unfortunately, going to continue to create issues for the next couple of years.
The short answer is NO. Economic laws would indicate prices would have to increase to allow the industry to survive, however, the PV Industry does not participate in a “normal” market. Currently, 98% of the PV market is incentive driven and without these incentives, the grid tie/utility interactive (“grid tie”) market would quickly dry up. The remaining 2%, which represents off grid / battery based (“off grid”) applications, where PV is cost effective, cannot even come close to picking up the slack. In addition, with all manufacturers fighting for market share, product has been dumped on the market with pricing being slashed, contributing to our current state.
This has resulted established, Tier 1 manufacturers operating with a 5-9% gross profit margin. Tier 2 and Tier 3 manufacturers, which are mainly Asian manufacturers, actually have negative margins, which means they are selling product below the cost of production. At the end of 2011, dozens of Tier 2 and Tier 3 manufacturers have entered insolvency, with dozen more facing the same fate in 2012. We will also see several Tier 1 manufactures go bankrupt, as those with high operating costs and high debt levels will not be able to survive on the 5-9% profit margins, as we have seen with companies such as Evergreen. Pricing: Going Up....Down? With the unique nature of the PV industry, the answer is no...pricing will not go up. Pricing for Tier 1 is forecasted to stay flat, with the possibility of a small drop near the end of Q1. So, if the current pricing is unsustainable, why will pricing not go up?
Incentive Market: As mentioned earlier, 98% of the PV market relies on incentives. Since 2009 when the world wide recession
took hold, governments around the world have been slashing incentives. This resulted in reduced demand, which created lower prices. Lower prices again triggered lower incentives. In addition, with the ensuring debt crises in Europe, demand has not picked up in lieu of lower prices as banks and/or governments have not been able to finance the requested projects from PV suppliers. So, here were are with record lower prices, lower incentives and low demand. So, in this environment, raising PV prices would be a quicker way to go bankrupt than trying to survive the current low margins and unprofitability.
Oversupply: with the massive over-supply of PV modules on the market, a price increase can in no way be sustained by any manufacturer as raising prices would almost instantly cause the loss of a customer base. So, in 2012 and beyond, we are going to see several PV manufacturers go insolvent due to the current pricing levels. As a personal predication, based on discussion with our manufacturers and following the financials of hundreds of PV manufacturers, I think 80- 90% of worldwide manufacturers will go bankrupt leaving a select few of innovative, strong manufactures to supply the market.
This is why it is extremely important to choose a PV supplier which has a strong track record in the past and will be able to continue to serve the market in the future. The strong will adapt and learn to survive on around 10% profit margins. |
