from http://www.pv-tech.org/guest_blog/pv_module_costs_and_prices_what_is_really_happening_now_5478?utm_campaign=everything-rss-feed&utm_source=pvtech-feeds
Blogger
Sam Wilkinson
Sam Wilkinson is the Photovoltaics Group
Research Analyst at IMS Research. Sam is based at the company’s
headquarters in Wellingborough, UK.
PV-Tech recently announced that its
most read blog post of 2011 was an article from IMS Research entitled
‘PV module costs and prices – what is really happening?’,
written almost 18 months ago in August 2010. The popularity of this
post clearly says something about what the PV industry was talking about
throughout all of last year, and still will be talking about in 2012.
Looking back now at the article I thought it would be interesting to
revisit some of the predictions made versus what happened in reality, as
well as considering what the future holds 12 months on.
Why didn’t the PV industry see 2011’s price collapse coming and why did it hurt so much?
I’m sure no one will disagree that making predictions about the PV
industry is a challenge. Whilst every effort can be made to include
every possible outcome or variable, an unpredictable political decision,
or better-than-expected weather conditions (e.g. Germany at the end of
2011) can make a big difference. But it looks like we got this one
right, when we predicted back in 2010 “that installations in EMEA will
decline by 80% Q-o-Q in Q1’11. This, coupled with capacities that have
been ramped to their maximum in order to serve the strong demand of
H2’10, is forecast to quickly reverse the current imbalance between
supply and demand, and average PV module prices are forecast to commence
their downward trend once again.”
As early as the middle of 2010, IMS Research (and we weren’t the only
ones I’m sure) were predicting that 2011 would see oversupply, and
ultimately trouble, for suppliers; but still the capacity expansions
continued and production lines continued to churn out more modules
causing inventory levels to balloon. The industry was still in expansion
mode after spending all of 2010 trying to keep capacity up with demand.
Throughout 2011, IMS Research predicted that demand would grow by at
least 20%, though few agreed with us. As late as September 2011, PV
component suppliers were still saying that “there is no way
installations will go past 20GW - it’s going to be more like 16GW”. Our
latest analysis and checks show that in actual fact installations
exceeded even our predictions and more than 26GW of PV was installed in
2011 (note we count installations, not connections). So why then did
2011 hurt suppliers so much? Most industries would have been delighted
at the prospect of 30% underlying demand growth, so why couldn’t they
‘see’ that demand and why did PV manufacturers have such a terrible
2011?
There are two key reasons why.
Firstly, a 30% increase in demand is a somewhat modest increase in
comparison to the capacity expansions executed by the majority of
suppliers, who looked to double their capacities (and production) during
the year. Many suppliers were still able to grow their shipments in
2011, but not by enough to stop their newly installed production
equipment from remaining expensively underutilised or their stock levels
from growing rapidly. Whilst demand for modules was growing, in
comparison to 2010’s triple-digit growth, it felt like it wasn’t.
Secondly, although full-year megawatt shipments and installations grew
considerably, much of the demand came towards the end of the year. In
fact, nearly 40% of installations happened in the last quarter. What
this meant was that the relatively weak demand in the first half of the
year led to high channel inventory and collapsing prices as many
suppliers sold at a loss, holding out for the good times to return. The
fiercely competitive pricing seen throughout 2011 meant that industry
revenues actually declined by around 15% for PV modules. More modules
were made, more modules were shipped, and more modules were installed;
but the suppliers of them made less money.
Costs are down– but not as much as prices
Last year will certainly be remembered for being the year that prices
were, for the most part, in free fall. Much has been written about the
spectacular decline of ASPs throughout 2011, but the simple facts are
that demand in Europe stopped abruptly in early 2011 caused largely by
the cancellation of Italy’s FiT, but capacity expansions continued
uninterrupted. The result was that whilst modules could easily be sold
at almost any price in 2010, the market suddenly became very
competitive. With gigawatts of modules flooding the market, and very
little to differentiate one from the other, unsurprisingly competition
naturally came down to price. However, many were surprised at just how
low prices went. Crystalline prices at the end of 2011 were a massive
45% lower than they had been at the end of 2010, exceeding even the most
aggressive forecast for price reductions.
It doesn’t take an economist to see that to significantly reduce prices
(and survive), you will need to significantly reduce your costs as
well, and this was certainly not the case. No supplier was able to
reduce their cost structures at the same rate as their prices and
margins throughout the industry have certainly felt the consequences.
Average gross-margins for crystalline PV module suppliers have fallen
into the single-digits, having been in the high twenties a year ago.
For crystalline module manufacturers, the biggest difficulty in
reducing costs lies in the comparatively stubborn pricing of
polysilicon. Whilst much has been reported of polysilicon prices
declining rapidly and reaching record lows, particularly in the second
half of 2011, the reality is that the silicon being offered at these low
prices is from lower-tier suppliers and sold on the spot market. As the
majority of PV-grade silicon is supplied under long-term contracts,
fluctuations in spot pricing have only a small effect on the actual
average price that suppliers are buying polysilicon at.
How will suppliers become profitable again?
With incentive levels likely to be pared back considerably in 2012,
module suppliers’ cost structures remain at the mercy of stubborn
long-term polysilicon prices, and hopes for future cost reduction are
understandably pinned poly prices falling. This is likely to happen in
2012, especially given that the capacity expansions of Tier-1 suppliers
(originally put in motion several years ago) that are due to come online
during the year. Tier-1 capacity for polysilicon is predicted to reach
close to 300,000 MT in 2012 – enough to serve over 40GW of
installations; yet installations are forecast to be broadly flat at
26-28 GW. With Tier-1 polysilicon capacity alone enough to serve the
entire market, and suppliers like GCL claiming costs are reaching close
to US$20/kg, things are likely to get a lot more competitive for the big
polysilicon players. This will create some much needed breathing room
back to downstream manufacturers’ cost structures.
With impending polysilicon price drops likely, many suppliers have
begun accepting penalty charges for cancelling long-term supply
contracts in order to purchase polysilicon, wafers and cells on the spot
market instead, or renegotiate new contracts.
Looking back at 2011, there are certain similarities that can be drawn
to 2009 (changes in government subsidies causing a sharp slowdown in
demand, leading to over supply, falling prices and consequently a strong
end to the year and many being surprised that installations grew), but
there is one clear difference – it will not be followed by another year
of massive demand like 2010 and 2012 will undoubtedly be a lot tougher
for suppliers.
