Your daily dose of photovoltaic technology developments and solar news
Plucking some choice excerpts from Lehman’s latest solar energy analysis
Most Popular Articles
- Name change: Showa Shell Solar soon to be Solar Frontier, targets 1GW global sales of CIS modules
- Suntech sales reach US$1.7 billion in 2009: capex, capacity and shipments to rise in 2010
- SolarEdge partners with Flextronics for manufacturing of distributed PV power harvesting systems
- LDK Solar acquires Best Solar’s crystalline module manufacturing plant - updated
- SolarWorld secures ultra-low-cost polysilicon with JV in Qatar
Popular Technical Papers
Subscribe to our weekly newsletter
Although the news from Lehman Brothers has been troubling today,
the venerable investment bank's solar energy equity research team has
been a bright spot amid the gloom. Group leader Vishal Shah's daily
email newsletter and periodic reports are some of the most informative
and cogent in the space--a must-read (or at least peruse) to go along
with my morning coffee.
When I asked Vishal if I could excerpt some choice bits from Lehman's solar demand analysis report issued earlier this week, he told me to "feel free" to do so. Below you will find (with minor editing) some of the team's findings, observations, and takeaways from the recent EU PVSEC show in Valencia, Spain. I've also posted a couple semiconductor vs. solar-related excerpts over at the "official" home of Chip Shots at Fabtech.
Here's what Vishal sees ahead for 2009, and what's changed in the his analyses since earlier forecasts. Hint--it's still about the poly:
We believe one of the potential near-term concerns for the sector is that most solar companies have provided somewhat aggressive guidance for 2009 on the assumption that polysilicon supply would become readily available from the spot market or silicon partners. We expect supply tightness to continue and expect solar ASPs to decline at a faster rate than poly costs for companies without relatively long-term supply contracts. We believe gross margin pressure or slower than expected output growth could lead to a wider divergence of share price performance among solar companies in 2009.
Our polysilicon supply survey suggests that execution challenges could likely result in low plant utilization rates and tight polysilicon supply over the next 12 months. We expect further tightness due to strong demand growth from emerging solar markets and forecast spot-market prices above $250/kg in 2009. We are reducing our polysilicon supply estimates from 59,000 MT to 52,000 MT, 92,000 MT to 80,000 MT and 160,000 MT to 145,000 MT in 2008, 2009, and 2010, respectively. We are increasing our demand estimates from 4.2 GW to 4.3 GW, 6.7 GW to 6.9 GW, and 11 GW to 11.3GW in 2008, 2009, and 2010, respectively.
Toward the end of the report, Vishal and Co. offer a little perspective on "screening the longer-term winners":
So which companies stand to win in the long run? The common view is that solar is a commodity with relatively low barriers to entry. Our view is that barriers to entry are low for high-cost/low-efficiency panels—it is relatively easy to make an undifferentiated product for the incentive markets where IRRs are still very attractive—the only constraint is access to polysilicon supply.
Having said that, we expect two long-term trends to potentially influence solar industry development. First, we see innovation leading to increased technology and therefore cost differentiation. Second, we see competitive dynamics and a changing industry landscape leading to increased cost differentiation.
Whoever thinks that solar companies are relatively undifferentiated should, in our opinion, think about Applied Materials and First Solar. How many successful thin-film companies besides First Solar have we seen so far? Why is the world not producing solar cells in volume production for unsubsidized markets when the semiconductor industry has figured out a way to mass-produce 45-nm products? Why is everyone skeptical of Applied Materials’ ability to lower costs and improve efficiency?
The bottom line is that efficiency improvement requires major breakthroughs. Not everyone can and will get there. The companies that can successfully reduce costs and improve efficiency stand to dominate the solar sector. Simply put, we believe the winning formula for success would be a combination of SunPower's high-efficiency technology and First Solar's low cost structure.
Now let's think about a scenario where First Solar executes to its 12% efficiency target and SunPower reduces costs by 50%. We continue to see room for both silicon and thin-film technologies and at this point, we see First Solar as being the lowest-cost thin-film solution. In the silicon space where there is only gradual efficiency improvement, we believe market share will play an important role in cost differentiation.
Besides economies of scale, we see the ability to access low-cost silicon being influenced by market share. For instance, the industry trend is a large/strong silicon supplier selling to a small/weak solar player. Over time, as new entrants from China bring additional silicon supply onstream, we see a shift in the bargaining power in the solar value chain.
In our view, the capital intensity of poly suppliers is highest among all industry participants. Consequently, we see a greater need for poly suppliers and their solar partners to access capital markets for new capex or for prepayments. We believe solar companies with scale and a strong balance sheet are likely to receive more favorable terms from their suppliers compared to smaller tier-2 solar players. In our view, the weaker silicon suppliers that need access to capital markets are likely to enter into long-term contracts with solar players at margins much lower than existing spot poly margins.
We are already starting to see the differentiation among supply contracts as solar companies with relatively large scale are receiving favorable supply terms compared with smaller solar companies. Although we are not saying it is easy to make silicon, we believe the barriers to entry in the silicon business are decreasing. Over time we expect the knowledge pool of the silicon industry to increase.
Until the emergence of the solar industry, the silicon industry was a fairly concentrated industry with manufacturing only in about five locations. As more people learn to make silicon, we see decreasing barriers to entry and the dynamics to play out in the same fashion as the DRAM industry.
On the other hand, we believe barriers to entry in the midstream segment are likely to increase. First, access to low cost supply will be the primary challenge. Second, downstream players are likely to require greater reward for taking the same risk in an uncertain supply/demand environment. Module manufacturers that provide 20- to 25-year warranties and financial stability would be the key focus for several large downstream installers.
If our industry outlook proves to be correct, we see two long-term trends shaping the silicon-based solar sector: we see a profitability shift from upstream to midstream, and within the midstream, we see a wide range of margins—companies with scale should enjoy above-average margins and tier-2 companies should have weak margins due to high poly cost and lower ASPs.
Our focus would be on companies that are well-positioned to increase scale—companies that can scale rapidly without sufficient need for growth capital are likely to emerge as long-term winners. Although we like vertically integrated companies, we believe companies focused on the capital-intensive polysilicon manufacturing segment may be unable to scale rapidly enough compared with companies focused on cell and module manufacturing.
In other words, we believe the SunPower and Suntech business models are more scalable than REC's business model. In the long run, when companies start generating free-cash flow, we see the opportunity for fully vertically integrated companies to emerge as long-term winners.
(Thanks again to Lehman Brothers' Vishal Shah for permission to excerpt)
Cart
There appears to be nothing in your cart!
