If 2009 to 2011 represented an extended three-year party for the PV industry, then 2012 will definitely be remembered as a long and painful hangover: a year in which forecasts and guidance were rarely achieved, and when being able to report ‘less amount of losses’ quarter on quarter was marketed as a success.
But perhaps missing one specific metric (more than any other) in 2012 could turn out to be a blessing in disguise for the industry. The metric in question here is annual PV demand expectation.
In fact, failure to hit the PV manufacturers’ demand ‘consensus’ from mid-year could actually provide the necessary tonic to sober up the industry. And just to round out the recovery theme, 2013-2014 would then be the rehabilitation phase (operating margin break-even) and 2015 the start of prolonged good health (profit-making).
This article discusses why repeated over performance by the PV industry in surpassing annual PV demand expectations may have been a strong contributor to the mid-year confidence in 2012 exhibited by PV manufacturers. It also looks at how historic trends may have led many to think that excess product manufactured in Q2-3 2012 would somehow find a buyer by year-end, simply because previous years had followed this trend.
Legacy demand consensus a mixture of cautious-optimism and sandbagging
Typically, the PV industry started each calendar year with a general ‘consensus’ on annual PV demand. Historically, these levels erred heavily on the side of caution, with PV manufacturers not wishing to over commit as they started to guide full-year shipment and market-share aspirations.
Indeed, the year-start annual forecasts have generally been of more immediate concern to upstream suppliers (especially polysilicon manufacturers) and key materials/consumables suppliers (pastes, backsheets, balance-of-systems components), rather than the individual module manufacturers.
Of course, what transpired over the past few years in the PV industry was that final annual PV demand figures greatly exceeded the industry consensus reached during the first half of each calendar year. And more often than not, the catalyst for this was an eleventh-hour downstream installation frenzy ahead of a 31 December European policy level reset. Often this was largely driven by the creative and collective ability of the downstream channels to galvanise efforts and being able to call upon strong inventory levels that had built up in the second half of each year.
Upside demand bonus for 2012 now considered unlikely
By the middle of 2012, most manufacturers had settled on a figure of 30GW when pushed on annual PV demand. In private however, strong confidence did exist then that 2012 would follow trends of the previous years and actual demand levels would end up in the high 30s based on second-half wildcards.
And as such, manufacturing largely proceeded based on business as usual for many, with inventory levels building up along the c-Si value-chain. This factor has simply perpetuated the one thing each of these manufacturers wants to avoid: repeated ASP declines caused simply by product oversupply and competitive sales strategies.
But 2012 demand is somewhat different to previous years. First, most European countries have learned from previous year-end peaks and adjusted policies to curb these effects. And secondly, much of the mid-year optimism was based upon ambitious Q4 2012 demand targets in ‘new’ PV regions where infrastructure and project funding was far from certain.
Final 2012 numbers will not be known and counted for some time yet, and year-end demand spikes cannot be discounted yet across a range of different countries. Furthermore, module inventory is not in short supply either.
But it is becoming more likely that the mid-year optimism is being replaced with the realisation that final year-end demand for 2012 will not follow the trends of previous years and will not provide a welcome upside boost to absorb excess product manufactured.
Figure 1 compares the industry consensus on annual PV demand (at 31 March each year) with the final demand figures that were achieved each year. And figure 2 shows what a 30GW PV industry would look like for 2012, with the top 10 territories itemised in the left-hand-side pie chart.
Sunshine after the rain
The absence of a year-end surge in 2012 should not be considered a bad thing at all for the PV industry. In fact, it may finally provide the wake up call that puts an end to flooding the supply channels with product.
And while nobody would advocate that the PV industry should revert to a ‘made-to-order’ production system, constant oversupply (coupled with a lack of demand elasticity) is only going to prolong a highly competitive selling environment that simply results in ASP declines.
It’s a sobering thought that a downside to demand projections should become a reason for joyous celebration, but the rehab process can only truly start when ASP stability has been achieved. And preventing oversupply is the single most important factor within this recovery process.