Discussions of high average selling price (ASP) regions (such as Japan) and declining regional end-market pull (Europe) are currently in evidence during the round of Q3 reporting calls from public-listed module suppliers. The market size in Europe now and the pricing levels have become key issues, for Chinese and non-Chinese suppliers alike.
In particular, it is useful to assess what opportunity currently exists in Europe for the hundreds of non-tier 1 suppliers that had previously been focused on this region as a source of dominant revenues; and since this grouping was meant to benefit from the recent trade case.
The broad details of the Europe/China settlement are generally known by now: a floor pricing of €0.56/W and an annual quota limit at the 7GW level for Chinese module supply to Europe. (There are plenty other aspects of the agreement that are largely confined to Brussels/Beijing, but are not changing significantly the output from this blog.)
Aside from the nuances of pricing T&Cs and China supply levels to Europe, there are three key issues right now that are impacting the European sales strategies of all solar
PV module suppliers:
1. What is the current market opportunity in Europe for all module suppliers (the total addressable market, or TAM)?
2. Is there going to be a module supply problem during 2014, with Europe’s status being reduced from 70-80% of global solar PV demand to just 25-30%?
3. What is the residual Served Addressable Market, or SAM, for the many tier 2 and tier 3 module suppliers to Europe that were intended to be the beneficiaries of the European Commission’s investigations during 2012 and 2013?
This feature reviews these three key issues, and shows that the quarterly SAM for Tier 2 and Tier 3 module suppliers to Europe will be at the 1.2-1.3GW level, with potentially a 1GW shortfall across the year that may shift some demand from 1H’14 to 2H’14.
With the past 12-18 months having seen various facts and figures brandished in the media from the opposing sides of the EU/China trade case, it has become all the more pertinent to substantiate European market research data to the wider community.
The graphics and data presented in this blog are taken from new research by NPD Solarbuzz over the past few weeks and updated checks through the downstream channels in Europe. More detailed findings are contained within the NPD Solarbuzz Module Tracker Quarterly and European PV Market Quarterly November 2013 reports. The methodology and figures shown here combine the data and findings, but also factor in the very latest inputs from the downstream channels.
Therefore, in order to determine the SAM for tier 2 and tier 3 PV module suppliers in Europe, the following methodology is performed:
• Assess quarterly trends back to Q1’10 and forecast by quarter out to Q4’14.
• Segment European PV demand by GW by quarter.
• Perform 3-Quarter Rolling Averages to smooth out inventory issues at year-end, and also shipment spikes (as seen during 1H’13 prior to the EC ruling).
• Segment out the dominant Chinese tier 1 c-Si module suppliers (a count of eleven tier 1 suppliers fall into this category) and their quarterly shipments to Europe.
• Segment out European module supply from other (non-Chinese) tier 1 c-Si module suppliers that have retained strong shipments to Europe, and are likely to continue this trend during 2014. (For reasons that will become clear, this grouping is actually restricted within this analysis to: REC Solar, SolarWorld, Conergy, SunPower and Kyocera.)
• Determine the resulting SAM based on the residual module supply for European end-market demand. This is effectively the tier 2 and tier 3 module SAM, but also includes the share previously assigned to several Tier 1 module suppliers (both c-Si and thin-film) whose market-share in Europe has declined to low levels and can now be considered within the SAM of the lower Tier module suppliers.
Tier 1 China supply to Europe
The assumption is that a small group of Chinese module suppliers will retain a stable (albeit possibly declining) share of the European market during 2014. It is considered somewhat immaterial if this small group of Chinese module suppliers assembles the panels in China or outside China, as margins from assembly outside China will be lower than shipping to Europe from China.
As soon as the EC decided to avoid the import duty route, any benefits from non-Chinese assembly were largely negated. (This is really the key issue that the EC took, not the details of the ensuing Brussels/Beijing pact.)
Figure 1 shows the market share of the top-11 Chinese module suppliers to Europe going back to Q1’10 and forecasted out to Q4’14. Broadly speaking, this small group of market leaders has sustained a share of approximately 40% of the European market, with highs and lows related to spikes in European quarterly demand or shipment ahead of 2013 trade issues. The graphic here retains this share through 2014.
For the record, the shipments from First Solar, Sharp Solar, Panasonic (Sanyo) and Solar Frontier to Europe have declined significantly in the past 18 months. This is due largely to the listed Japanese suppliers shifting focus to the booming Japanese market, and First Solar shifting to projects opportunities mainly in the US. Collectively, these four suppliers were shipping on average 500 MW to Europe each quarter between Q1’10 and Q1’11. However, this figure has declined by an order of magnitude today.
Therefore, while First Solar, Sharp Solar, Panasonic (Sanyo) and Solar Frontier would previously have commanded European business that was largely outside the SAM of tier 2 and tier 3 module suppliers, their share now needs to be included within the opportunity in Europe for the lower tier suppliers.
Figure 2 shows the new SAM for tier 2 and tier 3 module suppliers to Europe, post the EU/China trade case, and as part of the reduced TAM in Europe. This shows that a 1.2-1.3GW per quarter SAM is now available to the companies that were intended to be the beneficiaries of the European Commission’s investigation.
Of course, this list includes all the tier 2 Chinese module suppliers, still focusing on Europe. It also includes the Indian module manufacturers that are seeing Europe as a new opportunity. Taiwan module makers (pure-play module makers and cell makers that are now adding module capacity) fall within the grouping too.
Figure 2: During 2014, Europe will provide a 5GW SAM for tier 2 and tier 3 module suppliers, shared across supply from China (tier 2/3), Southeast Asia, Taiwan, Korea, India and Europe.
Can the lower tier module makers satisfy demand?
With the top-11 c-Si module makers from China serving approximately 4.4GW into Europe, this suggests that other Chinese module suppliers (mainly Tier 2 Chinese makers still serving Europe) can add another 2-3GW of supply under existing quotas.
Therefore, excluding China supply, the SAM of approximately 5 GW in 2014 from all tier 2/3 suppliers has now been reduced to about 2 GW. This now becomes the key metric to track, in terms of Europe being under/over-supplied during 2014.
The other interesting takeaway is that the Tier 2/3 non-Chinese suppliers that are targeting this 2GW SAM for Europe in 2014 are not really benefiting from the Chinese having a floor pricing level. The reality is that bankability for large-scale projects is still the exclusive domain of a few, and all the tier 1 Chinese suppliers come under this category. (This pushes a lot of the tier 2/3 supply to residential or small commercial rooftops, with distributors’ margin further eroding ASPs.)
During 2014, the large ground-mount and large rooftop segments in Europe are forecast to provide 5-6GW demand. Much of this will be satisfied by the top-11 Chinese suppliers and the grouping of REC Solar, SolarWorld, Conergy, SunPower and Kyocera. Therefore, this leaves just below 5 GW of residential and small commercial rooftop applications, within which the Tier 2/3 2 GW SAM resides.
Currently, there are about 30-50 tier 2/3 module suppliers targeting in excess of 1GW of shipments to Europe in 2014. Therefore, there could be a shortfall at the GW-level in Europe, potentially offering upside to new module capacity coming online in Taiwan, fab-lite operations from the likes of Upsolar, Conergy or Recom, Chinese-based module supply in Europe such as China Sunergy’s Turkey operations ,or anyone that acquires part of the module capacity of Bosch in Germany.
Therefore, supply tightness may well impact the European market, possibly front-half weighted. But anyone harbouring aspirations of a pricing rebound based upon supply limitations is likely to be disappointed, with end-market system price economics trumping any localized upstream supply/demand imbalance in today’s PV industry.
Until now, it is questionable what impact the Europe/China trade case has actually had on a European market that was previously heavily weighted towards unsustainable demand from Germany and Italy. So far, the main consequences appear to be:
• The ground-mount segment took a hit in Q3’13 with supply shortages, pushing out many projects to Q4’13 and next year.
• Less-bankable non-Chinese module suppliers are undercutting Chinese module floor pricing, just to get business.
• Chinese module suppliers can now get higher ASPs than before and make more profit than before, when selling into Europe.
Few would argue than any of these outcomes were part of the plan when the European Commission delivered their findings a few months back; especially the last point!
However, with plenty of opportunities outside Europe, and having their domestic end market to themselves (and as the largest PV market in both 2013 and 2014), the Chinese module suppliers can happily live with 7GW into Europe during 2014. And a 3-4GW market opportunity for the other suppliers is also a reasonable challenge, given the level of capacity now available from this grouping (post the 2011 and 2012 insolvency phase). Finally, a 2GW Europe SAM for a hundred or so module makers that have 30-300MW of module capacity each is attractive enough to keep Europe on their radar during 2014.
European demand is forecast to rebound during 2H’14 and 2015, making European strategies important for all module suppliers over the next few months.