All eyes on Asia as new PV CapEx emerges, but rash spending history tempers optimism

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Forecasting that an upturn will follow a downturn is not exactly rocket science. Especially in the case of solar PV CapEx that declined to almost zero during most of 2013. Once CapEx fell to nothing, just adding a couple of solar simulators to a 20MW line in Africa becomes sufficient to create headline-grabbing revenue growth numbers!

PV CapEx during 2012 and 2013 has been so low (basically close to maintenance-only CapEx levels) that shouting about a 20% or 30% growth in 2014 is not exactly going to get the CFOs making a beeline to the bank. Add an extra zero to the growth numbers, and things might just start getting interesting.

The need for CapEx segmentation

The real issue is still what the CapEx upturn will look like, and whether it will start off at one particular stage of the value-chain or be spread across the poly-to-module and thin-film capacity variants. In fact, this question is all the more pertinent given the large chunk of market-spec tool capacity still bubble-wrapped from 2011 and 2012. Let’s look at an example here to explain. Adding a few hundred megawatts of new cell capacity may only require PECVD or diffusion furnaces to be added, if there are enough quality screen printers that can be acquired from overspending back in 2011 and 2012.

Yes, the bar has been moved on efficiency and panel power ratings over the past 12-18 months, but this is not through any magical process flow advancement; rather, from overall better management of existing tools and having narrower yield distributions from multi c-Si wafers on the market.

Therefore, understanding the technologies and tool availability at the process flow stage is really the key issue that equipment suppliers want to know, as things progress during the first half of next year. There is still legacy baggage that needs to be worked through before assuming that capacity expansion announcements will result in equipment POs arriving with all tool suppliers.

Glass half-full

PV equipment suppliers are still getting used to dealing with their customers’ lack of CapEx bravado. Between 2009 and 2011, it was almost considered a crime not to have a multi-gigawatt expansion plan with an artists’ impression of a high-tech manufacturing hub adorning trade show booths. By 2013, CapEx had become an unmentionable word, synonymous with irresponsible fiscal control.

So perhaps the lack of any fanfare from PV manufacturers right now, when CapEx resurgence is clearly underway, is not that surprising. It won’t be too long before it is acceptable again to proudly announce adding new factories and new capacity to deal with a PV industry on the verge of hitting annual demand at the 50GW level. In terms of where we are with new CapEx, the picture is starting to emerge slowly, but is far from complete. In pulling the pieces together, it is also providing an indicator of where the real bottlenecks are across the c-Si value-chain.

Scanning the value-chain CapEx activity

Tracking the order activity at the value-chain stage (ideally at the process flow stage) is the key metric right now for all PV equipment suppliers. So, let’s run through the c-Si value chain first, excluding polysilicon that is still out of phase, but will quickly become an issue also.

Ingot and wafer additions are largely confined to what China-based GCL-Poly actions in the short-term to balance its unique blend of legacy tool orders and new capacity enhancements, and the capacity additions for differentiated wafer supply (n-type or high-efficiency p-type mono). The bulk of the industry that is meeting the dominant p-type multi supply to cell makers appears to still be in oversupply mode, although the more p-type wafer specs move to the high-efficiency category will help work through furnaces and wire saws in the field today.

Cell additions have also been slow to evolve, with capacity rationalisation still in place. Monocrystalline lines have been converted to multicyrstalline in China, adding to the increased market share from multi in the market today. While there have been a few bright spots (discussed in the section below), perhaps the strongest indicator of new capacity additions was reported by a new entrant to the PV space earlier this week: Orbotech. Set up to address the PECVD cell supply (previously dominated by Centrotherm and Roth & Rau), Orbotech announced a large order for multiple PECVD tools, equivalent to several hundred megawatts of new cell capacity.

While complementary announcements are yet to emerge from other process flow suppliers for cell tooling (possibly due to the presence of secondary tooling being incorporated in the new cell lines), this announcement is definitely the strongest indicator that cell makers (especially in Taiwan) are close to pressing the button on new capacity for 2014. In addition to Taiwan, Korean cell makers are also ready to add new capacity, having been largely in wait-and-see mode during 2012 and 2013.

Turning to the module side, the situation looks much more encouraging following recent announcements from Spire, Komax and teamtechnik. This is supporting the latest channel checks from NPD Solarbuzz in China that suggests multiple gigawatts of new module capacity having been ordered across all tier categories at this value chain stage. In particular, two of the leading Chinese laminator suppliers are thought to be fully booked with up to 7GW of new laminator orders. (More on this later on in the blog.)

The thin-film segment remains a conundrum for tool suppliers. Hanergy is still dangling a billion dollar carrot for all CIGS tool makers, with its gigawatt framework proposal for Miasolé, Solibro and Global Solar.

Solar Frontier is capacity constrained within an expanding Japanese market, with Japan, Southeast Asia and the Middle East all candidates for new fab expansions. And First Solar is yet to unveil how it intends to increase in-house supply of CdTe panels beyond 2015, having been in fab rationalisation mode for the past 12-18 months. However, it should be remembered that any thin-film capacity additions are generally customised in their tool supplier selection.

Technology buys continue, but still decoupled from repeat business

New entrants to the industry will always be a by-product of an end-market with double-digit year-on-year growth, and this continues to be the case today. The difference now is that any tool ordering is much more valuable, in the absence of standard technology offerings to existing market leaders.

Expansion plans by Nexolon and the addition of next-generation variants (such as heterojunction cell types) are certainly highly valuable to the chosen tool suppliers, but excitement beyond a one-time revenue hit is probably the real order of the day. Viewing these technology buys as revenue upside is probably the most prudent approach from the supply side.

The reason for this is simple. The roadmap for the PV industry is being moulded by the c-Si market leaders, and is biased to low-risk optimisation of p-type multi c-Si cells and modules, and step-by-step efficiency improvements coupled with quarter-on-quarter cost reduction. Now is certainly not the time for wholesale changes in cell manufacture, especially in a climate of polysilicon pricing at the $20/kg level. And of course, the track record of new entrants succeeding with differentiated c-Si technologies in the PV industry is not good. Fast-tracking the learning curve that SunPower and Panasonic (Sanyo) went through by learning in-house how tools and process flows can be scaled to the gigawatt level is far from a walk in the park.

Once bitten, twice shy

While discussions of supply/demand balance and pricing stabilisation are all the rage today, anyone assuming that sane and rational behaviour regarding capacity expansions and component supply is set to last indefinitely has probably been sleeping for the past five years.

On the one hand, the return to CapEx release and new capacity expansion is definitely a very positive sign of an industry-wide recovery, end market growth and manufacturing profitability, but there is still the real threat of a repeat of the problems that besieged the industry in the past: oversupply.

Indeed, with every new purchase order, and tool backlogs that grow from megawatt to gigawatt, there is the risk that the industry will simply go into repeat mode and add capacity way beyond the short-term needs of the end market.

While this creates an ongoing dark cloud for everyone concerned (only putting downward pressure on ASPs by the middle of 2014), it is also true that the PV end market in 2014 is very different to a few years ago. As such, the alarm bells are maybe not so deafening.

Previously, the PV industry’s market size was almost exclusively capped by the capacity that could be accommodated within the feed-in tarrif-driven countries of mainland Europe. However, today, the scope for end market elasticity is much more pertinent, with the supply side capable of driving end market demand towards global upside forecasts.

Whether 2014 is still too early to apply this prognosis is yet to be seen, but this definitely needs to be monitored over the next 12 months. But if this does happen, then the floodgates for capacity additions could be well and truly opened, and there will be certainly be no complaints from the PV equipment supply chain this time around!

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