Effective Tier 1 capacity aligning with 2012 PV demand expectations

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on reddit
Reddit
Share on email
Email

“How much capacity is really in the PV industry today?” This question has probably been asked more often than any other question in the past six months. The question is not founded simply upon curiosity. Capacity levels are implicitly linked to supply and inventory levels, module ASPs, planned fab utilization rates and long-term expansion/CapEx plans.

Understanding capacity levels is not as straightforward as adding up capacity based upon fab equipment that has been shipped. There is no shortage of misleading statistics using this approach. Pick your number when doing this academic exercise: 50GW, 60GW or even 70GW?

Now compare these headline figures against a PV demand benchmark for 2012 at the 30GW level. It is clear why the capacity question is so topical. And indeed – why so confusing.

Market requirements dictate effective levels

Capacity definitions have traditionally been used somewhat ‘liberally’ within the PV industry. Typically, they have encompassed ‘any’ capacity, regardless of whether this capacity was market-capable or not: or indeed, if the manufacturer claiming the capacity even had any downstream business to justify operating the equipment.

Pulling out the ‘effective’ capacity provides some welcome relief and helps overcome many of these issues. Effective-capacity is defined as ramped-manufacturing capacity that is capable of providing cells/modules that meet market requirements at any given time. All other capacity then becomes ‘ineffective’ and can be removed from any capacity/utilization and supply/demand analysis.

While many producers are hopeful of revitalizing dormant production capacity, it is likely wishful thinking that capacity that was uncompetitive in 2011 can be restarted in 2013 as competitive.

Any increase in market demand drives an increase in effective capacity conversion/utilization and subsequent capacity expansion phases from the market leaders: not an opportunity for uncompetitive capacity to be re-used.

Eliminating uncompetitive capacity

Removing ineffective capacity is done in several ways. The easy part is simply removing capacity as companies exit the industry, through choice or through corporate failure (insolvency, etc.). Next, legacy capacity that has been idled (effectively ‘mothballed’) for some time needs to be removed. Finally, ‘ramped’ capacity levels need to be fully worked in on a quarterly basis.

Ramped capacity is not the same as ‘nameplate’ capacity, or what the equipment is specified to do when shipped to the fab. While there is both upside and downside to this statement, the ‘downside’ cases far outweigh the ‘upsides’ in PV today.

For example,some production lines as part of previous c-Si expansion phases can operate at >100% of nameplate capacity. Conversely, some the thin-film fabs may only be capable of producing 50-60% if equipment was to be used 24/7.

Next, it is essential to factor in uptime, yield and shift schedules employed by manufacturers. For example, a nominal 30MW line at a Tier 3 c-Si cell maker in China may only ever run single-shift with significant downtime between production-runs. Very quickly, a 30MW ‘fab’ becomes a 5MW fab.

Lastly, phased line ‘ramping’ (up and down) needs to be considered. This allows distinguishing between ‘nameplate’ (or year-end) capacity and ‘annual’ (or available) capacity. During 2010-2011, when significant production capacity was delivered – the difference between year-end/nameplate and annual/available was considerable.

The final capacity metric tracked is therefore ‘Effective & Annual’ capacity. This is the key figure to consider when reviewing quarterly supply/demand and inventory changes. Utilization should be referenced to these capacity figures, more indicative of an Effective-Capacity Conversion term.

Assessing the capacity/demand balance for 2012

Figure 1 provides an illustration of the different capacity terms discussed above, for 2011 and 2012. During 2012, nameplate/year-end capacity of equipment operating in ramped fabs exceeds the 60GW level. However, the Annual & Effective capacity figure is only 43GW, spread over 100+ cell/module and thin-film manufacturers. Further differentiation of this capacity is required.

This is done by considering Tier categories. Recall that Tier 1 manufacturers are characterized by economy-of-scale and low cost. They satisfy cell/module market requirements, and – most importantly – have sales pipelines/backlogs. Today, 21 manufacturers fall into the Tier 1 grouping.

The Tier 1 Annual & Effective capacity level for 2012 is 26GW. The China & Taiwan specific segment of this represents 21GW. These two figures now provide the underlying drivers behind supply and demand for 2012 and explain why some companies are currently running production lines flat out while others are being forced to question their participation within the industry.

Taiwan cell manufacturing now the barometer on downstream PV demand

Having just completed a road trip across Taiwan that took in the major stakeholders in the c-Si value-chain, it is evident that Taiwan cell makers are providing the benchmark on effective market supply and demand issues.

The elevated role of Taiwan cell manufacturing should not come as any surprise. Taiwan cell makers have commanded priority status for some time, and if anything, the US trade issue is simply providing further evidence of this.

Well before the ‘anti-dumping’ bandwagon gained traction, shipment of cells from Taiwan to leading Tier 1 c-Si module manufacturers in Japan and China had been growing:  acknowledgement that the likes of Gintech, Motech and NSP had profited from value-chain-specialization at a time when the vertical-integration strategies of their China Tier 1 peers had been capturing the PV headlines.

When will more capacity be required?

While the capacity issue is essential to understand the end-market supply/demand and pricing environment, it has an equally important – but different – relevance to the equipment supply chain. For PV capital equipment suppliers, the answer ultimately guides expectations on new order intake and equipment build schedules for new production lines.

PV equipment supply had been (somewhat artificially) inflated to a US$10-billion-plus SAM during each of 2010 and 2011. This raised the bar on PV revenue expectations to levels previously reserved for adjacent segments such as semiconductor or flat panel display, and for many companies, this created expectation levels that would turn out to be simply unsustainable.

Rather, the question of capacity can be reframed more as: “When will leading PV manufacturers have sufficient confidence in long-term PV demand to justify the next round of CapEx sign-off?” But this question comes with its own subset of unknowns, including: What will happen to equipment taken offline? Will a used-equipment market open up that will cannibalize new tool shipments for additional Tier 1 capacity expansions? And just what form will this equipment take as the industry refuses to conform to any broad consensus on technology roadmaps deployed across the value-chain.

Ultimately, it may again be the Taiwan cell makers that provide the answers to these questions. What roadmaps and strategies will be employed by Gintech, Motech and NSP during 2H’12 when the issue of capacity expansion is revisited? Will Taiwan cell production conform to the cast-mono aspirations of GCL and ReneSola? Will high-efficiency concepts be implemented? Or will substrate choice simply migrate from p-type multi to p-type mono to n-type adoption in order to raise the efficiency levels gradually closer to the 20% level over the next 2-3 years?

26 January 2022
Join this free webinar for our analysis of the growth of N-Type technology including; new capacity expansions and production output. We'll also be looking at the global manufacturing footprint with forecasts on how much product will be made outside of China this year and which companies are driving technology change across the crystalline silicon value chain.
23 February 2022
Held annually since 2016, the Energy Storage Summit Europe is the place to be for senior stakeholders in the European storage industry. Designed to accelerate deployment of storage, we examine evolving chemistries, business models, project design, revenue stacks and use cases for storage. The 2022 edition will include exclusive content around longer duration solutions, energy strategies for wide-scale deployment of EVs and "EnTech", the event which sits at the intersection of digitisation, decentralisation and decarbonation of the power system. Come to meet TSOs, DSOs, Utilities, Developers, Investors and Lenders and leave with new contacts, partners and a wealth of information.
7 March 2022
Take your chance to join the most powerful platform in the MENA region. Middle East Energy (MEE), Intersolar, and ees, the leading energy exhibitions are joining hands to co-deliver an outstanding renewables and energy storage event at Middle East Energy 2021. Renewables and energy storage at MEE is the largest gathering of solar and renewable energy industry professionals in the Middle East & Africa, offering the most effective trade focused platform to international manufacturers and distributors looking to meet regional buyers.
8 March 2022
As Solar Finance & Investment enters its ninth year, we sit on the cusp of a new power market with solar at its heart. The 2022 edition of the event will build on our years of expertise and relationships to bring investors and lenders together with top developers. Connect with leaders in the field and use exclusive insights to drive investment and development decisions for the future. Meet new and existing project partners at the largest gathering of European solar investors and lenders.
23 March 2022
When it comes to storage, the US market exceeded a gigawatt of advanced energy storage installations (weighted towards lithium ion) at 1.46 GW, more than the previous six years in total! An exponential growth rate could see the market hit 7.5 GW p.a. by 2025. The summit will provide a wealth of content around this vital piece in the US power puzzle, with sessions dedicated to explore how companies are making money from batteries, the latest chemistries and their applications as they apply to different use-cases. We ask how investors can match ESG criteria to batteries and we will bring case studies of successful deployment and project execution onto the stage to examine how you can ensure your own projects are successful.
29 March 2022
Now in its 10th sell-out year, Large Scale Solar returns to Lisbon in 2022. We are excited to gather together face-to-face with the European solar industry as we provide unique and exclusive access to a powerful selection of the market's key stakeholders. Join this elite summit to find out how the market is maturing, which new markets are becoming more exciting, how technology is evolving and who's driving the market forward into the 2020s. Always senior, packed with developers, EPCs, utilities and investors this is the event for companies serious about European solar PV.

Read Next

January 24, 2022
Italy’s government will limit the windfall profits of some feed-in tariff-backed solar PV projects that have been able to benefit from rising energy prices.
January 24, 2022
More than 260 companies in the US clean energy sector are demanding urgent action on the US$1.75 trillion Build Back Better (BBB) Act, claiming that US$2 billion is being lost in economic activity every month the long-awaited bill is delayed.
January 24, 2022
Major polysilicon and wafer producer GCL-Poly Energy Holdings confirmed the completion of its granular silicon facility and, in a major reversal of last year’s fortunes, is expecting RMB5.5 billion (US$850 million) in net profit for 2021, according to a company statement.
January 24, 2022
Polysilicon producer Daqo New Energy is expecting a five-fold increase in net profit from its Xinjiang subsidiary as it continues to progress expansion plans.
January 24, 2022
Renewables developer and operator Leeward Renewable Energy has signed power purchase agreements (PPAs) with telecom company Verizon for a portfolio of four under-development solar and wind plants in the US with a combined capacity of 640MW.
January 24, 2022
The average cost of forecasting errors in the US is lower than previously thought at less than US$1/MWh, according to a study by Berkeley Lab that employed a new, publicly available method to examine the practice.

Subscribe to Newsletter

Upcoming Events

Upcoming Webinars
January 26, 2022
Free Webinar
Solar Media Events
February 23, 2022
London, UK
Solar Media Events
March 8, 2022
London, UK
Solar Media Events
March 23, 2022
Austin, Texas, USA
Solar Media Events
March 29, 2022
Lisbon, Portugal