While media coverage can often portray the PV industry as a sector currently getting its just-rewards for years of self-inflicted investment over-exuberance, it is easy to lose track of what made the PV industry so special in the first place: using advanced technology as a means to achieve global climate stability.
In fact, with the PV industry going through some of its darkest days ever, is now not the ideal time to refocus on what the PV industry can do well together (technical enhancements) and impose technology-based (and not trade-based) constraints in order to move the industry forward into profitability?
This article discusses why the current preoccupation with consolidation and rationalisation is possibly indicative of misreading PV industry dynamics, and how addressing technology advances may be the only solution to overcapacity/oversupply that both shakes out and drives forward PV product supplied through the value-chain.
An industry in turmoil: often misread by outside onlookers
Anyone coming fresh out of college today and applying MBA-taught supply/demand or cost/price analyses to the PV industry is likely to undergo a crash-course in commercial reality, since the PV industry is simply not adhering to any rational models.
Rather, the PV industry has been hijacked by issues that are way more important than global industry-wide metrics: namely, daily survival and praying that your competitors fail first to provide a less torturous selling environment.
Add in chronic overcapacity, oversupply and frequent inventory build-up across the value-chain, and the true nature of the selling environment starts to emerge. Anyone still modelling price-points based on theoretical cash-cost estimates is tracking a PV industry that exists only on paper or in an excel spread sheet.
In fact, price points, commercial deals and T&Cs are at times more indicative of end-of-season market-stall trading, than of long-term strategic collaboration, relationship building or margin preservation.
Factor in escalating trade-wars and domestic protectionism (and counter-counter accusations) and the use of the word ‘turmoil’ to describe the PV operating climate is by no means sensationalism, but perhaps an understatement of the real predicament faced by PV manufacturers and suppliers.
PV industry consolidation: wishful thinking or naïve commentary?
Capacity rationalization, industry consolidation and (preferential) fiscal bailouts are options widely touted by some PV observers as possible solutions to the current industry woes. But most of these suggestions are often somewhat in hope, rather than reflecting any widespread initiatives that offer any true long-term value.
In fact, the unsurprising failure of the PV industry to ‘rationalise’ or ‘consolidate’ is more a consequence of the lack of global synergy across manufacturers and suppliers located in different countries. Typically, consolidation is discussed in reference to country (or even state or bank) specific terms, and certainly not on any global basis.
Historically, the PV industry operated with a ‘healthy’ competition between different manufacturers across the value-chain. Today, however, global trade disputes have firmly changed this dynamic – for the worse. In fact, global mistrust is more appropriate, and short-term domestic corporate survival is now the only game in town.
But maybe just asking one question is enough here: Why consolidate?
Let’s look at European PV capacity first. What are the reasons to buy 5-year old technology from failed European c-Si or thin-film manufacturers? If European c-Si manufacturers – hitherto supported by local regions, governments, EU funding initiatives and a vibrant R&D community – were unable to operate cost effectively in the PV environment of 2010, can any Asia-Pacific-originated acquisition package really cast a magic wand and make these same manufacturing sites competitive in 2013?
Moreover, with no shortage of shuttered PV fabs in Europe, then perhaps waiting patiently on the sidelines until the full implications of any European Commission import duties/tariffs are known is the most prudent approach today. (Sadly however, when casting an eye over present PV players, such a luxury maybe exists only for a couple of Korean conglomerates.)
Looking now inside China PV, why should a tier 1 manufacturer add even more ‘me-too’ c-Si capacity when their existing capacity is grossly underutilized today and may not achieve annual utilization rates above 80% until 2014?
Who really benefits under this scenario? Are jobs actually saved? Are the local banks any more likely to get their original investments back? Does any economy-of-scale argument really carry any weight? Or is it not likely that quarterly losses and write-downs would then simply scale in direct proportion to the liability inherited?
Actually, ‘consolidation’ is maybe just a concept being touted by some PV industry observers and this may simply represent naïve - albeit wishful - thinking. Or it may be because no other solutions can be thought of to solve the overcapacity/oversupply problems until annual end-market demand reaches and then exceeds the 45-50 GW level. And simply taking a marker-pen and drawing a line through 200 or so PV manufacturers below a fictitious threshold level is also not a particularly credible approach either!
So, let’s assume that it will not be until 2014 (at the earliest) that end-market demand will get to the 45-50 GW level. And let’s also assume that (external) investor-confidence will take a further 12 months to be repaired. Then, we are left with the burning question: Can anything be done in the next 18-24 months to change the PV manufacturing landscape for the better (assuming consolidation is not the answer), so that 2013 does not simply become another ‘2012’ but only more painful?
Technology barriers: avoiding the legal impact of domestic protectionism
For many PV manufacturers (and their respective politicians/governments/regions/etc.), domestic protectionism has been the preferred strategic play to combat declining profits and eroding market-share. Therefore, claims relating to anti-dumping and illegal subsidies have been the default route that would ultimately place foreign manufacturers at a competitive disadvantage. First in the US, then in China, and now in Europe: most of the global PV industry is now embroiled in crystal-ball scenario forecasting based on the final decisions of politicians or government-influenced trade organizations.
Making the case for any anti-dumping/anti-subsidy investigation is not particularly difficult. Every country invested heavily in generating a manufacturing base that would stimulate new job creation on the back of a global PV industry.
Every country is now counting the losses, following global overinvestment into c-Si fabs or from investing in unproven thin-film technology options. Drawing a line between a perceived cause (foreign manufacturers/suppliers) and the ultimate effect (domestic insolvencies) does not require too much creative thinking. Tap into a political or public bandwagon and the discussion can move swiftly from ‘if’ to ‘when’.
But is there any other option for struggling PV manufacturers?
To answer this question, we need to look more closely at one of the key PV end-market/manufacturing countries that have so far kept away from anti-dumping or anti-subsidy investigations: Japan.
Understanding why Japan has been able to avoid the AD/CVD-type route – but at the same time try to protect its domestic manufacturers – rarely gets any primetime media coverage, but represents how technology can be used if local manufacturing is up to the challenge.
Japan’s efficiency/technology threshold levels can certainly be viewed as a form of domestic protectionism. Nobody is going to challenge the need for more efficient panels being shipped and installed on rooftops (or in fact, anywhere). The premise is all fine, so long as domestic manufacturers are themselves capable of supplying panels that meet these requirements.
It should be noted that country-of-origin of wafers, cells, etc. is not spelled out, so the fact that a large portion of Japanese c-Si modules are comprised of non-Japanese materials (Korean poly, Chinese wafers, Taiwan cells, etc.) is neither here nor there.
Factoring in the cadmium-exclusion and the (other thin-film, but not thin-film silicon) CIS-based efficiency threshold requirement, and Japan can be seen to have the most comprehensive technology-based PV tariffs in place, without actually saying anything about domestic jobs or illegal pricing or subsidies.
Of course, it is far from clear that this will be sufficient to save domestic manufacturing in Japan. This may ultimately be dictated by whether parent companies of PV manufacturers decide if PV is an industry they want to pursue from a component manufacturing standpoint.
Interestingly, Japan’s attempts to use ‘efficiency’ as a vehicle to reduce the foreign threat to local end-market demand do not ever seem to have been considered by the anti-dumping proponents located in North America, Europe or China. A thesis could be written on why none of these regions/countries (despite the billions of dollars into PV manufacturing/R&D) was able to pursue the efficiency/technology option to prioritize domestic manufacturing, but it should be noted that the US and Europe probably overplayed the importance of ‘brand’ versus technology and China upstream poly producers can’t compete on quality compared to the established US/European suppliers.
But it does raise the questions: Can technology threshold barriers be used to shakeout legacy capacity and move efficiency to a new level – on a global basis? What would the manufacturing landscape look like under this scenario? Can high-efficiency modules be produced in volume, with an acceptable cost equation? Or – is there an even better metric than just efficiency?
A technology-stimulated post-shakeout PV environment
So, what would a technology-stimulated PV environment actually look like? First, let’s assume that legacy capacity not capable of meeting performance thresholds gets removed/retired or permanently shuttered. This is probably not too risky a proposition, as most attempts to upgrade or enhance plant/fab performance in the PV industry in the past have had mixed success levels.
Lower tier c-Si entrants that added me-too cell and module capacity during 2009-2011 would be impacted the most. Legacy c-Si cell lines added before 2009 and not upgraded since would also be taken out of the (effective) capacity analysis. In fact, the c-Si cell stage would (again) become the ‘filter’ for effective capacity to the industry. (A more detailed analysis of capacity within a ‘Japan’-type efficiency constraint will be presented in a forthcoming guest blog here.)
Therefore, the efficiency route could help balance the midstream PV capacity levels and remove companies that came into the industry using standard tools and process steps. It would also flush out legacy cell lines still being run by industry leaders.
Is silicon g/W a better metric to enforce?
But what about upstream? Getting ingot/wafer capacity balanced with industry demands is possibly a much harder predicament to solve today. The barriers-to-entry for wafering were probably the lowest across the whole PV value-chain and it took little more than financing and a PO with one of 3-4 tool suppliers to get into this part of the supply-chain. So, the efficiency argument alone is unlikely to drive capacity rationalisation at the wafering stage.
What about silicon consumption? It seems quite some time since g/W and non-silicon based PV technologies (thin-film!) were just as important as policy changes or new FiT initiatives. Poly pricing levels today have firmly de-prioritised this talk, but the fundamentals here still hold true if taken at face value.
It is not what poly producers want to hear today, but enforcing trade restrictions on the g/W metric may offer the most profound and immediate benefit for the entire PV value-chain. Decreasing wafer thickness would drive polysilicon specifications further away from solar-grade to electronic-grade. And slicing thinner wafers (let’s say sub-140 microns) would quickly re-order c-Si wafer manufacturing, with many probably just exiting the industry.
Thinner wafers would also make cell/module enhancements a ‘must’, not an ‘option’. Therefore, making silicon g/W the benchmark metric for module import/export could be something that both rationalizes capacity across the value-chain and moves raw material and technology to a new level. And – if the PV industry ‘was’ to join hands in making this happen – perhaps the notion of a global learning curve or roadmap could actually surface?
And it would also bailout PV equipment suppliers, many of whom are running on empty and facing another 12 months without any meaningful new order intake. (Having insolvent equipment suppliers is not good for the PV industry either.)
One way or another, something does have to ‘change’ within the PV industry during the next 12-18 months, other than tracking escalating trade-wars interspersed with random corporate insolvencies.
Simply put, going back to what the PV industry did well before may have more benefits than simply one country seeking to ring-fence its ailing domestic PV manufacturing base.