The solar PV industry remains in a highly turbulent transition phase, still getting to grips with the scale of over-investment that occurred in 2010 and 2011. In fact, having just got back from a global PV road-trip that took in Germany, the US, Korea, China and Taiwan, it is apparent that the aftershocks within the industry are set to continue for some time yet.

How many companies are left in China?

Many of the issues still come down to capacity and the number of players left in the industry. It now appears that many of the previous guesses of industry participants, having declined from 500 to 400 to 300 (etc), may simply have been no more than that: back-of-the-envelope guesses.

In fact, the reality is a bit more complex than assigning simplistic ‘in-or-out’ status to different companies to describe their participation within the PV industry. This may be possible for Western companies, but Chinese PV companies have been going more into hibernation than extinction. The term, ‘zombie-like’ has often been used to describe lower tier PV manufacturers in China.

The easiest way to explain this is to run through an example here, as follows:

Let’s take a top tier module supplier in China, such as Yingli Green, Jinko Solar or ReneSola for example.

In order to increase market-share (based on module shipment megawatt levels), it used to be okay to look at the company’s ramped capacity, factor in their line utilisations, and this would give a fair approximation of the megawatt shipment levels (and therefore market share) that could be achieved. If capacity was insufficient to meet shipment goals, it was reasonable to ask what CapEx (capital expenditure) levels were guided going forward.

However, regardless of the recent over-investment phase, this viewpoint was not wholly indicative of the PV industry. Almost every leading module supplier had been outsourcing and re-badging product in the past, albeit at fairly low levels.

But the situation today has become very different due to the scale of the surplus capacity that can be called upon as backup – or virtual – capacity, and due to the lack of options for lower tier manufacturers that generally don’t have a global downstream sales and marketing presence or don’t have bankability for large-scale projects.

Let’s imagine that one of the top tier companies above wants to increase shipment levels by a factor of two quickly, say within the next 12 months. In the past, it would have been assumed that this would drive new CapEx, new capacity and new production lines. However, right now, this is not essential (irrespective of whether anyone has the cash to spend or not).

For example, increased shipments can now be provided quickly – and at a cost largely dictated by the buyer – by outsourcing through sub-contracting or tolling. In fact, there is no shortage of tier two or tier three PV manufacturers in China that would grab this business, as the only means of running fabs otherwise left idled. (Supplying cells or modules to European c-Si module suppliers is no longer an option for Chinese tier two and tier three producers, simply because so few European c-Si module suppliers are actually in business today.)

To the leading tier one c-Si manufacturers in China, domestic tier two and tier three c-Si capacity is effectively virtual capacity that can be called upon at will. From a compatibility standpoint also, there are no major obstacles. Identical tooling (from ingot to module stages) was added by Chinese tier two and tier three manufacturers during 2010 to 2012. And if the net outcome is to sustain domestic PV jobs (even with competitors in different provinces), it could also be seen as a shrewd political manoeuvre ahead of any government/fiscal favouritism needed going forward.

The reality in China is that there are still many lower tier c-Si suppliers that appear to be in a waiting mode. Yes, many have ceased production but the fabs and capacity are still on tap, if needed, and most have the capability of supplying efficiency and power metrics needed to meet downstream specifications.

Recent analysis by NPD Solarbuzz, adding up only c-Si capacity ordered from 2010 onwards by lower-tier Chinese c-Si manufacturers that lack in-house project pipelines, puts the size of this virtual China c-Si fab at approximately 12GW.

Options for market leaders

Actually, for any leading c-Si manufacturer that needs to increase shipment levels quickly, there are several options:

• Acquire (at very low cost or through a controlling JV operations) existing capacity currently sitting idle at one of many tier two or tier three manufacturers: Fabs for Sale.
• Outsource through contracting or tolling: Fabs for Rent.
• Buy new production equipment from tool suppliers: Fabs to Spec.

However, while capacity/supply/demand logic may suggest otherwise, the final option above (buying brand new equipment and setting up new fabs) is still on the table and likely to be played out over the next few months by some new and existing producers.

In the case of existing tier one market-leaders, the reason for this is largely as a defensive strategy to guard against the threat of trade tariffs and duties into key markets. Expect to hear some announcements shortly after the 6 August deadline in the Europe/China trade case, or between the lines within forthcoming quarterly report transcripts. (The Chinese and Taiwanese companies have their strategies in place, just waiting to see what the European Commission decides to do.)

For example, leading c-Si manufacturers may choose to add several hundred (maybe up to 600-700) megawatts of new capacity (ingot-to-module) in Southeast Asia, in addition to dipping into the virtual fab capacity in China as a backup.

Actually, there has never been a better time to add new c-Si capacity. Remember, it’s a buyer’s market for PV equipment. CapEx for c-Si equipment is at record low figures, especially for PV equipment suppliers that have been sitting on empty order books for the last 12 months.

Furthermore, there is still no shortage of countries for which new PV capacity (in whatever form, and from whatever source) simply equates to job creation that could ultimately be used within the scope of long-term renewable energy targets.

However, with different companies pursuing different strategies (geographic end markets, shipment or cost prioritisation, in-house or third-part supply, OEM or rebadged), it is likely that a combination of the three options above will be utilised, thereby spreading business created by an expanding end market across a range of upstream participants. It would also be no surprise if this environment continued well into 2015, or until twelve-month end-market demand moves into the 45-50GW range.