Intersolar attendees weren't sure whether they had been invited to a wake or a wedding yesterday as they heard the global outlook for the solar industry.
Anthony Kim, analyst with Bloomberg New Energy Finance, delivered his prognosis [Wednesday]: “We have approximately 400 manufacturers in the world – the industry needs 20 to 40 of them,” he said. “We had 100s of car manufacturers historically, now we have the big three. We expect further bankruptcies and consolidation over the next few years and decade on the manufacturing side.”
Although BNEF's most optimistic forecast predicts global demand at 51GW by 2014 and a conservative demand of 31.7GW, the pool of players servicing that market will be ever smaller as more and more companies are bankrupted by profitless prices that have plummeted 75% over the past four years.
“It's almost an unsustainable market in terms of what prices they're selling at. Across the entire value chain the only manufacturers with a profit margin are module [not cell] manufacturers.”
But those making US$0.04 to US$0.07 a watt profit “were best in class” who can buy and sell on the spot market for cells rather than those tied into long-term contracts, he said.
Some manufacturers were responding by a shift to downstream to development. But for many companies it's too late, said Kim.
“In 2012, we anticipate enough supply to help meet overall demand. By 2014 if our optimistic scenario of demand in the entire world, including South East Asia, Latin America and Africa, we could have undersupplied market. At that point, it's a question of which manufacturers are still alive by then.”
Manufacturers' losses at bargain prices are a boon for PV installers in the US, however, he said.
“We're seeing the economics really work for those US markets that may not necessarily be the number one most attractive states such as California, New Jersey or the south west. We're looking at new emerging markets around the Gulf, such as Louisiana, Mississippi and Indiana and in the Midwest. They have these small [solar] programmes [that] have become economically feasible due to the fact that modules are so cheap.”
Over the past three to four years, the global market had been driven by Europe's feed-in tariffs. But now that Germany and Italy were cutting back their FITs, the US and China would become global leaders.
“Last year we installed 28.7GW across the world. In 2012, we potentially could have a market that goes down in total demand due to the fact that Germany and Italy are not contributing as much.”
BNEF anticipated as much as 4.3GW of demand in the US in 2014, largely driven by utility-scale projects.
Residential and commercial scale projects have the potential to grow more than projected if new financing solutions, such as securitization of solar, becomes implemented in the US market, he added.
“In the US, people are most focused on financing innovations. Topaz and its bond offering is a good example of what large utility-scale projects can do to raise construction financing.”
He said that CitiBank was reportedly working with SolarCity to release the first asset-backed security for solar leases by the end of this year or the beginning of 2013.
Consolidation, or new bankruptcies every week, is the real pain of low prices and whose head might be next on the block is not far from the minds of anyone in the Moscone Centre.
But John Lefebvre, president of Suntech America, argued that consolidation was not limited to the US or Europe.
“If you look at all the press you could be forgiven for thinking that it's all doom and gloom,” he said. “So you'd never know that the industry is in a steady growth mode.”
“But what you won't hear in the press or in the debate is that over 50 Chinese companies have gone out of business. This is a global effect not limited to US.
“In China, there is significant consolidation among manufacturers and the top five or six are increasing market share drastically in China. Hundreds of businesses will be consolidated over the next 2-3 years as a result.”
Like Kim, Lefebvre compared solar's current consolidation to that experienced in the automobile industry in the early part of last century. But surely that is what makes the serial collapse of formerly bankable businesses so difficult to swallow? Such high rates of attrition have not been seen for a century.
But Lefebvre said that there was a serious upside to collapsing prices.
“It's a great time for our solar customers, developers, independent power producers, solar integrators and construction firms that's creating a lot of jobs and projects that otherwise wouldn't be realized if the cost of solar weren't dropping. This is a good thing for American businesses and a good thing for the PV industry in general.”
Alluding to the SolarWorld trade challenge, he said that such attempts to rebalance the market would have little impact overall. Companies such as Suntech, with global supply chains, will simply dodge potential blows of the trade war by switching cell manufacture to Taiwan.
Taiwan has 10GW of cell capacity enough to supply a US market estimated at 3-3.5GW three times over, said Lebfebvre.
“Who benefits from cheap solar? It's a great debate in the industry as well as on Capitol Hill. But who really benefits from these trade barriers? Law firms. They're making very good incomes from these cases
“The trade case didn't slow down the market; it just moved companies like Suntech with a global supply chain to procure cells in locations rather than China.
“We'll have ample supply for the US market in the near future and we're not too concerned about getting over this hurdle which we feel is a short term market condition.”
While the global industry grapples with death by oversupply, manufacturers are scanning the horizon for potential matchmaking opportunities.
Japan looks promising based on its generous US$0.52/kwh feed-in tariff introduced this month and a potential of national target for 2030 of 53GW to 60GW, said Izumi Kaizuka, of RTS Corporation. But she warned that as construction costs were high, internal rates of return would only reach between 3.2% and 6% over 10 years.
Historically, non-domestic manufacturing comprised only 20% of installed capacity in Japan, she said. Many suspect that market share might be hard to budge.
China still represents a good opportunity for foreign manufacturers, said Frank Haugwitz, the head of Intersolar conference development.
China swiftly overcame its over-capacity conundrum with a digit change and raised its PV target to 21GW by 2015 last week. Thanks to its command and control governance, China will also pick its own solar winners – albeit from a field of mostly crystalline silicon.
Meanwhile, India could be the new wild frontier of solar, according to Tobias Engelmeier of Bridge to India. His estimates put the growth of solar from 1GW today to 14GW by 2016, mainly driven by feed in tariffs.
But there are considerable risks, he admitted.
“If we wait for all these moving parts to form a long-term coherent structure, I don't think that's going to happen. But still, India is attractive for investors who have a higher risk-taking attitude. It's not like other markets such as Germany which has a long-term vision and certainty. But it could be the wild new frontier together with China.
“India already suffers a power deficit and other energy sources are not enough to keep up with rising demand. Solar doesn't replace energy in the grid but adds to gaps in the grid.”
Intersolar NA's mood despite turmoil in the industry could just be the willingness to embrace boom and bust cycles in the original Gold Rush city, a dead cat bounce or mark the advent of a more mature relationship.