Is overcapacity over-hyped?


Take any market research firm’s data on end-user demand for solar modules and compare that with manufacturing supply and there is a massive gap to the negative, pushing prices lower from bare wafers to modules. Last week, Q-Cells binned its forecast for revenue for 2009, citing continued lack of demand and falling prices due to the competitive landscape caused by overcapacity.

However, FiT’s, stimulus packages and growing global awareness of the need for PV suggests that in a few years, these current hard times will be a thing of the past.

The problem is, which year over the next few will demand catch up with supply? What should PV manufacturers do to survive until that time in the near future that enables companies to make a profit and build businesses for the future? Worse is the view that overcapacity is here to stay so PV manufacturers need to react now and fast, otherwise there will be no future?

The continued module price declines and extreme competitive environment will continue while the overcapacity scenario continues. The problem is that the market research firms and the industry at large do not have detailed and accurate data available as to how much nominal capacity actually exists and what the current factory utilization rates actually are.

This could result in a warped perspective of real supply overhang compared to educated probable overhang. Importantly, it often takes ‘nominal’ capacity as given (overinflated) and actual capacity (underestimated) but also leaves gaps caused by the fast paced dynamics of an industry growing and shrinking too fast to comprehensively characterise in ‘real-time.’ Lags in real-time data grow when the industry dynamics change so fast.

Then there is the role of the trade press and general media commentary on these issues that can perpetuate, overexaggerate or incorrectly report on the real situation at hand. The media in general will often be lambasted for doom and gloom industry perspectives and ridiculed (trade press) when a rosy picture is reported when darkness still surrounds many in the world of manufacturing reality.

Attending Intersolar North America last week, I had a few opportunities to discuss with senior PV manufacturing executives and industry analysts the issues surrounding overcapacity data and what happens to that overcapacity in a period of fast-changing dynamics.

My hypothesis was based on a view that there is a significant amount of nominal capacity in place that is fast becoming redundant due to the continuing rapid module price declines, making much of this capacity uncompetitive. This capacity, wherever it may be, has already been affected, forcing ‘much’ to be idled. However, when supply and demand reach a new balanced state that capacity will not come back on stream because it’s old technology, unable to compete at the significantly lower price levels that are then the norm.

This means that overcapacity figures are now and will continue to be overinflated until it can be verified such capacity should be removed from the nominal capacity models.

Only after the real return to supply/demand balance will it then be realised and covered and confirmed by the media. This would be too late for many and barely in time for others!

I am happy to report that my picture of supply and demand dynamics was not scorned by those I had time to discuss it with. Not surprisingly, the discussions led to when the balance would return, either later than I was projecting or sooner.

The challenge for all of us was the realization that without the real detailed capacity data we all were pontificating on, it was a position that wouldn’t hold up in a court of law.

My conclusion was that we obviously need better data but also better modelling and also a better understanding of what the true impact is on manufacturing when confronted with rapid and potentially long-periods of price declines whether gradual or fast paced. This of course should be taken in light of the real demand, another Pandora’s Box that needs to be opened and debated, not least modelled better than it currently is!

Is it a simple stupid moment?

It’s certainly a very difficult and incredibly complex situation for the industry to be in and now requires some smart minds to get to grips with the real problem. That’s not going to come from the media but I genuinely don’t believe it can just be left up to the market analyst either, over to you!

23 August 2022
Intersolar South America, South America’s largest exhibition and conference for the solar industry, takes place at the Expo Center Norte in São Paulo, Brazil, on August 23–25, 2022, and has a focus on the areas of photovoltaics, PV production and solar thermal technologies. At the accompanying Intersolar South America Conference, renowned experts shed light on hot topics in the solar industry. In 2021 – despite the Covid-19 pandemic – Intersolar South America welcomed more than 28,000 visitors and over 1,000 conference attendees over 3 days. 200+ providers showcased their products. Combining local and international expertise, Intersolar South America brings together the PV and solar thermal sector to discuss the current status and strategic trends for Latin American PV markets, as well as technology innovations and new business opportunities. Overall, distributed generation is still driving momentum in the Brazilian market. Get 10% off with code 38LCF6KN
6 September 2022
Intersolar Mexico sits at the cross-section of photovoltaics, solar heating & cooling technologies, and energy storage. The event serves as the industry’s go-to source for invaluable technology trends and premier B2B contacts in the promising Mexican solar market. From September 6–8, 2022 Intersolar Mexico together with the co-located The GREEN Expo® and Aquatech Mexico will take place in Centro Citibanamex, Mexico City.
7 September 2022
The demand for rooftop solar PV is soaring, driven by falling costs of the technology against energy crises that are gripping countries globally. But while an increasing number of households turn to solar to generate their own electricity, there is now a need for more specialist equipment, technologies and services to ensure the solar transition can reach as many customers as possible. Delivering these is now a major challenge for rooftop solar installers. This webinar will analyse the characteristics of the rooftop solar market, discussing how the products, logistics, installation and servicing of solar systems has evolved in line with consumer demands.
14 September 2022
Join us in London for 2 days as we look at the UK’s new landscape for utility & rooftop solar. Understand the new opportunities within this GW-plus annual market!
15 September 2022
Bifacial PV modules will be the dominant solar PV technology globally within one or two years; in the utility-scale sector, their market share is already above 70%. This webinar will provide a clear view on the successful implementation of bifacial technology, maximizing system performance and minimising LCoE.
19 September 2022
RE+ 2022 is the umbrella event that includes SPI, ESI, RE+ Power, and RE+ Infrastructure. As North America's largest renewable energy event, it's a catalyst for industry innovation that's supercharging business growth in the clean energy economy.

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