Becoming the world’s largest dedicated ‘merchant’ solar cell producer may have been Taiwan-based Neo Solar Power’s (NSP) plan since its founding back in 2005. However, it could be argued that its success in reaching that milestone is also due to significant changes in the PV industry in recent years, which have seen the majority of PV manufacturers adopt various versions of the integrated business model and an increasing number to move downstream and become PV energy providers (PVEPs).
NSP’s ranking in the merchant solar cell market was also aided by the collapse of one time global leader Q Cells and its revival as a PVEP under the stewardship of Korean-based, Hanwha Group. In China, leading cell producer JA Solar also shifted to become an integrated manufacturer, helping NSP almost by default become the leading merchant supplier of solar cells.
Having a solar cell nameplate capacity of 40MW in 2006 (see chart 1), NSP rode the first significant growth wave in the PV industry through 2011. Fuelled by attractive feed-in tariffs (FiTs) in Europe, notably Germany, Spain and later Italy, NSP’s growth depended heavily on European module manufacturers’ need for high-efficiency, high-quality cells to meet demand.
With Europe booming the company was forced to consistently revise upwards planned capacity expansions, notably in 2010, when it originally planned to increase capacity to 660MW but after two revisions in fact reached around 820MW at the end of the year.
Reaching record peak revenue in February 2011 (see chart 2), NSP had posted its tenth consecutive month of increased revenue of approximately US$84.1 million (NT$2.44 billion), a 150% year-over-year increase.
There was no doubt that the company was riding the wave of outsourcing and as a result had raised its capacity expansion target to 1.3GW for the year, up from 1.2GW previously guided. However, the monthly revenue chart also clearly depicts a massive fall in demand as overcapacity hit the industry and by April 2011 NSP was hit hard by the market change.
It would take exactly two more years before NSP’s revenue started recovering properly and signalling an end to the worst of the overcapacity.
Merger and acquisitions
Although the revenue chart graphically shows the financial challenges the company and the PV manufacturing industry in general experienced during a two-year period of rapidly declining prices on the back of overcapacity, the large jump in revenue reported for June, 2013 was also due to the merger between NSP and merchant cell and PV module producer, DelSolar.
Taiwan-based major electronics firm, Delta Electronics had been a majority shareholder in DelSolar and was a shareholder in NSP. The merger was the first attempt at consolidation within PV manufacturers based in Taiwan.
Talking to PV Tech during PV Taiwan 2013 at the beginning of November, NSP’s president, Andy Shen, summarised his thoughts on what the merger would bring to the company.
“With the merger of DelSolar the combined company creates a much broader and comprehensive offering on manufacturing to a global customer base. Before the merger, 100% of our cell production was based in Taiwan. However, more than half of DelSolar’s capacity is based in China. Post merger we have three cell lines [factories] in Taiwan and one cell line [factory] in China. We have two module factories in Taiwan and one in China, creating all kinds of manufacturing options for our customer’s,” Shen said.
At the time of the merger, NSP had solar cell capacity of 1.3GW, while DelSolar had a cell capacity of 600MW. Both companies also had limited module assembly capacity (NSP 60MW, DelSolar 180MW), which resulted in a combined capacity of 240MW on completion of the merger.
Finlay Colville, vice president of market research firm, NPD Solarbuzz told PV Tech at the time of the merger that, “It remains to be seen what synergy is on offer, since DelSolar and NSP have very similar offerings and target customers. Right down to process flows and certain tooling used in each company’s cell lines, there is similarity. The economies-of-scale arguments don’t hold up today when looking at any new total capacity on offer. Using this as a platform to retire legacy tooling in each fab could allow a degree of streamlining, but short-term benefits are less obvious.”
However, since then market demand has significantly improved and NSP has begun to ride the next wave in outsourcing demand.
Acknowledging the recent benefits merchant suppliers like NSP have received indirectly from anti-dumping duties on Chinese PV manufacturers in the US and EU, Shen noted that the added flexibility provided by the merger meant that its Chinese customers could use Taiwan cells with their Chinese modules, while Chinese customers could use NSP’s Taiwan-made cells and modules to avoid the EU tariffs. Japanese customers on the other hand could use China-made cells and China-made modules and ship to Japan with Taiwanese levels of guaranteed quality.
Shen reiterated several times that although the merger had meant the company’s capacity had subsequently increased, it would remain cautious on further capacity expansions.
“At this moment I would be very cautious and responsible to try and not use the words ‘capacity expansion’ when there remains a lot of idled capacity. What we are doing is capacity optimisation.
“Let me clarify what I mean by capacity optimisation. Our merger acquisition of Del Solar meant we acquired new capacity, then we have to optimise and rationalise some of the older technology equipment. We have to upgrade that equipment within the existing factory floor-print. Then we have to do debottlenecking as often the back-end assembly side has higher throughput than the cell processing front-end.
“We may add equipment to optimise production between the front and backend. This supports a certain level of incremental production improvement. However, as the cell efficiencies continue to increase this means more watts per cell and so megawatt capacity also increases,” said Shen.
The merger also means the company has a much higher module capacity capability. Shen said that the acquisition enabled the company to expand module capacity to 500MW by the middle of 2014, including the ability to make bi-facial modules.
The NSP executive noted both DelSolar and NSP had boxed equipment that had been acquired during the last expansion phase but been stored in warehouses due to the chronic overcapacity, though he did not disclose the capacity of boxed cell manufacturing equipment.
“By the middle of next year, module capacity is expected to reach 500MW. We will have a better balance. However, we are adding capacity responsibly as when we acquired Del Solar there was around 200MW of boxed equipment.”
Next outsourcing wave
Cautiously adding capacity, or as Shen put it “responsibly” adding capacity, is due to the second major outsourcing wave now developing. Not only is the new outsourcing wave driven by US and EU import duties on Chinese PV products but also by increased demand from PV module manufacturers in Japan.
Having trailed behind the Chinese in matching capacity expansion levels through 2011, major tier one producers in Japan lost significant market share and cost competitiveness. However, after the introduction of a very attractive FiT in the country, Japan has been booming and has been a significant boon to Japanese producers for the last 18-months.
With the lack of extra capacity and after several years of financial losses, Japanese manufacturers have avoided major capital investments by outsourcing to both China and Taiwan. This has also been true of European module producers, who prefer to outsource a greater level of cell production, thus avoiding capital spending. The likes of NSP are therefore capitalising on this outsourcing trend.
“We have a global customer base that have international solar panel brands in Germany, Europe and Japan but at the moment do not want to further expand module production; they would rather spend their precious capital on the downstream whether on system or on channel development or spend on building a strong brand name to have a better brand equity. So they are sending more cell and to a certain extent panel manufacturing to Taiwan, which forms a perfect complementary strength as they are good at channel brand service and we are focused on high-tech, low-cost, large-scale manufacturing. This has produced a true supply chain collaboration,” noted Shen.
Shen noted that NSP was working with all the leading Japanese brands as well as a few remaining leading European brands. As a result, outsourcing was growing again and Shen highlighted some facts to back up his argument.
“Many of our customers are already outsourcing between 20% to 30% of their production needs and this is growing. Looking at the data, outsourcing was about 15 to 20% in 2012 and this year it will be between 26% and 30%, and I would not be surprised if outsourcing went up to about 50% in the next two-years,” said Shen.
Outsourcing by Sharp to reach 50%
In reference to the possibility that customers could outsource 50% of product requirements in the next two years, Shen provided insight into Sharp Corporation’s outsourcing plans, which were revealed at the PV Taiwan Summit meeting and executive panel discussion on the first day of the event, which Shen had moderated and PV Tech had attended.
“The Sharp executive noted at the summit panel discussion that the reason why [Sharp was] able to grow so fast by two times was by pretty much outsourcing. This has led to around 50% of production being outsourced. That statement speaks for itself,” noted Shen.
Shen added: “Sharp is more and more outsourcing and because of that we are also gradually building up our module capacity. So by the first quarter of next year we will have somewhere around 350MW of module capacity as well. We have almost 100% of production dedicated to the OEM business in order to accommodate the outsourcing trend we have experienced from these leading name-brand players. More companies are therefore thinking about moving to ‘asset lite’ model, moving away from heavy capital investments in large facilities.”
According to Shen, NSP first approached Japanese producers in mid-2008 and although Japanese business as a percentage of shipments started small, growth has recently been significant.
“In 2011, about 10% of our shipments went to Japan. In 2012 roughly about 25% of shipments went to Japan and that figure is close to 50% in 2013. I think Japan and Taiwan came together with a really complementary supply chain relationship – a mutual trust as to the competences of each other,” said Shen.
Shen believes that the PV industry is reaching a turning point, not just on the industry recovering from the period of over capacity and ‘profitless prosperity,’ but that some fundamental changes are transforming how the industry works.
His message from the PV Taiwan event was that a new era of focused specialisation and collaboration across the industry was underway. “This pushes companies like us to adopt new technologies, better technologies, better manufacturing processes, better materials to continue to reduce our [manufacturing] costs. However, overall this is required to achieve the overall goal of grid parity and beyond. The means the whole industry throughout the supply chain has to work together to collectively bring down the costs of solar to reach grid parity, even though this is very painful process,” Shen said.
He therefore sees a continued trend towards greater levels of outsourcing but as he put it this would lead to a vast network of collaboration of the supply chain. Consolidation would continue as the industry matures but as Shen noted: “That’s why we are key to many companies in the virtual supply chain.”