Flexibility in PV manufacturers' purchasing strategies, especially in the case of in-house sourcing of polysilicon and wafers, can have a significant impact on manufacturing costs, according IMS Research, which was recently acquired by IHS. The latest twist in purchasing tactics by manufacturers is driven by aggressive price declines in 2011 that are expected to continue in 2012.

According to IMS Research, solar wafer prices have plummeted over 70% in the last 12 months, having fallen from US$1/W in the first quarter of 2011 to US$0.30/W in the first quarter of 2012.

“Intense price pressure and competition throughout the PV industry has forced suppliers to focus on reducing costs to achieve profits more than ever,” commented IMS research’s senior market analyst Sam Wilkinson. “Large Chinese PV module suppliers in particular had previously aimed to achieve 100% vertical integration in 2010 and 2011 and quickly expanded their in-house wafering capacity. As wafer spot prices have fallen significantly more than polysilicon prices over the last year, most suppliers are finding that they can now purchase wafers at a lower cost than manufacturing them in-house and are reducing their in-house production as a result.”

Major wafer producers such as GCL-Poly, LDK Solar and JA Solar have been expanding capacity at a significant rate over the last few years as well as PV manufacturers moving towards a fully and balanced integrated business model, with the result that global PV wafer capacity grew by 50% in 2011 to reach 50GW. However, installation demand only grew by 35% to 26.9GW, last year.

Though wafer capacity expansion plans have been drastically curtailed at both wafer and integrated PV manufacturer in 2012, lowest cost producers are reaping the benefits as some integrated PV manufacturers switch a certain percentage of wafer purchasing from in-house to third parties.

IMS calculates that this can generate significant cost savings in the region of US$0.05/W, compared to purchasing polysilicon and converting to wafers.

With a wide-range in analyst forecasts regarding installation growth and regional splits for the PV market in 2012, overall growth is still expected but at a slower pace than seen in recent years. The result, due to continued overcapacity, is the prospect of continued price declines.

According to IMS Research, the average price of polysilicon, cells and modules in the first quarter of 2012 declined by 48%, 57% and 44% year-on-year respectively.