- Email: [email protected]
PV in prices – the hard sell
Factfile | PV industry price metrics unrealistic low prices for solar PV. Artificially low prices for the technology are exacerbating the normal tension between buyers and sellers along the PV value chain. Low prices for crystalline technology are having a particularly negative effect on thin-film manufacturers, who are struggling to survive in the current competitive climate. Some points of comparison from 2010 to 2011:
PV in prices – the hard sell
A
S FIRST Solar becomes the latest company to feel the European solar squeeze, closing its European manufacturing in the face of Germany’s uncertainties, Paula Mints gives us a picture of solar PV industry dynamics.
Currently it seems as if prices for solar photovoltaics (PV) change by the minute, with rumours of ever lower prices. These lower prices are in many cases referred to as “progress and proof ” of reaching ‘grid parity’ – but they are coming at a cost. The recent extremely low prices have driven almost all manufacturers to low or negative margins, losses instead of profits and in some cases, failure (or major cutbacks in production). The tension rope between buyers and sellers is taut. However, with a considerable amount of confusing pricing information currently being repeated in the market, it is important to remember that prices for re-sold manufacturer and demand side inventory should not be confused with the average price of technology to the first buyer, nor should they be taken to represent progress (see ‘Solar pricing trends: 2012’, page 36).
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May/June 2012 | Renewable Energy Focus
2011: The year of losing money In 2011, the extreme low technology prices for solar PV were no longer the direct result of aggressive pricing, but an indirect product of this practice. Prices were held down, and continue to be held down in 2012, by high levels of manufacturing capacity (~35 GWp); high levels of inventory for both demand (~3.6 GWp) and supply (>2 GWp); and decreasing inventory along with rumours of extremely low prices. Rumours of low prices push expectations along the value chain, and these expectations become a reality when buying is delayed until the expected price is offered. This may be good for end-users, but on the flip side, the current low prices are leading to low or negative margins, and to the failure of several manufacturers. The current period of PV industry consolidation, although long expected, is rendered far worse by continued,
• Thin-film Average Selling Prices (ASPs) fell 42% in 2011, from US$1.35/Wp in 2010 to US0.78/Wp; • Cell ASPs fell 38% in 2011, from US$1.15/Wp in 2010 to US$0.71/Wp; • The ASP for a crystalline module to the first buyer in 2011 was US$1.44/Wp; • The global average for all buyers, regions, countries and technologies in 2011 was US$1.37/Wp; • Module ASPs for large quantity buyers decreased by 14% in 2011 over 2010, from US$1.48/Wp to US$1.28/Wp; • Module ASPs for mid-level buyers decreased by 29% in 2011 over 2010 from US$2.36/Wp to US$1.67/Wp; and • Module ASPs for small quantity buyers in 2011 over 2010 fell 24% from US$2.90/Wp to US$2.21/Wp.
An ‘easy way in’ During the 2004 to 2008 boom, investment in thin-film technologies became highly interesting to venture and investor groups who, observing the increase in the price of polysilicon due to constrained capacities, assumed that low-cost manufacturing would be the key to success. Given the high cost per kilogram of polysilicon (at one point over US$400/kg), and the increasing price of crystalline modules, an assumption was made that the price of crystalline modules would continue to rise, while the price of thin-film panels would continue to fall. During this period equipment manufacturers such as Applied Materials and Oerlikon entered the market. Sales of some thin-film turnkey equipment seemed to offer a faster entry for those wishing to
About: Paula Mints is the principal analyst for Navigant’s PV Service Market Research Program, and executive editor of the Solar Outlook Newsletter. She is widely recognised as an industry expert on photovoltaic (PV) technologies and markets. Factfile
Terminology The secondary market is the buying and selling of solar PV modules through distributors and retailers. The distributors and retailers may buy in bulk benefiting from economies of scale, and resell the products on the secondary market to smaller participants. Distributors and retailers also resell inventory. This group takes a margin based on the current market situation;
Figure 1: Average PV technology prices 2001 through 2012
Figure 2: Average Selling Prices (ASPs) for thin-films and large Buyers, 2006 – 2016
enter the PV market, despite not having a solar PV background.
The conundrum The conundrum for thin-films, and this holds true for all PV technologies, is how to sell the true value and positive attributes of the technology to a market that has been trained to think cheap. Solar PV industry pricing to the first buyer from 2001 through 2011 (with an estimate for 2012), range from US$0.50/Wp to >US$3.00/Wp (see figure 1). The average price for PV technologies is heavily weighed by crystalline silicon (C-Si) prices with C-Si accounting for 86% of the market for PV technologies in 2011.
In general, thin-film technologies need to be priced at a level 12% lower than ‘conventional’ PV, due to the larger area needed to compensate for lower efficiency (see figure 2).
Manufacturer inventory is sold at a lower rate than the hoped for average selling price (ASP) based on market conditions including: a) the level of inventory carried by the demand side; and b) the cost of carrying in-house inventory. Keeping an inventory is a cost to a manufacturer and, depending on market conditions, it may be cost-effective and efficient to sell this inventory below the original manufacturing cost. When sold, this category is factored into the price point to the first point of sale in the market (first buyer); Demand side inventory is the product that is resold, typically at a price above, but often below, the original price. The reselling of demand side inventory significantly skews the price on the market and leads to expectations of low prices. These rumours encourage other demand side participants to stay out of the buying process until the rumours (i.e. low prices) become reality. This category is not part of the calculation of the price to the first point of sale in the market. The Average Selling Price (ASP) for inventory is currently under US$1/Wp.
And now what? The theme at three recent conferences in Europe was a combination of: Where do we go from here; and: What now? Both are good questions. During the recent boom in demand (from 2004 through 2010) the industry should have planned for a future low-incentive environment. However, before the industry loses itself in gloom, it should remember that the difficult years before the
boom years made it highly innovative, and instilled in it survival skills that are rarely found in other industries. Grid parity was actually never a fair goal, as it requires solar to compete without subsidies or incentives with conventional energy – itself the recipient of significant subsidies and incentives. e: [email protected]
May/June 2012 | Renewable Energy Focus
35
Factfile
Solar pricing trends: 2012 • 99% of industry demand is incentive driven, and, therefore, profit for this 99% follows the trend of available incentives. That is, as the incentive level decreases, profit and demand decreases, meanwhile, technology prices remain low despite low- to negative margins for manufacturers; • High levels of manufacturing capacity are expensive to support. Currently, manufacturing capacity is at 35 GWp, with utilisation at ~67%; • There are high levels of inventory on the manufacturer side, and inventory is an expense for manufacturers; • There are high levels of inventory on the demand side that, with lower demand, will be resold at below its original price;
36
May/June 2012 | Renewable Energy Focus
• There is still significant manufacturing capacity held by off-brand and unfortunately, low quality cell and module manufacturers. This capacity is being resold at extremely low prices; • Rumours of low prices set expectations for those prices. Demand will wait until these rumours become fact, which they will by virtue of manufacturer desperation; • Low bids on large projects (1 MWp to 20 MWp) mean that either the project developer loses money, or the developer will wait until the low price is available (in many cases the project will not be built); • In the US, specifically, low prices to the hub and to the consumer for natural gas have an effect on
expectations for PV pricing; • In Germany, public opinion for solar is low, and the incentives for the largest global market are changing significantly, causing uncertainty for global investors in the technology; • Globally, a slowly recovering economy and pressures on social services has an effect on the price consumers are willing to pay for renewables; • The effect of three years of aggressive pricing has set up unrealistic expectations for near term prices; and • Continued failures in the PV sector will limit the number of manufacturers. Remaining manufacturers will still not have full control over the price function.
PV in prices – the hard sell
A
S FIRST Solar becomes the latest company to feel the European solar squeeze, closing its European manufacturing in the face of Germany’s uncertainties, Paula Mints gives us a picture of solar PV industry dynamics.
Currently it seems as if prices for solar photovoltaics (PV) change by the minute, with rumours of ever lower prices. These lower prices are in many cases referred to as “progress and proof ” of reaching ‘grid parity’ – but they are coming at a cost. The recent extremely low prices have driven almost all manufacturers to low or negative margins, losses instead of profits and in some cases, failure (or major cutbacks in production). The tension rope between buyers and sellers is taut. However, with a considerable amount of confusing pricing information currently being repeated in the market, it is important to remember that prices for re-sold manufacturer and demand side inventory should not be confused with the average price of technology to the first buyer, nor should they be taken to represent progress (see ‘Solar pricing trends: 2012’, page 36).
34
May/June 2012 | Renewable Energy Focus
2011: The year of losing money In 2011, the extreme low technology prices for solar PV were no longer the direct result of aggressive pricing, but an indirect product of this practice. Prices were held down, and continue to be held down in 2012, by high levels of manufacturing capacity (~35 GWp); high levels of inventory for both demand (~3.6 GWp) and supply (>2 GWp); and decreasing inventory along with rumours of extremely low prices. Rumours of low prices push expectations along the value chain, and these expectations become a reality when buying is delayed until the expected price is offered. This may be good for end-users, but on the flip side, the current low prices are leading to low or negative margins, and to the failure of several manufacturers. The current period of PV industry consolidation, although long expected, is rendered far worse by continued,
• Thin-film Average Selling Prices (ASPs) fell 42% in 2011, from US$1.35/Wp in 2010 to US0.78/Wp; • Cell ASPs fell 38% in 2011, from US$1.15/Wp in 2010 to US$0.71/Wp; • The ASP for a crystalline module to the first buyer in 2011 was US$1.44/Wp; • The global average for all buyers, regions, countries and technologies in 2011 was US$1.37/Wp; • Module ASPs for large quantity buyers decreased by 14% in 2011 over 2010, from US$1.48/Wp to US$1.28/Wp; • Module ASPs for mid-level buyers decreased by 29% in 2011 over 2010 from US$2.36/Wp to US$1.67/Wp; and • Module ASPs for small quantity buyers in 2011 over 2010 fell 24% from US$2.90/Wp to US$2.21/Wp.
An ‘easy way in’ During the 2004 to 2008 boom, investment in thin-film technologies became highly interesting to venture and investor groups who, observing the increase in the price of polysilicon due to constrained capacities, assumed that low-cost manufacturing would be the key to success. Given the high cost per kilogram of polysilicon (at one point over US$400/kg), and the increasing price of crystalline modules, an assumption was made that the price of crystalline modules would continue to rise, while the price of thin-film panels would continue to fall. During this period equipment manufacturers such as Applied Materials and Oerlikon entered the market. Sales of some thin-film turnkey equipment seemed to offer a faster entry for those wishing to
About: Paula Mints is the principal analyst for Navigant’s PV Service Market Research Program, and executive editor of the Solar Outlook Newsletter. She is widely recognised as an industry expert on photovoltaic (PV) technologies and markets. Factfile
Terminology The secondary market is the buying and selling of solar PV modules through distributors and retailers. The distributors and retailers may buy in bulk benefiting from economies of scale, and resell the products on the secondary market to smaller participants. Distributors and retailers also resell inventory. This group takes a margin based on the current market situation;
Figure 1: Average PV technology prices 2001 through 2012
Figure 2: Average Selling Prices (ASPs) for thin-films and large Buyers, 2006 – 2016
enter the PV market, despite not having a solar PV background.
The conundrum The conundrum for thin-films, and this holds true for all PV technologies, is how to sell the true value and positive attributes of the technology to a market that has been trained to think cheap. Solar PV industry pricing to the first buyer from 2001 through 2011 (with an estimate for 2012), range from US$0.50/Wp to >US$3.00/Wp (see figure 1). The average price for PV technologies is heavily weighed by crystalline silicon (C-Si) prices with C-Si accounting for 86% of the market for PV technologies in 2011.
In general, thin-film technologies need to be priced at a level 12% lower than ‘conventional’ PV, due to the larger area needed to compensate for lower efficiency (see figure 2).
Manufacturer inventory is sold at a lower rate than the hoped for average selling price (ASP) based on market conditions including: a) the level of inventory carried by the demand side; and b) the cost of carrying in-house inventory. Keeping an inventory is a cost to a manufacturer and, depending on market conditions, it may be cost-effective and efficient to sell this inventory below the original manufacturing cost. When sold, this category is factored into the price point to the first point of sale in the market (first buyer); Demand side inventory is the product that is resold, typically at a price above, but often below, the original price. The reselling of demand side inventory significantly skews the price on the market and leads to expectations of low prices. These rumours encourage other demand side participants to stay out of the buying process until the rumours (i.e. low prices) become reality. This category is not part of the calculation of the price to the first point of sale in the market. The Average Selling Price (ASP) for inventory is currently under US$1/Wp.
And now what? The theme at three recent conferences in Europe was a combination of: Where do we go from here; and: What now? Both are good questions. During the recent boom in demand (from 2004 through 2010) the industry should have planned for a future low-incentive environment. However, before the industry loses itself in gloom, it should remember that the difficult years before the
boom years made it highly innovative, and instilled in it survival skills that are rarely found in other industries. Grid parity was actually never a fair goal, as it requires solar to compete without subsidies or incentives with conventional energy – itself the recipient of significant subsidies and incentives. e: [email protected]
May/June 2012 | Renewable Energy Focus
35
Factfile
Solar pricing trends: 2012 • 99% of industry demand is incentive driven, and, therefore, profit for this 99% follows the trend of available incentives. That is, as the incentive level decreases, profit and demand decreases, meanwhile, technology prices remain low despite low- to negative margins for manufacturers; • High levels of manufacturing capacity are expensive to support. Currently, manufacturing capacity is at 35 GWp, with utilisation at ~67%; • There are high levels of inventory on the manufacturer side, and inventory is an expense for manufacturers; • There are high levels of inventory on the demand side that, with lower demand, will be resold at below its original price;
36
May/June 2012 | Renewable Energy Focus
• There is still significant manufacturing capacity held by off-brand and unfortunately, low quality cell and module manufacturers. This capacity is being resold at extremely low prices; • Rumours of low prices set expectations for those prices. Demand will wait until these rumours become fact, which they will by virtue of manufacturer desperation; • Low bids on large projects (1 MWp to 20 MWp) mean that either the project developer loses money, or the developer will wait until the low price is available (in many cases the project will not be built); • In the US, specifically, low prices to the hub and to the consumer for natural gas have an effect on
expectations for PV pricing; • In Germany, public opinion for solar is low, and the incentives for the largest global market are changing significantly, causing uncertainty for global investors in the technology; • Globally, a slowly recovering economy and pressures on social services has an effect on the price consumers are willing to pay for renewables; • The effect of three years of aggressive pricing has set up unrealistic expectations for near term prices; and • Continued failures in the PV sector will limit the number of manufacturers. Remaining manufacturers will still not have full control over the price function.