by Paula Mints, Navigant Consulting
The gloom in the current global economy needs no rehashing (though, I will belabor a few points), and it’s clear that the downturn will have an affect on the market for solar electric systems. Unfortunately, the global economic downturn is not the only situation currently affecting demand. When Spain added a 500MWp cap to its extremely popular feed in tariff program, it essentially cut ~1GW from the market for solar. Germany, which recently changed its program significantly by adding triggers as a control mechanism, stranded an additional ~1MWp. Both countries are trying to control domestic markets that had exploded, becoming out-of-control and very expensive. Feed-in tariff programs, proven to be the most successful market stimulation tool, are also extremely expensive for the countries that must support them. Elected governments tend to take this seriously, particularly when programs balloon out of control and module/system prices go up instead of down.
With overall market shrinkage a fact, the PV industry has a problem separate from the global recession. Where do you put 1-2GW of product now?
The PV industry has come to rely on Europe to consume >75% of its products — again, primarily into Spain and Germany. Unfortunately, as with any industry, a reliance on one market or customer for a majority of sales leads to an unbalanced and unhealthy market situation. Figures 1-2 provide a picture of the solar market from a demand and supply perspective for 2007 and 2008. Regarding supply for both years, manufacturing typically follows the market and low-cost areas of manufacturing, and has migrated to Europe (market) and Asia (low-cost manufacturing).
Figure 1. 2007 regional supply and demand: 3073MWp.
Figure 2. 2008 regional supply and demand (estimated): ~5000MWp.
We’re all in this together
Currently there is inventory being held by manufacturers and PV-selling channel participants (selling channel inventory is primarily in Europe), with the beginnings of cancelled orders, layoffs, smaller markets along with tighter credit, and slowing economies (globally) — a slowdown in demand, and therefore sales, is inevitable given the macro and microeconomic realities. The good news is that solar has been through tough times before (most of its history has been one long tough time), and can return to its roots and make it through these current tough times. PV manufacturers uniformly lost money until 2004, and this is not necessarily the situation (even in a downturn) that they are returning to now.
The bad news is that many of the new entrants missed the 30-year climb to profitability and are not prepared for what is to come — that is, lower selling prices and lower margins, held inventory, cancelled orders, and expensive overcapacity. Many new entrants expected unlimited demand; since they were able to sell capacity before it was commercially viable, these participants are in for a shock, or at least an unpleasant surprise.
Demand in 2009, and perhaps longer, is expected to slow significantly. Despite this, demand of 14%-20% is forecast — and this is reasonable even considering all the varied and unpleasant circumstances. First, demand for off grid systems continues, and the off-grid market is already cost-effective without subsidies. Second, growth in Germany, though constrained, continues, along with growth in other European countries. Finally, the US, despite its economic woes, shows promise in the utility application with states such as Florida making solid commitments.
In most industries, growth of 14%-20% would cause rejoicing. In the photovoltaic industry, which grew >50% in 2007 and ~60% in 2008, it will likely be a letdown. The table below provides a conservative and accelerated forecast for PV industry growth through 2012.
PV industry forecast 2007-2012 (MWp). Columns and rows may not add due to rounding.
Economic downturns, though painful, can (and often do) lead to business and technology innovation. This in no way refers to the extraordinary pain felt by those suffering on an individual basis from foreclosures, job losses, rapid deterioration of retirement savings, and the difficult economic choices that come about in recessionary times. For the PV industry, the silicon shortage led to easing of the risk profile that had constrained thin-film growth, allowing for new entrants and a maturing of current thin-film technologies. The silicon shortage also encouraged crystalline manufacturers to accelerate manufacturing techniques for better use of silicon.
The current slowing in demand will lead to necessary price decreases (system and module), thus forcing lower manufacturing costs and the maturing of new business models. An accelerated downturn will lead to industry consolidation and tough decisions about technology investments. However, despite everything, the PV industry has achieved a degree of market momentum — and this momentum is unlikely to dissipate, subject to constraints though it may be.
Paula Mints is principal analyst, PV Services Program, and associate director of the energy practice at Navigant Consulting. E-mail: [email protected].