by Paula Mints, Navigant Consulting
May 27, 2009 – The theme at this year’s thin-film conferences has been clear: survival during a prolonged period of sluggish demand and lower crystalline prices. Unfortunately, no clear answers or paths to recovery have emerged. One thing that may be becoming clear to the thin-film sector is that the promise of unlimited demand was a dream, and it is time to wake up.
During the significant surge in demand that the industry experienced from 2004 through 2008, most forecasts grew exponentially, rising on the basis of long-term contracts, which were assumed to be ironclad. Typically these contracts began with a significant upfront fee, and often the capacity necessary to deliver the raw material, wafers, cells, modules and even systems did not exist when the contracts were signed.
These were heady times for an industry that suffered through over 30 years of unprofitability. New entrants, most acquiring turnkey a-Si and micromorph manufacturing lines, were able to sign module contracts with customers even though they had no manufacturing experience and in some cases no manufacturing facilities. Crystalline was seen as the old technology, too expensive to compete against presumably lower-cost thin films. Despite lower efficiency and the additional system costs that come with this, thin films were seen as the future of the industry. All bets were off because success was assured.
Where did it go? Where will it go?
Europe, the largest global market, consumed 79% of product in 2008, with ~45% going to Spain. Sunny Spain gobbled up all available product, and at a higher average price than anywhere else in the world. Margins widened for all technologies. This is normal market behavior; if the market is elastic and demand is high, producers will naturally charge what the market will bear. If 2007 was an excellent year for sales, 2008 was a party that everyone wanted to go to whether or not they were invited.
Uncontrolled activity in Spain led to an unfortunate side effect — the government intervened and the market shut down. The PV industry was forced to look for new (and previously undeveloped markets) in which to put ~2.5-MWp a year. Even now, some installed systems in Spain have lost financing, and others are being dismantled.
Optimism, however, continued as the rule, with most assuming that a new market — perhaps the US, most likely Italy — would open up and take in the stranded inventory and 2009 planned production. At the end of 2008, industry optimism ran smack into a banking and credit crisis that took global economies into recession. Housing starts stopped, commercial building slowed, credit froze, and buyers of technology stopped taking delivery because their customers were cancelling contracts. As quickly as strong demand started, it just simply stopped.
The chart below presents three forecasts: recession, conservative, and accelerated. The recession forecast is the most likely for 2009 based on the assumption that even if we build it, there is nowhere for it to go. Germany is now the largest global market, and even it is not big enough to consume >2GW of product. Sales of photovoltaic technology in Italy, Greece, Japan and the US continue to be slow, and other markets (China and India) have not developed.
Recession, conservative, and accelerated forecasts, 2003 to 2013. (Source: Navigant Consulting)
The thrill is gone: How do thin films compete?
All manufacturers for all technologies are slowing production, closing facilities for retooling, and lowering prices significantly. Crystalline prices average $2.25-$2.55 depending on the manufacturer; lower efficiency thin-films must price product 15%-20% lower in order to compete. Though the need to increase efficiency was essentially ignored during the years of high demand, the simple fact is that it is the system price or cost that counts, and the higher the efficiency the lower the system cost/price. Conversely, the lower the efficiency the higher the system cost/price. Though there are system designs to overcome the efficiency deficit (area penalty), the fact is that a thin-film system has increased costs in terms of substructure and installation, DC cabling, and inverter costs. Thin-film module prices are not just cheaper naturally; the technology must be priced cheaper or the system cost/price is adversely affected. For awhile, large-field (often referred to as “utility-scale”) installations were marketed as a natural fit for thin-film technologies assuming that in a remote location with available land, the area penalty would not apply. However, land must be leased or purchased, and the more of it that is used, the less availability for other uses. A fair amount of discussion has been had regarding the lower installation and system costs afforded a 5.7m2 a-Si or micromorph module, but there remains no data or evidence that this is so in the field. Moreover, if the large field application continues to slow, there will be no need to prove that this module is cheaper to install.
Thin films are facing difficult times, as are crystalline technologies. The assumed price advantage (because of assumed lower manufacturing costs) continues to evaporate. In this difficult competitive environment only First Solar, with the photovoltaic industry’s assumed lowest manufacturing costs, can compete. In particular, when First Solar acts as the system integrator and designer as it often does, its module advantage (installing at cost plus transfer costs) renders other technologies non-competitive.
For two years at least, thin films face a difficult competitive landscape: slower demand, significantly lower prices, and high inventories of higher-efficiency technologies. There are no easy answers, just continued technology development to further lower costs and raise efficiencies. Equally important, a real effort must be made to develop technologies and system designs that bring down the balance of system cost for thin films toward the goal of eliminating the area penalty. The entire photovoltaic industry has one to two years of slower demand and tough times ahead of it. These times can be used to even the playing field for thin films and create a significant competitive edge.
Paula Mints is principal analyst, PV Services Program, and associate director in the energy practice at Navigant Consulting. E-mail: [email protected].