July 23, 2009 – At Intersolar North America last week (July 14-16) optimism ruled, despite a continuing global recession, slow recovery of lending, soft demand, and crashing prices. Examples of hope could be found everywhere at the show. Ad hoc conversations held reports of strong growth, albeit several months in the future, with most believing that the US stimulus would eventually stimulate something.
The photovoltaic industry and all of its various participants are nothing if not resilient. On the supply side of the market (manufacturers of technology), losing money was a reality for over thirty years. On the demand side of the market (installers, system integrators, et al), a hyper competitive marketplace, a long sales cycle, and expensive system components often led to razor-thin margins. Early participants in the photovoltaic industry felt like — and were — pioneers in an energy market where solar was not considered competition for conventional energy.
During the early years of the industry when overall volume was much lower, remote (off-grid) applications provided ballast to the volatility of the grid-connected application. Grid-connected application requires incentives or demonstration programs to continue growing, whereas remote applications are already economically viable. Though affordability and workable business models continue to constrain growth, the remote applications are already at grid-parity. In fact, for the remote applications, grid-parity is a non-issue.
The point is that the photovoltaic industry knows how to suffer; it has had a lot of experience over time. Technology sales are a push — not a pull — for the grid-connected application. Except for a four-year period from 2004 through 2008, manufacturer margins have been painfully thin, and industry volume relies on the unreliable grid-connected application. In the early years a dip in grid-connected demand was hardly noticeable; at 94% of total industry sales, however, it is more of a deep dive. The table below provides a not-so-brief history of industry volatility along with a forecast for 2009 for three scenarios, recession, conservative and accelerated.
PV industry growth in MWs, 1974-2009.
With a slowdown in sales from 17% to 32% all but assured, an atmosphere of doom might be expected, but at Intersolar the view was solidly on the positive future. Today might be gloomy and instant gratification always delayed, but technology, business model, and market development continues. Obviously, PV industry participants are made of tough stuff.
Along with its pioneering spirit and basic optimism, the 2004-2008 boom proved to the industry that it was right to believe in its eventual success. Make no mistake, this is essentially an industry of true believers — and recent technology revenue growth has made the art of being a true believer much easier. In 2004, driven by accelerating cell and module prices, technology revenues increased by 72% over the previous years. In 2005, revenues increased by 39%; in 2006 by 43%; in 2007 by 65%; and in 2008 technology revenues increased by 80% over the previous year. Unfortunately, in 2009 revenues may decrease by as much as 40% from 2008 levels, with the current softening in sales and steep decrease in technology prices. (The figure below offers a view of technology revenues and a forecast, from 2003-2013.)
Technology revenues, 2003-2013.
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If there is a lesson to be learned from industry enthusiasm in the face of significant and daunting obstacles of technology development, market difficulties, and potential near term unprofitability it may be as simple as this: If a thing is worth doing, it is worth continuing to do despite the obstacles. Profitability will return to the photovoltaic industry, after a while. Strong demand will return to the industry, but it will take hard work and some time for market development and recovery. Costs will continue to decline and prices will continue to dance with the market, sometimes up and sometimes down. New participants will enter bringing with them new and challenging ideas — some of which will have no impact whatsoever, and some of which will prove industry-changing. Through it all, the industry will prosper on the visions of optimists like the ones who attended Intersolar North America, who see adversity and still believe.
Paula Mints is principal analyst, PV Services Program, and associate director in the energy practice at Navigant Consulting. E-mail: [email protected].