While there are concerns about the impact that uncertainty in the global economy will have on demand for PV in 2012, the fundamental drivers remain unchanged: the PV industry is driven by Government targets, and Governments vary their level of subsidies to meet those targets. From this perspective, nothing has changed.
Demand for PV in terms of MWp has grown solidly for the past 11 years and there is little evidence to suggest that this trend will not continue into 2012. The problem is there appears to be too much manufacturing capacity: in Q3-2011 quarterly capacity is running at 11.5MWp while demand is only 6.8GWp. That's a utilization rate of 60%. However, only about 8GWp of this capacity is profitable and the remaining 3.5GWp is losing money. With retail prices currently at $2.7/Wp and falling and those companies that are unprofitable now will certainly not be profitable next year when prices fall below $2.5/Wp. This means that a large part of the installed capacity will either have to invest in new equipment to become profitable or exit the market. Their task will not be made easier by the industry giants who also need to invest heavily to get their manufacturing costs down. In addition, some big hitters who have been waiting on the sidelines are ready to enter the industry in a substantial way (GE & TSMC). Next year, then, is all about buying equipment to stay ahead of the cost curve while eliminating unprofitable capacity.
The PV industry is now in the third phase of the industry lifecycle: the cost and shakeout phase.
An indication of how the PV industry is likely to evolve over the next few years can be found by looking at the DRAM manufacturing industry as there are many parallels. Manufacturers in both industries have some differentiation in the manufacturing process but, as far as the end user is concerned, the product is a commodity. Also, in the same way China has taken the PV manufacturing industry from Germany, the Koreans and Taiwanese took the DRAM market away from the Japanese back in the 1990s.
The lessons to be learned from the DRAM industry are these:
- the industry will consolidate - in 1995 there were 28 DRAM suppliers, now there are only 7
- the winners are those companies who invested in downturns
- companies that don't invest are actually divesting as the industry moves forward
- overinvesting in an upturn is worse than not investing at all
What this means for the PV equipment industry is there will be fewer new customers and the focus will be on getting cell efficiencies up while keeping costs in check. To do this, equipment suppliers will have to consolidate to benefit from economies of scale, particularly those relating to research and development.
Overall, the industry is set for a reasonably good year in 2012 considering the economic environment. Right now sales of PV equipment are forecast to be down by 22%, although there are several potential upsides to this forecast.