The photovoltaic market 2016/2017
According to many market observers, more than 100 GWp of newly installed PV systems are to be achieved in 2020. The numbers vary though, with forecasts that the market can fall to 64 GWp in 2017 after the expected 72 GWp in 2016 before the expected upward swing in 2018. As a result of a (expected) weak 2HY2016, the prices for solar modules have drastically fallen, even in markets like the EU and the U.S. where they are protected by duties.
After the advent of massive competition and corresponding price falls in the last few years in the performance electronics (inverter), batteries and, especially the mounting system and assembly segments, there is now advancement, in “overshoot” modus, in the cost-structure of the cell and module production. For reasons that I cannot comprehend, the market seems rather surprised at the new situation. Already in the early growth phases, the branch has been prone to switches from strong demand and declines.
And whoever complains that China is no longer expanding the market as it should ought to rethink their outlook: China has newly installed more than 20 GWp in 1HY2016. Casually said, it can be said that China has delivered to the nth degree. In China itself, a massive reduction in production capacity of cells and modules is being expected: the old and uneconomic production plants have no reason to exist and therefore must make space. New production facilities are largely expected outside of China.
In 2017, the next cycle is likely to occur for machine- and plant-development in production. The capacity expansion of the value chain will slow down, and orders will fall accordingly.
Since modules still play a significant role in component sales, this could trigger production advantages that can potentially lead to a new PV boom in Germany and the EU. At least this was the case in the past. Will it happen again?
The movement in the world market
The world market for photovoltaic systems, in terms of newly installed capacity, has seen growth annually for the past few years. When one region started to show signs of weakness, another started launching new programs for the market. At the last check, China was the strongest driving force, followed by the U.S. and Japan. Within the EU, the UK market with certain dynamics, made up for the somewhat weak regional market till the end of March 2016. 2016 is expected to see a renewed growth compared to 2015. Still Q1 and Q2 were so strong that it will be no surprise that Q3 and Q4 will record somewhat weaker numbers, with the slump being most significant in China. Analysts at Roth Capital even see a weakness in some quarters. And the prognosis is that for the first time, because of the weaknesses in different regions, 2017 will see a global decline in installed capacity before an accelerated growth happens in 2018. However about 90% of newly installed PV systems were respectively dependent on regional funding programs, which often brought abrupt changes to the political course and will probably continue to do so.
Up until the turn of the year 2015/2016, the cell and modules manufacturers capacity was globally still very high, coupled with accordingly high prices. However, both have taken a tumble since summer 2016. The analysts from Roth await a decline in the mid-range module selling prices of large international producers from $0.53-0.58/Watt to $0.43-0.47/Watt. The selling prices for larger purchase quantities are expected to be even lower. The price could fall to $0.34/Wp in 2017.
Roth evaluates that while the most efficient manufacturers can still draw positive margins with prices hovering above $0.35/Watt, the market itself in the production segment will experience a renewed consolidation phase. Bloomberg New Energy Finance derived similar numbers and conclusion as well. It is thereby noteworthy how strongly the cost structures have sunk for the best international manufacturers. And how production is spread all over the globe since the newest and most efficient production plants are not necessarily implemented in China anymore.
The capacities for inverter production have also seen massive growth and a number of high performance producers, together with many other suppliers, are carving out an increasingly competitive market. Given the lower overall demand in the markets, the competition will increase further at the expense of margins, coupled with a further decline in average selling prices.
Central units are also increasingly being displaced by decentralized inverters in big projects. To make matters worse, considerable service problems are also surfacing as a result of issues like bankruptcies, sales in the last years or simply misguided company politics. This results in clients making the switch from their regular suppliers to new suppliers or simply to providers with a better performance rapport. Accordingly, this market segment is at the brink of a massive consolidation wave, with almost no market partner currently awaiting an improvement in market volumes anytime soon.
Can the market pick up as a result of subsidy changes? Certainly in China, the massive funding of new PV plants will continue in 2017. Still, China is not veering towards paying unnecessarily high feed-in tariffs, but rather keeping the focus on efficiency and costs. India, which has been making large announcements for a while now, still chooses to lean towards strong protectionism and therefore, remains unpredictable for non-Indian companies. At the same time, the extremely low prices for solar-generated electricity as a result of the tenders has consequently brought about brutal competition in the market.
The “FIT-Party” has also ended in the EU, with EU governments leaning away from subsidy programs with high tariffs. The UK is no exception. Therefore, in the EU, an upward direction can only be expected with prices that concur with the stage of development advancement. These are module prices that are way below the completely obsolete minimum price of €0.56/Wp. In the global market, the prices are already at about €0.35/Wp for large purchase quantities of “useable” polycrystalline modules. The EU price is still much higher. A growth in the EU market can only be expected when there is a drive for more EU-wide operations across market segments, and margins for operations and installation as a result of material prices increase. This calls for the clear commitment of all players in the market for the politics: “PV is cheap and in southern Europe, as good as free”.
Leading companies are saying today that in southern Europe there is no necessity for tenders or subsidies as the new price level already paves the way for development of PV plants from €0.04/kWh. Proper frameworks in the local EU markets are arising due to necessity and not subsidies where these values can already be achieved. A market beyond tenders.
So let’s reap what we have sown as pioneers up to 2011. This has little to do with money compared to the past. Rather, with the reduction of tariffs on cells and glass modules and the creation of clear legal and secure investment conditions. With regards to tenders and possible installations of large-scale plants, the lower price thereby has a direct influence, because here the operation structures are very different from private or commercial rooftops.
A repeat of (EU) market history?
The situation at the moment seems nevertheless to mirror the market situation in the first half year of 2009 and 2011, or rather 2012. At the beginning of 2009, the much smaller world market at the that time began a downward spiral after the boom in Spain ended. Within 12 months, the module prices sank from €2.20-3.40/Wp to €1.40-1.90/Wp. Via this incredible price fall, the market in Germany gained massive momentum end 2009. After a similar boom in the Czech Republic, Italy and Germany in 2010 with price increases, the market came to a standstill in 1HY2011 and all prices tumbled in summer for the first time over a wider range considerably below the €1/Wp line. Again the market got attractive, only to tumble again in 2012. At the end of 2012, solar modules were going at €0.42/Wp and once again set forth a market rally which abruptly ended as the EU, in March 2013, began registration of imported modules from China. And this subjected the minimum price of €0.56/Wp from August. This in return, within a few months, led to a resultant price shock that sent the market tumbling down, with the exception of the UK market that was experiencing high subsidies.
In effect, as a result of the new price levels (and even more after doing away with the distorted duties against Chinese products), there is a clear chance that the German and the EU market will see growth in FY2017.
Is there a new boom in the EU?
Apart from the prices and the thereby lucrative supply opportunities for solar electricity, there is a previously unavailable possibility of financing a plant. Via the EZB politics, credit has become extremely affordable and accessible for solar power plants in almost all EU countries. The interest rate in Germany at the moment is very low, even over a period of 18 years. Furthermore, many wealthy investors in the EU, or even investors who want to invest in the EU, with 100% of their own money, are being denied.
Alongside with private investors, insurances and funds must be allotted with mid- and long-term perspectives in mind. The money is there, in some EU lands moreover with tax benefits, and therefore there is not really any other region on par with the EU in terms of a non-complex financing.
Apart from funding, it cannot be emphasized enough how affordable solar electricity actually is today. The more solar radiation, the cheaper it is. Even in the northern parts of the EU, solar power for the home or for the factory is often the cheapest and at the same time the cleanest offer. Coupled with power storage, the security of supply is easily increased, particularly now that power storage has become cheaper. And PV plants, in contrary to wind energy and biogas plants, are not really contested at the site. Protests against solar power plants are almost unheard of.
“Chance” however does not mean it will actually happen. In Germany, among other things, the - in my opinion- senseless cell and module duties have led to many companies in the operations and development supply chain going either bankrupt or leaving the market. I am one with the more than 50 leading supporters of the SAFE alliance and many European solar organizations like Solar Power Europe that the duties have had dire consequences. And I stand also with the notable inverter manufacturer KACO who recently urged the EU with a plea to do away with the cell and module duties which have been stalling or endangering the development of all other supply chains. And commendably KACO is doing this despite facing immense pressure from China themselves. Evidently KACO is on a different page from SolarWorld when it comes to handling sales, technicalities and production.
Ever since the disastrous implementation of the duties, EU companies started exercising extreme caution with regards to new capacity creation in a tightening market. On top of that, in Germany, the EEG as a funding tool, can react quickly in the boom years to massive reductions due to the adjustment of the funding ceiling to 750 kWp. And above 750 kWp, due to tendering there is a ceiling of 600 MWp/annum. And it is this segment that has managed to deliver additional GWp within months during the boom years.
Additionally, many EU countries, in contrary to 2008-2012, do not have a stable framework at the moment for operation of new PV systems. This in turn keeps investors, regardless of the resulting (low) electricity prices from solar power plants, from purchases. Furthermore, the players from the conventional energy world, who do not see a chance in the solar business, are keeping themselves busy by fulminating against solar power on a national and EU level. This has resulted in a reluctance to purchase amongst consumers. A wide swing by companies like E.ON towards solar will offset this negative perception on the wider horizon, but in the mid-term it will set off a positive perception from all sides – and that, beyond Germany.
At the same time, much lower prices in all other market segments, for example in self-consumption, are being offered Europe-wide under better margin conditions and this could support developed distribution costs EU-wide. Over time, the talking point becomes how cheap solar electricity is. This is in the face of the “post-duties-high price-time”, a rather good situation. This situation should then enable governments in Europe to realize that only a little funding, or only really appropriate legal frameworks are necessary for solar electricity production.
What is the impact on the value chain?
How will the different levels in the value chain be affected by the changes in the coming quarters?
The previously good numbers written by global module manufacturers will in the coming quarters end up in the deep-red premises. Only companies with the best cost-structures and the most modern plants will stand a chance during this renewed consolidation period without danger to their inventory and existence. This applies globally, as companies in China as well cannot live by the “at whatever cost” principle anymore.
Within the short run, there is already the possibility that even big (module and cell) manufacturers are eliminated from the market or end up merging with other companies. There is no future for old and uneconomic production plants and, there will not be a change even if plants are moved to China, for example, in a bid to save with lower salaries. Even so, the Asian salaries are already on par meanwhile.
In the EU, meantime, there are two camps amongst the efficient solar producers:
One – essentially only the company SolarWorld – has its own significant cell production, and the other camp consists of module producers with a production capacity of >100 MWp who sell their cells worldwide. The front line runs right through the module manufacturers in the EU. And so, both camps with their module offerings, fight wide below the minimum prices for Chinese imports and once more, over their existence. Even SolarWorld will not be able to counter the global advent of lean, economic and technically better production. They will not be able to convince the EU to slap duties in the name of dumping on dozens of countries. This would mean that SolarWorld has to give up its inefficient segments and concentrate its energy on translating its prominence into larger revenues.
The EU manufacturers will to exist despite massive competition can be seen from the production restart in Wismar and Solarfabrik. The second biggest German producer Astronergy in Frankfurt Oder is also strictly against any duties. It must be seen from the point of many solar legends that modules cannot be manufactured in the EU, or only in niche areas. Courage is called for, and the companies will prevail when they combine their spatial proximity to customers with their growing efficiencies, and they must also be allowed to do so. The EU has to react and has to stop hindering these courageous players with duties on their primary materials. And to formally give allowance for the fact that “Made in EU” means “Made in EU” – the quality responsibility lies by the module manufacturer, not cells. A real technology and industry political discussion is however nowhere in sight, neither from the German government nor the EU.
The situation of the cell manufacturers in the EU can be quickly summed up: there are, unfortunately, no cell manufacturers in the EU who produce more than 100 MWp of cells per annum or even come close to these numbers except SolarWorld. Furthermore the smaller plants are often old and uneconomic when it comes to supplying the wider market. A few dreamers, pardon the harsh words, want to produce highly efficient cells with production lines under 100 MWp in the EU. That too for prices where one can purchase very good modules in the global market.
There is simply no market for this. Partly only older cell lines are started up again or deployed as the high-end “Blue Wafer” in order to meet the “Made in EU or Germany” cell stamp. Economically speaking, this is a chanceless venture in the global market competition though “custom-optimized”, as these cells are “Made in Germany” and thereby necessary for the attainment of a German custom certification in the U.S. market for modules from Germany.
The tariffs still take into account the cells as “country determinative”. Something that is, from my point of view, totally nonsensical, as the module producers alone determine the quality and specifications of the supplied modules. And that too with a value chain percentage of under 50% in Germany.
This segment has seen large chances in the past years already and strong competition in terms of new technical solutions and even lower prices. Unmistakably, the market has wandered from central solutions more and more towards decentralized solutions. The biggest symbol of this is the development in China at the moment, with their 2 GWp PV plant that has been fixed with 48 kWp inverter units. With this change, massive economies of scale are achieved by the manufacturers. These, today, have pushed the installation costs of decentralized systems, also in larger installations, to or within reach of the cost levels of central units. The decentralized systems have obvious advantages in operation as there is a smaller chance of complete block failure compared to bigger central units. And the operators can also act more independently from service promises (something that even bigger companies have not solved). On top of that, additional components like the Generator Connection Boxes (GCB) that are connected to string monitoring become obsolete. While Powerline or even local G4 networks are used for communication in the bigger plants, here, savings can be made on cabling and so on. Centralized units can only have a future when they become much cheaper than decentralized systems and when the suppliers can also be trusted to honor their service promises.
This is exactly where the inverters and the GCB/monitoring installations of 5+ old plants exclusively start to cause problems, not disregarding the issues caused by Trafos and medium voltage stations. Here even renowned electrical suppliers are affected. Some of these firms have left the market, others went bankrupt and are completely gone, and others despite financial uplifting via business units sold, are functioning on defunct service methods. More so others, here also the giants, do not answer the service line for hours or simply do not return calls. Many operators are already veering towards actively switching the units as they do not necessarily want to be sitting on the uncertainty that for example when lightning damage occurs, getting replacements will not be easy. Such manufacturers will disappear from the solar business as they can only operate in a highly subsidized market. Markets like that are becoming a rarity and even in such markets, companies that have far stronger performances are active. Or the executive committee shuts down the division. The prominent companies that want to remain in the market can only be advised not to make any mistakes in the provision of services. The clients will be gone in the blink of an eye.
This segment, that lines itself directly with the operators, will face hardship to remain afloat in sinking market regions. In the regions that are possibly awaiting a growth or a stabilization as a result of falling module prices, companies can expect to capture new clients with better margins. In this sense, the advantages from purchases are not instantly and wholly passed on to clients. Then, these new situations in segments where higher electricity prices from PV plants are possible (outside of power stations with high price pressures via tenders) offer the chance to use higher margins for operations expansion. This segment also has a good chance to profit from the low prices on the production side. But this applies only for a minority while others, as a result of the shrinking market on site, have to withdraw from the market. And that applies only for those who better adjust their procurement policy to the volatile market in order to prevent stock devaluation. Volatility remains the word of the moment in the development of the PV industry.
Come to the 17 Forum Solarpraxis 10./11.12.2016 to Berlin!
The Forum Solarpraxis is the biggest German business/political conference in the solar technology realm and at the same time the biggest of its kind in the new energy world.
We will shine the limelight on the operation chances in Germany and the EU through multiple forums. And we will deliberate
with the politics how the markets in Germany and the EU can be reshaped to finally reap the fruits of labor from the technology that was introduced. And with that, jumpstart a new boom in the EU.