A barrage of clouds for the solar industry
Now that I’ve set the groundwork with you, my gentle reader, I’d like to talk with you about clouds. After all, since its mid-November, a young man’s fancy does turn
to predictions about next year. And looking into my solar powered crystal ball for 2010, I see a barrage of clouds.
Now don’t get me wrong, the PV market in the fourth quarter of 2009 appears to be firming up. Firms have used up their inventory. Executives discuss lead times that are
lengthening and what they can complete by December 31st. Yet I see a significant number of challenges for 2010.
Mixed signals on future structure of the feed-in-tariff in Germany
Demand remains the main challenge. There is a large amount of uncertainty for the financial returns for projects, especially in Germany, with mixed signals on how the feed-in-tariff
will be re-structured in 2010. The uncertainty of the terms for the German feed-in-tariff in 2010 remains a critical risk factor in any calculations on project return-on-investment,
lowering the potential in the market for now.
The US market adds to the challenges. The incentives in the US market have moved slowly. This delayed the start of key projects. On top of that, in the key California market, net
metering legislation has not yet been passed, increasing the risk of projects in the key PG&E territory.
The supply side remains a challenge as well, with firms continuing to add capacity, both for crystalline and thin film PV panels. Yet most firms have put their capacity on a
just-in-time basis, with limited parts in their own value chain - leading us to the paradox this quarter that we have excess capacity, but we cannot get enough parts into Germany.
Given these challenges, I see several trends for the PV industry in 2010:
- Low Margin Growth: We do forecast increasing global demand for PV systems, with growth of over 35% on a gigawatt (GW) basis to 6.9 GW. Yet the excess capacity in the market leads us
to expect average selling prices (ASP) to contract by 20% for modules in 2010, limiting market growth for 2010 to only be 10% over 2009.
- Inventory Management: Since most managers just got bitten by inventory, expect them to continue to dedicate a lot of talent to managing it. The January slow down and the potential
change of incentives midyear in Germany will keep this top of mind. I expect to see PV vendors to continue to poach talent from companies with great supply chain management
capabilities, particularly the EMS and ODM firms.
- Disappointment in other markets: The U.S., Chinese, Italian and other growth markets will see investment in finance, personnel, and distribution. Yet for most firms, their real
potential is in 2011, so some country sales managers will be set up for failure.
- Consolidation: Many PV value chain companies remain in business only due to the cash they raised in the past two years. Many of these will start merging or being acquired,
especially in the thin film PV arena.
Real market takeoff in 2011 and 2012
Do not let this set of factors make you think that all I see is clouds for the industry. However, the real market takeoff will happen in 2011 and 2012, given the longer sales cycles we
are seeing for the bigger projects. Until then I expect to see excellent business basics - finance, marketing, channel management, operations - to be the sign of the winning solar firm.
Alfonso Velosa, 2009-11-16
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