PV Forecast: Rising demand, lower costs enable higher margins

Charles Annis VP Manufacturing Research, DisplaySearch LLC

2009 proved the solar industry can be highly cyclical. After averaging 15 per cent between Q1 06 and Q4 08, profit margins for a group of 14 leading cell and module manufacturers suffered a precipitous drop to -10 per cent in Q1 09 and remained negative in Q2 09. The significant losses were caused by the capping of Spain's Feed-In-Tariff (FIT), the worldwide economic crisis and tight credit markets.

Excess manufacturing capacity and oversupply throughout the supply chain during the first half helped push average photovoltaic (PV) system prices down more than 25 per cent. These lower prices, somewhat easier financing, diversification of the demand base and positive incentives in multiple regions helped push demand and most leading producers into the black in Q3 09.

Incentives impact

Incentives are designed to increase demand by improving the economics of installing a PV system. But on the other hand, fear of incentive reduction can also push demand, as users rush to install systems before benefits expire. Expectations that the new government in Germany will further lower FIT rates is one the most important current demand drivers. Changes or new incentives in Germany, Italy, Japan, America, France, China and other regions are now forecast to cause demand to grow more than 40 per cent in 2010. Solar cell and module makers should see average profit margins increasing in Q4 09 and towards 20 per cent in 2010.

In 2010 solar cell manufacturers will continue to focus on cost reduction as they try to push PV towards grid parity while simultaneously maintaining margins. Key methods for reducing costs include using less expensive silicon, using less silicon or not using silicon at all.

Polysilicon is the primary material of wafers used to fabricate crystalline silicon (c-Si) solar cells. It alone can account for 15-20 per cent of the cost of a PV module. As the result of a large ramp up of p-Si capacity just as demand was collapsing, an oversupply caused p-Si prices to drop dramatically from the 2H 08. The rate of decline has moderated now but supply is expected to still be more than sufficient in 2010, further weighing on p-Si prices.

Besides increasing the scale of conventional Siemens-based p-Si production, new refining technologies, such as Fluid Bed Reactor (FBR) and Upgraded Metallurgical Grade (UMG) silicon, have been developed as lower cost alternatives. Interest in these technologies has waned with the collapse of p-Si pricing, but they still may offer greater savings in the future.

PV revenues, profit and margins for DisplaySearch's index of module manufacturers. Source: DisplaySearch Quarterly PV Cell Capacity Database & Trends Report Click on image to enlarge.