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Standards & Poor vFinal DR 18/12/09 09:31 Page 18
Spurred by the Copenhagen climate summit and
growing political favorability, renewables are more
visible than ever on the world stage. For photovoltaics
manufacturers, however, there are clear business risks.
Issue VI 2009
Grace Drinker, Credit Analyst at Standard & Poor’s
Ratings Services, assesses the state of the industry
and outlines a path for success.
Assessing business risks
Standard & Poor’s Ratings Services has ring6 A decline in price of raw materials, and in the average selling price (ASP) of
established a methodology for rating ring6 Venture investment capital. panels. High-cost manufacturers that
photovoltaic (PV) solar panel cannot sustain positive cash flows due to
manufacturing companies. These criteria Based on conversations with industry lower prices will have to exit the market.
complement a general corporate rating participants, we believe global
criteria. This article is to help better manufacturing capacity in 2009 could We think the PV manufacturing industry
understand the approach to rating entities more than double 2008’s level when the has weaker-than-average characteristics
in the PV solar panel industry. final numbers are tallied. Asian crystalline compared with other industries. Most PV
silicon-based PV manufacturers have led manufacturers would likely fall under the
We assess the business risk profile in the the way in total installed manufacturing Vulnerable business risk category.
PV solar panel manufacturing industry as capacity, with Sharp Corp. and Suntech
being higher than in certain areas than Power Holdings being the top producers Currently, the greatest risks include:
that of some other industries and sectors in 2008. However, as thin-film PV ring6 Technological obsolescence,
(see Table 1). Among the key credit manufacturing expands, the U.S. is ring6 Overcapacity,
factors in this assessment are: beginning to take on a much larger role. ring6 Price competition and
ring6 Rapid growth and ease of entry that is First Solar, the leading U.S. thin-film ring6 Declining government support.
expected to result in overcapacity and manufacturer, has rapidly expanded
downward price in the coming years, capacity, and most CIGS players are Technological obsolescence.
ring6 The risk of technological obsolescence located in the U.S. The semiconductor industry has always
due to rapid innovation in the industry, gone through rapid innovation, with short
ring6 Exposure to the volatility of the cost of Although the industry is growing on the product life-cycles compared with other
inputs, and supply-side, demand for solar PV has not industries. The introduction of a new
ring6 Heavy reliance on subsidies to support followed suit. The global recession, product, a dramatic improvement in how
demand due to the current high cost coupled with a decrease in demand from much sunlight a solar cell can convert to
Spain, the fastest growing PV market in electricity, or the introduction of a much
PV has been around for decades, but PV 2008, will probably cause severe more efficient, cost-effective solar cell
manufacturing is now growing due to: oversupply in coming years. According to manufacturing process could significantly
ring6 Strong government support in GreenTech Media, an industry research disrupt the market. Companies that do
industrialized countries, outfit, global demand in 2009 and 2010 not improve their product on pace with
ring6 Improvements and innovation in the will make up less than one-half of the their competitors are at greater risk of
cell and module manufacturing available module supply. This has already technological obsolescence, and may see
process, begun to contribute to a significant drop their credit quality diminish. As such, in
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