Standards & Poor vFinal DR 18/12/09 09:31 Page 19
ANALYSIS
the industry’s nascent growth stage, we determining credit quality. supply contract can either boost or hurt
expect PV manufacturers’ R&D costs to credit quality as prices fluctuate and
be higher as a percentage of sales than Crystalline silicon-based panels are the companies face renegotiation risk.
other manufacturing industries. most widely manufactured form of PV.
Polysilicon typically makes up about one- Dependence on policies.
Overcapacity is likely in this industry over half of the total cost of a solar panel, so Given the high price of electricity from PV
the next one to two years. There are a polysilicon prices will significantly affect solar panel systems relative to just about
number of major players in the silicon- gross margin for silicon PV all other forms of electricity generation,
based PV market, including Sharp manufacturers. The price of polysilicon global industry demand growth and
Electronics Corp., SunPower, Suntech, has historically been volatile, and the stability rely heavily on supportive
Yingli Solar, and others. The thin-film industry experienced a significant run-up government policies and subsidies.
space is in early development, but with a in pricing over the past few years. A Assessing the long-term stability of such
growing number of manufacturers. shortage in polysilicon manufacturers and support is a key element of our analysis
Although manufacturing is highly capital a spike in demand caused prices to soar of PV manufacturers.
intensive and involves significant R&D, the in 2005-2008. However, in 2009, new
venture capital market has helped fuel silicon refineries began production and For example, markets in Germany, Spain,
growth in the number of start-ups that expanded supply, at the same time the and Japan have grown quickly due to
could become large market participants. recession and credit crisis caused government backing, but now face
uncertain growth prospects as that
Greentech Media predicts that module support declines. Germany, which now
supply could reach 11.2 gigawatts in
2009, up from 3.2 gigawatts in 2007. This
The price of polysilicon
accounts for more than 50% of all solar
electricity produced worldwide, plans to
could lead to a 65% overcapacity for the
has historically been
decrease its “feed-in” tariff (the price the
year, and less than 35% capacity government pays those who supply solar
volatile, and the
19
utilization for many manufacturers. power generation) by 7% in 2009 and
Overcapacity, coupled with the customer 2010, and 8% in 2011. The incentives
www
demand for lower ASPs due to lower
industry experienced
may reduce faster under the new political
.solar
polysilicon prices, will likely force
companies to slash prices, and many a significant run-up in
regime in Germany. The Spanish feed-in
tariff for PV installations is capped at 500
-pv-management.com
companies that cannot compete at a
lower cost per watt may not survive. In the
pricing over the past
megawatts (MW) in 2009 and 460 MW in
2010, well below the 1,200 MW cap in
near term, we think that supply will likely
outpace any increase in demand that
few years. A shortage
2008. The reduced cap has essentially
halted demand for PV panels in Spain,
government incentives or capital
in polysilicon
and some manufacturers are scrambling
availability produces. to find other markets to sell their product.
manufacturers and
A PV manufacturer with a concentration of
Issue VI 2009
Competition and commoditization. customers in a country where support is
PV manufacturers that can differentiate a spike in demand waning would be exposed to a greater
themselves through higher efficiencies,
lower installation costs, or better
caused prices to
risk of significant decline in demand.
warranties may be able to get and sustain
higher prices for their product. As more
soar in 2005-2008
In our view, various economic incentives
may affect the price that a manufacturer
manufacturers enter the market in the receives for its product in different ways.
next three to five years, however, we For example, in Germany, a federally set
expect PV solar panels to become feed-in tariff dictates a fixed price that
commoditized. This means that demand demand to decline. According to utilities must pay energy producers. This
for the product will be fundamentally Greentech Media, global demand was in turn leads to demand stability for PV
driven by the pre-subsidy levelized cost of roughly flat from 2008 to 2009, while products. In the U.S., however, utilities set
energy (a measure of the total cost of a polysilicon capacity doubled (“2009 rates, and a fluctuating utility rate
system compared with its expected Global PV Demand Analysis and influences the economic incentive to
energy output; see cost efficiency section Forecast: Surviving the Shakeout II”). As a install a system. Therefore, all else equal,
below), of which a major determinant will result, polysilicon prices have dropped demand may be more volatile in the U.S.
be the panels’ ASP. Accordingly, we significantly. Silicon based solar panel than in Germany. However, in the U.S.,
expect intense price competition, and manufacturers attempt to mitigate their the incentive may be more stable due to
product differentiation will become more exposure to price volatility by entering the lack of regulatory megawatt limits that
difficult. As this trend continues, cost into long-term contracts with polysilicon cap the amount of systems that may take
structure will be a critical factor in manufacturers. However, a long term advantage of regulatory incentives.
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