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Standards & Poor vFinal DR 18/12/09 09:31 Page 21
applicable retail price of conventional
energy. The manufacturer’s competitive
Typical PV panel warranties last for 20 to 25
position within the industry will be mainly
years, but most, if not all, panel manufacturers
influenced by the first three, focusing on
lowering manufacturing costs, improving
lack sufficient field-tested data to accurately
technology, and improving integrated
system design and installation, predict their products’ long-term performance
maintenance, and operating costs. The
lower the ASP, and the better the
conversion efficiency, which will in turn performance, the risk remains that the agreements (PPA) with good quality
reduce the balance of system costs. products will not perform as companies buyers of electricity, such as utilities or
expect in the long term. Those that rely municipalities.
Generally, PV panel manufacturers have on accelerated testing to determine future
not reached grid parity. Until then, warranty expenses may face a large Stability of cash flows under stress
government support will be necessary for unexpected liability and lower cash flow if We assess a series of cash flow
manufacturers to turn a profit. Even when they need to service too many warranties sensitivities to determine a company’s
PV panel manufacturers reach grid parity, due to product underperformance. vulnerability to certain risks. We also use
which we think may be likely in some A company that can sell its product in the results to compare companies
locations in the near-to-intermediate term, various countries will rely less on a single consistently and transparently.
the economic attractiveness of installing a government’s subsidy program.
system may prove fleeting because it may Sensitivities to cash flow may include:
be correlated to the price of electricity a In addition, a presence in various regions ring6 Price decreases on a dollar-per-watt
utility sets. In 2008, when the price of may offset regional economic downturns. (peak) basis,
natural gas was at a peak in the U.S., Geographical diversification of a ring6 Raw materials cost increases,
local utility prices were high as well, company’s customer base is particularly ring6 Increases in operating and
which helped make renewable energy important in the PV panel industry maintenance costs,
alternatives attractive. As the price of because it depends on domestic and ring6 Decreases in operational metrics,
natural gas plummeted in 2009 so did international governmental subsidies. As
ring6 Decreases in conversion efficiency
utility rates, making renewables such as certain subsidies decrease or fall off, projections, and
solar power less attractive. demand in that region may plummet, as ring6 Increases in warranty expenses
in the recent dramatic decrease in the
The PV industry has various niche Spanish feed-in tariff. Companies with To the extent that a company has entered
markets, including utility-grade PV, limited exposure to customers in one into long-term sales contracts with
building-integrated PV, and rooftop PV. particular region will have a more stable creditworthy customers, we can have
Each has a different customer base with demand for their product. more faith in management’s price
different needs. For example, a rooftop assumptions on the revenue side.
PV customer may require panels with PV panel manufacturers can position However, we will not give contracts that
greater conversion efficiencies to get the themselves in various categories on the include loose provisions with regard to
Issue VI 2009
most power out of a limited amount of supply chain. Some companies pricing renegotiation as much credit. On
space. In the short term, product specifically make solar cells that they then the cost side, we will take into account in
differentiation can come in the form of sell to solar module producers, which our analysis long-term contracts that limit
higher conversion efficiencies, larger then sell them to system integrators for the company’s exposure to cost
modules that require lower BOS costs, installation. Other companies are both increases. Given that there may not be a
and the ability to customize panels to fit module manufacturers and system direct correlation between the
the customer’s needs. In the long term, integrators. Companies that are more manufacturing cost and the price of
however, we think it highly likely that PV vertically integrated may be better able to finished products, the company’s
panels will become more commodity-like control costs and improve their product contractual framework may only be
in nature. more effectively. For example, a effective if the company locks in both
manufacturer that can cut its own revenues and expenses, thus mitigating
Typical PV panel warranties last for 20 to polysilicon wafers may be able to reduce the risk of lower margins.
25 years, but most, if not all, panel wafer breakage costs by cutting the
manufacturers lack sufficient field-tested wafers slightly thicker, while a company In running operating sensitivities, we may
data to accurately predict their products’ that purchases pre-cut wafers may be at give more credit to manufacturers with a
long-term performance. Instead, they rely the mercy of their supplier. strong and proven operating track record
on accelerated testing to forecast how than those that are just beginning
well their modules will do in the long term. A manufacturer that also serves as a commercial operations. We view
Although successfully correlating systems integrator or project developer companies whose cash flow depends on
accelerated testing to a few years of may have more stable cash flows if it has unproven yields or efficiencies as much
actual data may substantiate module signed supportive purchase power riskier than those that do not.
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