Solar Report | 2012 solar PV year in review: A complex picture of a changing market - SolarServer

Solar Report | 2012 solar PV year in review: A complex picture of a changing market - SolarServer

The difficulties that the global solar industry experienced in 2012 were both clear and expected. Continuing excess solar photovoltaic (PV) manufacturing capacity spurred a collapse in prices across the PV value chain, creating consistently negative margins and negative profitability for upstream PV manufacturers.

This led to a large number of bankruptcies, insolvencies and acquisitions, but also trade wars between the United States and China, the EU and China, and between India and everyone else.

However, as in 2011 these difficulties masked the continued progress in PV markets, policy and technology. Many of Solar Server's predictions for 2012 played out, including the increasing diversification of global PV markets and the dramatic expansion of a number of emerging markets in 2012.

A difficult year: falling prices

The most fundamental problem of the global PV industry in 2012 was, and continues to be, too much manufacturing capacity for global demand. Exact numbers are hard to come by, given the difficulty in information collection in China, where much of the new capacity is located. However, Greentech Media estimated that in 2012 global PV module manufacturing capacity  reached nearly 60 GW, with global polysilicon, wafer and cell capacity more than 40 GW each.

This represents a module capacity roughly double the estimates of the 2012 PV market. Given that large inventories are still left over from 2011, a continuing collapse in prices was inevitable.

Polysilicon spot prices fell an estimated 47% in 2012

And fall they did, across the PV value chain. In the first 11 months of 2012 crystalline silicon module spot market prices had fallen between 19% and 29%, with Chinese crystalline silicon modules falling to EUR 0.56 (USD 0.74) per watt, according to Sologico. This follows on a price fall between 36% and 46% from January 2011. In just two years, Chinese c-Si modules are being sold for a little more than a third of their previous market value per watt.

Polysilicon spot prices likewise fell an estimated 47% globally in 2012 to a low of USD 15.3/kg, with Xinhua reporting a fall of more than 50% in China, as the second straight year of price collapse. While much polysilicon is sold through long-term contracts, the collapse in polysilicon prices has eroded the contract market, making manufacturers more willing to depend on the spot market.

Wafer and cell manufacturers have reported similar stories. The net result is that the only large PV manufacturers reporting positive operating margins in 2012 are those who have diversified into PV project development.

PV equipment manufacturing revenues fell 72% to USD 3.6 billion in 2012

Perhaps the worst hit are makers of PV manufacturing equipment, who have seen orders collapse over the past six quarters. While some orders continue for upgrades, most expansions have been halted. SEMI's most recent report found that PV equipment bookings remained flat in the third quarter of 2012 at only USD 234 million, 56% below a year prior, and Solarbuzz reports that global sector revenues fell 72% to USD 3.6 billion over the full year 2012.

Again, diversification has been key, and those players that have survived often have multiple product lines in multiple industries to soften the impact of the collapse in PV equipment demand.

Bankruptcies, insolvencies and acquisitions

The fallout of the collapse in profitability has been a large number of bankruptcies, insolvencies and acquisitions among PV manufacturers. The largest of these was Q-Cells' insolvency and subsequent sale to Hanwha Chemical Corporation, a major fall from its position as global PV market leader in 2008.

However, Q-Cells was the tip of the iceberg. Mercom Capital has counted 35 solar bankruptcies or insolvencies in 2012, and 50 restructuring or downsizing announcements, including major workforce reductions at SMA and Schott's departure from crystalline silicon PV manufacturing.

REC closed the last of its wafer production in Norway during 2012 (Image courtesy REC ASA)

While much noise was made about the US PV industry, the United States never had a very large scale of PV manufacturing to begin with. Instead, Europe was the hardest hit, particularly silicon wafer production. REC ASA completely shut down its wafer division at three locations in Norway during 2012, with Schott and PV Crystalox closing wafer facilties in Germany.

Chinese manufacturers also spilled considerable red ink during the year, however none of the large Chinese PV companies have failed yet. Instead, Chinese manufacturers have posted worse and worse balance sheets, have received minor bailouts from government entities, and in some cases have sold off portions of their businesses to state-owned enterprises.

Global trade war

The global solar trade war which erupted in 2012 must be seen in light of these extremely difficult conditions. Prompted by a coalition led by SolarWorld, the United States slapped anti-dumping and countervailing duties of 24% - 255% on Chinese-made PV cells, and modules made from those cells. However, these tariffs have been easy to avoid, given the option to outsource cell production and the relatively small size of the US PV market.

The trade investigation before the European Commission has the potential to impact the global PV industry much more than US tariffs (Image courtesy jlogan)

Much more serious is an EU investigation into imported Chinese PV products, which is currently underway. Meanwhile, China has not sat idly by while all of this has occurred. It has launched an anti-dumping investigation of its own into US and EU polysilicon, from which 30-50% tariffs are expected.

Not to be outdone, India has also responded with anti-dumping investigations into PV products, naming China, Malaysia, Taiwan and the US.

While many in the industry have opposed these trade actions, the extremely difficult positions that US and EU PV manufacturers and Chinese polysilicon producers have found themselves in is undeniable. What is more difficult to establish is the intentional damage alleged by some claimants. In the end, there is simply too much capacity for the market.

The good news: A growing PV market

Despite all of the difficulties which manufacturers are facing, the global PV market continued to grow by 10% - 17% in 2012 to an estimated 31 - 33 GW, with growth even in highly mature PV markets like Germany. The latest figures from the German Ministry of the Environment indicate that despite feed-in tariff cuts, Germany's 2012 PV market reached 7.6 GW by the end of the year, another world record for annual PV installed.

The Italian market for large commercial and utility-scale PV has been effectively killed by the near-elimination of the feed-in tariff in the fifth Conto Energia, but as this came in August, Italy will still post impressive 2012 installation figures, estimated by Mercom at 3.5 GW.

However, other trends indicate that the big story will not be in Europe anymore.

Asian PV markets rise

In our 2011 year in review, Solar Server noted the passage of feed-in tariffs in China and Japan as among the most important trends in the global solar industry. In 2012, we have not been disappointed.

China installed an estimated 5 GW of PV in 2012, making it the world's second-largest PV market (Image courtesy Astonergy)

It is likely that the Chinese PV market more than doubled again this year. While final numbers are not in, IMS Research's October 2012 prediction of 5 GW installed in 2012 would make China the world's second-largest PV market. This includes not only installations under the feed-in tariff, but also 1.7 GW of projects under the nation's Golden Sun Program.

Japan likewise has seen an extraordinary boom in PV installations, driven by what may be the world's most lucrative feed-in tariff and a need to put generation online to replace shuttered nuclear power plants and reduce costly fossil fuel imports.

Mercom Capital estimates that Japan's PV market doubled to 2.5 GW in 2012. Also, JPEA found that the nation's PV cell and module imports increased more than 300% year-over-year in the third quarter of 2012 to 32% of the total market, as Japan's PV manufacturers struggled to meet this sharp increase in demand.

Ongoing diversification

China and Japan were hardly the only markets that grew dramatically in 2012, as PV technology continued its viral growth across the globe. While both India and the United States showed impressive growth during the year, the growth in other emerging markets in 2012 may indicate a more significant trend over the next decade.

Throughout 2012 there were frequent announcements of utility-scale projects either initiated or completed on six continents, including locations as unlikely as Costa Rica, Ghana, Kazakhstan, Nigeria and Peru.

Of these emerging markets, one that is notable for its size is South Africa. The end of 2012 was filled with a flood of project groundbreakings and supply deals for the 1.45 GW of PV plants which were approved under the first phase of the nation's Renewable Energy Independent Power Producer Program (REIPP), which aims to install 8.2 GW of PV by 2030.

Other notable regions include Southeastern Europe. While Romania installed only 29 MW, the Greek and Bulgarian markets were much more impressive. A number of large PV plants came online in both nations during 2012, including a 50 MW PV plant built by Astronergy and a 60 MW PV plant built by SunEdison in Bulgaria in 2012.

Chilean Energy Minister Jorge Bunster at the Calama 3 PV plant. While more than 3.1 GW of solar projects have received approval, the nation had only 2.4 MW of utility-scale PV commissioned by the end of 2012. (Image courtesy Chilean Ministry of Energy)

Many had higher expectations for Latin America. Chile has built an impressive pipeline of over 3.1 GW of solar projects which have received environmental approval, but the nation reached only 2.4 MW of installed utility-scale PV capacity by year's end, with another 2.5 MW under construction.

Peru showed greater progress, with four PV plants 20 MW and larger, totaling 84 MW, commissioned during 2012. AES Solar also commissioned a 24 MW PV plant in Puerto Rico, one of several utility-scale projects underway in the island territory.

Also this year two very large projects were announced in sub-Saharan Africa. Blue Energy announced plans to build a 155 MW PV plant in Ghana, and Helios Energy signed an MOU with a state government in Nigeria to build a 30 MW PV plant.

Technology progress: CPV

At 30 MW, the Alamosa Solar plant is much larger than any previous CPV plant (Image courtesy Amonix)

As predicted by Solar Server at the beginning of 2012, during the year concentrating photovoltaic (CPV) technology continued its progress into the mainstream. In April, Cogentrix commissioned a 30 MW CPV plant in the US state of Colorado, the Alamosa Solar project. The plant is many times larger than any existing CPV installation, and was featured by Solar Server as our November 2012 Solar Energy System of the Month.

Also, in December 2012 Soitec announced the long-awaited opening of its CPV factory in Southern California, which will supply modules for hundreds of megawatts of plants under contract which are based on its Concentrix technology.

CPV also saw new technical achievements in 2012. In October 2012 Solar Junction announced that it had reached 44% cell efficiency with its multi-junction technology, and in the same month Amonix reported that it had achieved a 33.5% outdoor efficiency with its CPV modules.

CPV still faces many challenges, most notably bankability. However, 2012 saw important progress for CPV, with more growth expected in 2013 as developers begin work on large projects in South Africa and California.

2013 and beyond

Given the fundamental underlying problem of overcapacity, the difficulties faced by the PV industry in 2012 are far from over. Multiple research firms have forecast an ongoing fall in sale prices in 2013, and IHS has made the particularly grim prediction that the number of companies in the PV supply chain will be reduced by 70% over the course of the year.

However, these falling prices have aided market growth, particularly in nations such as the United States, and have benefited developers and installers.

Global PV markets continue to grow and diversify, and with this diversification comes new opportunities, including in those markets which were previously considered closed to outsiders.

NPD Solarbuzz has predicted significant opportunities in the PV balance of systems market in China, and Japanese industry data shows that despite the cultural preference for domestic products in the nation, the share of imported PV is growing rapidly in Japan.

The center of the global solar market is moving towards Asia (Image courtesy Solar Frontier)

In other nations, falling prices mean that PV is finally becoming cost-competitive without subsidies, as has been shown by successful "grid-parity" projects underway in Spain. 2013 promises to be another difficult year. However, for the companies that survive, there are excellent  prospects for substantial long-term growth in the PV industry. We can look forward to a new PV market that is both more global and more stable, less prone to strong quarter-to-quarter changes and less dependent upon boom-and-bust cycles in individual nations.