Extreme Consolidation Expected In Upstream Solar Market This Year


Amid rapidly falling prices, mounting losses and massive operational costs, the upstream solar photovoltaic supply chain is undergoing major consolidation, with the number of companies participating in the market expected to plunge by 70% this year.

Worldwide, the total number of companies participating directly in the manufacturing of PV solar panels – from polysilicon manufacturing through module assembly – is set to fall to approximately 150 in 2013, down from about 500 in 2012, according to information and analytics provider IHS. This figure compares to about 650 in 2011 and 750 in 2010.

‘It would be a major understatement to say that consolidation is occurring in the PV supply chain this year,’ says Mike Sheppard, senior photovoltaics analyst at IHS. ‘Most upstream PV supply operations will simply cease to exist, rather than being acquired by other companies.

‘Most of these suppliers actually have already stopped production – and will never restart,’ he adds.

According to the report, the companies at the highest risk of going out of business in 2013 include integrated suppliers that manufacture PV polysilicon, ingots, wafers and cells to offer complete solutions.

Second- and third-tier suppliers of crystalline silicon (c-Si) polysilicon, ingots, wafers and cells also will struggle to stay afloat. Finally, smaller thin-film cell providers will face low sales and limited market sizes, putting them on the endangered list.

Many integrated players are expected to fold up shop this year as the large expense of building integrated facilities – and then seeing them underutilized for the better part of a year – will prove to be financially unsustainable. Many of these players are based in China.

Government subsidies could be an option to keep integrated suppliers operating. However, although IHS believes that some suppliers may be propped up by the Chinese government this year, the majority will dissolve.

Survival tactics
With price declines still occurring across the board in 2013, low-cost players will get the lion's share of the global market, the report predicts. Upstream second- and third-tier suppliers of polysilicon, ingots, wafers and cells will struggle to survive the year in markets that do not have local-content requirements. Many of these companies will not be able to float operations for a very long period of time.

For second-tier module manufacturers, the key to surviving this year will be establishing and maintaining strong relationships with downstream players in the emerging markets. Second-tier manufacturers must move faster than those in the top tier in order to grab mindshare early.

Flexible business models, with consistent outsourcing, will be needed in order for these companies to succeed, IHS says. Because contract manufacturers require certain levels of business to remain profitable, securing stable relationships with these companies is also critical for second-tier module manufacturers.

Second-tier module makers also must be flexible enough to capitalize on the volatility in high-growth markets, which consist mostly of small and midsize engineering, procurement and construction companies. These companies initially have less allegiance to established top-tier manufacturers.

But as their experience in this area grows, price becomes a primary factor, favoring low-cost producers. This is already true in markets like India, and is becoming a factor in Latin American countries such as Chile.

Finally, thin-film module manufacturers will have to adopt similar survival strategies as the second-tier c-Si module suppliers. This will be particularly true if pricing for thin-film modules doesn't remain competitive with c-Si during the year, the report notes. If thin-film pricing does not decline at the same rate as c-Si, the technology will be relegated to select niche markets that generate scant demand.

Module suppliers in these three categories – integrated manufacturing, specialized second-tier manufacturing, and thin-film manufacturing – will experience the toughest challenges this year, given the hurdles needed to make those operations successful. Because of such challenges, some of these companies will fail.

Consolidation and reduction in a supply chain results in capacity being taken offline, often benefiting the remaining players in a market. But according to the report, given the weak conditions in today's PV market, there is no guarantee that the supply-chain shakeout will help surviving suppliers in 2013 – or even make it less likely that they will fail.

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