301 Moved Permanently

---

nginx

The solar PV module manufacturing industry is remarkably dynamic and has experienced sharp growth in the last 10 years. In quantitative terms, the annual module manufacturing capacity multiplied by three since 2010 to respond to the explosion of demand. We project annual module production to increase from the 22 GW of 2010 to 76 GW this year, and to 102 GW in 2020.

Since its beginning, the solar industry has required different forms of governmental support, such as feed-in tariffs (FITs) and investment tax credits (ITCs), to increasingly compete against conventional energy sources, and industry development is still greatly influenced by policy and economic regulations. For example, we estimate that the five-year extension of the solar ITC in the U.S. will bring 15 GW of additional installations between 2017 and 2019, compared with our previous forecast without the extension.

Moreover, trade disputes and legal barriers have had a great impact on the module manufacturing industry since 2012, when the U.S. implemented import duties on cells and modules manufactured in China, later followed by Europe in 2013. The extension of those anti-dumping and countervailing duties in 2014 to include both Chinese and Taiwanese cells in the U.S. has strongly shaped the development of the solar manufacturing industry. Of the top 10 global module manufacturers by shipment, eight are Chinese companies; to serve the U.S. and Europe, they need to have access to cell capacity and production outside of China. This move has also been followed by other smaller Chinese suppliers.

Southeast Asia has been the preferred region in which to expand capacity, with more than 13.6 GW of cell capacity expected by the end of this year. Some examples are the Trina Solar 575 GW cell factory in Thailand and JinkoSolar’s 450 GW cell factory in Malaysia.

Demand has not only grown in quantity, but also greatly diversified. Because more midsize solar markets are expected to contribute to global solar installations, global demand will be less concentrated in the years ahead. In fact, the 10 biggest solar markets’ annual share of global installations is expected to decrease 15% from 85% this year to 70% by 2020.

The number of markets with more than 1 GW of cumulative installations has similarly grown, from seven countries - mostly in Europe (i.e., Japan, Germany, Italy, France, the Czech Republic, Belgium and the U.S.) - in 2010, to 20 markets in 2015, and to a forecast 49 markets in 2020. Markets that traditionally led solar installations, such as Germany or Japan, have lost their leading roles; others have exploded in recent years, such as China, the U.S. and, more recently, India.

Product needs have also grown increasingly complex, and module manufacturers have had to develop and expand their product portfolios to serve new customers and segments. Module manufacturers have had to adapt their product portfolios to different types of installations (e.g., residential and commercial rooftops, large utility projects, building-integrated photovoltaics, and off-grid), as well as module-efficiency requirements. Similarly, product portfolios have evolved to improve product performance and output across adverse environmental conditions, such as farmhouses with high concentrations of ammonia gas or seaside locations with high salt mist concentrations.

Another area of development is the current work to increase module output by reducing the loss from cell to module and achieving higher efficiency. Overall cell-to-module losses are expected to decrease significantly in coming years. Improvements in the cell-to-module conversion ratio are, for the most part, the result of improved light management attained by employing a new kind of ribbon, reflective back sheets and encapsulation materials with improved UV performance. The half-cut cell is another concept that has improved the module efficiency independently from the cell level, reducing internal electrical losses from those of a full cell. In the next three years, this segment has a chance to gain a significant share of the total cell market. New cell technologies like passivated emitter rear contact (PERC), bifacial, or n-type technologies, such as heterojunction (HJT) or interdigitated back contact (IBC), go in this direction.

More new trends in the module manufacturing industry are increasing the number of busbars or manufacturing busbar-less modules. By 2020, we expect busbar-less modules will have a 10% share of the total module market - compared with less than 1% this year.

Furthermore, most leading manufacturers are currently launching 1,500 V modules, which help to reduce the overall balance-of-system (BOS) cost of large plants. This technology is slated to become the standard module for large utility projects in emerging new regions, such as Latin America and the Middle East, in addition to the modules’ current presence in the U.S. utility market. Glass-to-glass modules are also expected to gain broad acceptance in large ground installations.

All these technology and product developments, which imply significant research and development spending, are being implemented in a very competitive commercial environment, where module prices have been declining by 70% since 2010 and are expected to continue declining, though at much lower rates, until 2020.

In a recent analysis of the cost of different Tier-1 groups of module manufacturers according to their regions, we estimated that the main drivers of cost reduction and the explanation of the cost advantage of Tier-1 Chinese suppliers are scale (and high utilization rates), a local supply chain, and product standardization. Because Tier-1 Chinese producers have the lowest cost structure, and the module price environment is expected to get increasingly competitive, we predict that the market share of Chinese solar module producers among the top 20 manufacturers will continue growing this year. Significant cost structure advantages will allow top Chinese companies to continue growing faster than their competitors in the anticipated second-half conditions of module oversupply and price decline. In fact, the combined market share of the leading 20 PV module manufacturers increased significantly in 2015 to encompass 65% of the market. By the end of 2015, the top 11 Chinese module players had increased their combined share of the PV module market from 28% to approximately 44% of total shipments. Leading Chinese companies are growing much faster than other top 20 manufacturers, thanks to continued growth of their shipments to international markets and unique access to the Chinese market, which has become the largest solar market, growing from 4.8 GW of installations in 2012 to close to 20 GW expected this year.

 

Future outlook

In the second half of this year, we predict market conditions will be extremely competitive. In China, solar PV installations in the second half will fall by 9 GW, triggering a sharp global slowdown in global demand and oversupply, particularly of solar modules. Nearly 17 GW were installed in China in the first six months of this year. The rush in installations during that period, driven by the FIT cut on June 30, will result in a major slump in demand in the third quarter, with installations falling to less than 3 GW. Installations will recover somewhat in the fourth quarter, once there is increasing visibility on the Chinese government’s new quota. This pattern in China - which differs significantly from previous years - will drive a global slowdown in installations in the second half of this year and trigger a sharp global adjustment in prices.

In addition, slowing demand for modules in the U.S., slated to be the second-largest market this year, is adding to manufacturers’ woes. Although installation demand continues to be strong in the U.S., inventory levels also remain high in the country due to the vast quantities of Chinese modules shipped at the end of 2015. This situation is further exacerbated by developers’ pushing out plans to complete solar projects in 2017, now that the ITC has been extended beyond the end of this year.

In 2017, this competitive environment and oversupply are likely to continue, with global demand expected to grow only marginally in 2017 (4%) while module capacity continues to grow faster than demand. We predict 10% module capacity growth in 2017, putting additional price pressure along the entire module supply chain.

Slowing demand and increasing capacity, combined with high utilization rates expected from Tier-1 suppliers, will raise inventory levels and trigger lower prices. The gross margins of module suppliers will significantly drop in the second half of this year. Many of these suppliers are under extreme financial pressure, with precarious balance sheets. As a result, a further shakeout and consolidation in the industry is likely for suppliers that are unable to operate over the next two to three quarters at such limited margins. This seems a suitable ground for a next wave of consolidation of module supply; we expect Tier-2 average utilization rates to decline significantly in China from late 2016.

To aggravate the competitive environment, installations are predicted to grow in regions of the world that are applying increasingly competitive tender systems (e.g., the Middle East, Central and South America, and China), which force module suppliers and suppliers of other system components (e.g., mounting structures, trackers and inverters) to be increasingly competitive in terms of their cost structures and pricing to be able to supply developers winning those tenders. Solar PV is becoming increasingly competitive against other sources of energy, as demonstrated by the recent tender pricing in the United Arab Emirates for 800 MW with a bid price of $29.9/MWh or contracts awarded in Mexico to an equivalent of 1.7 GW of PV projects at prices below $48/MWh. This very low tender pricing will force suppliers of all components, including modules and BOS materials, as well as engineering, procurement, and construction contracts, to be more competitive than ever.

In order to maintain healthy - or, at least, sufficient - gross margins, module manufacturers continue to look for innovative ways to reduce their costs without compromising their module quality, as they all face evermore demanding and knowledgeable customers.

On the polysilicon side, producers are focused on maintaining high and stable utilization rates. On the wafer side, an important driver is the declining trend of poly conversion (g/W) - which we forecast to be around 4.5 g/W in 2020 - and manufacturers are focused on increasing the harvest per polysilicon deposition reactor, reducing the kerf by employing thinner wire and smaller grit size, and employing diamond-wire sawing. For cells, producers are introducing PERC technology and reducing silver consumption to reduce the costs in cell lines. Finally, for modules, the reduction of process consumables (e.g., reducing the thickness of glass or introducing cost-effective backsheet configuration) is currently the major contributor to cost reduction in module making.

 

Edurne Zoco is a senior manager and principal analyst for the solar research group at IHS Markit.