Study Finds Ample Opportunities In Solar For New Entrants

As the burgeoning solar and wind power markets continue to expand, industry value chains are looking to adopt measures to sustain anticipated growth. For many component producers, the market growth rate will translate into a need to increase existing capacities, build new plants and spread out to new geographies.

According to a recent study performed by Frost & Sullivan, markets for certain components of the solar and wind markets will present budding opportunities for new entrants, as growth rates are expected to exceed present manufacturing capacity.

‘The rapid expansion of wind and solar power installed capacity led to supply chain constraints when critical components became scarce,’ says Alina Bakhareva, Frost & Sullivan's research manager in renewable energy. ‘Fueled by generous government support, component manufacturers were not able to keep up with market expansion rates.

‘The crisis alleviated the strain to some extent, as some projects were delayed or put off, curbing demand,’ she adds. ‘However, post-recessionary growth rates could make supply shortages reappear, thus component manufacturers have to expand their existing production capacities to reach new markets.’

Many European and U.S.-based manufacturers are setting up shop in Asia in order to take advantage of cheaper labor and component prices. In addition, with the number of consumers increasing in this region of the world, manufacturers recognize the advantages of placing production locations closer to areas of high demand, the study adds. Both wind turbine and solar module manufacturing facilities have started appearing in low-cost countries such as China, Malaysia, Taiwan and the Philippines.

Some components and raw materials require deep technological expertise and extensive production experience in order to produce a competitive product, creating high barriers for new entrants. At the same time, there are other markets in which both experience and expertise can be rapidly gained. Thus, it is potentially easier for new manufacturers to enter or expand into these parts of value chain, the report found.

‘The interest towards renewable energy industry has been mounting and while early pioneers have been able to take advantage of the high growth rates already, there are other manufacturers that are evaluating the sectors and pondering on entry strategies and product strategies that will allow them to start catering to this burgeoning market,’ the report stated.

However, a key restraint that may hinder these progressive attempts is the lack of assurance of government financial support. With national budgets overstretched and an increasingly high level of budget deficit in some countries, funding expended to renewable energy markets in Europe and across the globe may not be reliable. Component manufacturers must consider expansions carefully if the government support is reduced dramatically to avoid being faced with overcapacities, Frost & Sullivan said.

SOURCE: Frost & Sullivan

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