Chinese manufacturers are decisively positioned to best global competitors due to their capacity to build high quality, extremely efficient, solar panels products at a low cost.
There is no guarantee that China will dominant the market, however, I quickly arrived at the conclusion that it will be in a leadership position after speaking with Dr. Ralph Romero, who leads the solar PV bankability practice at Black & Veatch.
The solar manufacturing industry is presently in a situation of turmoil, Romero said. “Large manufacturing capacity developed as early as 2006/2007. The rush for increased capability -- especially among crystalline manufacturers -- has led to market demand not yet catching up with supply.”
That supply glut has left many operations below full capacity with capital being tied up in inventories, thus placing a strong downward pressure on pricing, he explained. The natural progression is that there will be a reduction in manufacturers.
The survivors will possess common characteristics: brand awareness, the ability to manufacture at a low cost, high performance panels, high quality, and a strong balance sheet, Romero explained.
While Romero was hesitant to “pick a winner,” he acknowledged that many Chinese manufacturers met those criteria. Other important competitive pluses include manufacturing technology, equipment, and personnel training.
Romero explained that the primary advantage Chinese firms have is in securing materials at a lower cost; materials represent the bulk of the cost of a module. Labor only represents a small proportion of the overall cost of producing a panel.
The U.S. government is pursuing a trade complaint against China, which alleges that its supply chain didn’t evolve naturally. One of the charges is an illegal markdown on raw materials.
China fired back saying that foreign competitors have been selling below cost, forcing Chinese polysilicon factories to reduce production. It will also investigate U.S. subsidies. Regardless, China’s production acumen could feed foreign competition.
There is a silver lining for overseas competitors: Chinese component makers could also help foreign manufacturers lower materials cost. Components are things like solar cells, encapsulates, backsheets, and junction boxes.
“I think today there are Chinese based component manufacturers that are world class quality. As those materials become more widespread outside of China, they will help cost structure of non-Chinese manufacturers,” Romero said.
Future trends: Novel technology improvements and consolidation
The solar market has been fueled by incentives across the world, and that trend will likely continue in places such as Germany, Romero said. There will just be fewer suppliers to meet that demand.
There are over 500 solar manufactures to date. Over 250 of those produce thin-film solar products. That sheer number of suppliers is unsustainable, and will almost certainly fall over the next 3-5 years, Romero stated. Companies that are lesser known are at a disadvantage even if they make excellent products.
“As the market grows we’ll start seeing consolidation, and hopefully those consolidated survivors will be more stable,” he said. Survivors will be masters at achieving higher quality products efficiently after citing a litany of common failure points common in today’s products.
Some are already pursuing improvements that could be incorporated into existing technology, Romero explained. “There’s still a lot of room for improvement from technology standpoint,” noting that there is room for start-ups developing novel new technologies to improve technology of existing manufacturers.
“I don’t see game changing technologies in immediate future.”
Editor's note: I reached out to several investment bankers for some more input, but no analyst wanted to go on record. Here’s some more information about Dr. Romero:
Dr. Romero’s practice has performed over 30 bankability studies (an accounting of a product’s design, performance, reliability, management, and operations) for PV module makers. B&V also provides consulting services. Romero has 25 years experience in the design and manufacturing of photovoltaic modules. He would not disclose his client list.