On Thursday, manufacturer Applied Materials announced that it would stop selling its turnkey SunFab thin film photovoltaic solar manufacturing line and instead focus primarily on polycrystalline silicon solar technology.
So what does that say, exactly, about the prospects of the thin film solar segment as a whole?
I called up Chris O'Brien, head of market development, North America for rival firm Oerlikon Solar, to see what he had to say. After all, if the market is too tough for thin film, why is Oerlikon sticking with it?
Here's what he had to say.
SmartPlanet: Tell SmartPlanet readers, briefly, about Oerlikon Solar.
COB: Oerlikon is a holding company based in Switzerland, founded roughly 100 years ago. It has several divisions, from groups that make the cones on tips of rockets or the parts of Maseratis to those that make thin, hard films on flat-panel displays to high-end auto transmissions. It's a well-established technology company. We started in the solar space in 2003. We focused on thin film silicon for several reasons: one, we were able to license a technology from a university in Switzerland and trademarked it as Micromorph. It overcame a few problems with thin film, such as low efficiency. Microtechnology is one of the central tenets of Oerlikon's business.
The second [reason for focusing on thin film silicon] is offering end-to-end, turnkey technology. Historically, there's been a lot of difficulty in getting thin film production lines up and running to meet their expected capacity. Our turnkey solution was developed to mitigate that development risk. That model worked quite well -- we have roughly 13 customers, a total of about 600 megawatts of capacity sold throughout Europe and Asia. Nothing announced in the U.S.
Everything was going great, but then we, like Applied, were hit with lots of market headwinds. The first reason was the collapse of the Spanish market from No. 1, with almost 3,000 megawatts installed in a year, to having 50 megawatts installed in a year. The second [reason] was that Lehman Brothers and other financial entities went bust, which collapsed the tax equities market. The third [reason] was a price drop. Through 2008, a lot of the folks on the crystalline side thought the market was going to continue to grow, and there was a lot of new capacity on the market, particularly in the raw material used to make crystalline wafers. In 2007 to 2008, there had been a shortage. So the price went from $3.50 to $4 per watt to something on the order of $1.50 or $2 per watt.
Even with those headwinds we could see that the goal of our technology road map remains to develop a turnkey line by the end of this year that will have an expected cost of ownership of about $0.70 per watt. That target remains valid, even in the face of those headwinds. Our customers will be in a very competitive position.
The difference was that in 2008, that was perhaps an aspiration. After the paradigm shift, we had to get that in order for thin film silicon to be among the competitive technologies in the market. The good news is that we actually are on track for that target. By the end of this year, we expect to be selling equipment with an expected production cost.
SmartPlanet: OK, so we've established the market environment and how Oerlikon fits in. So why is Applied Materials cutting bait on thin film when you're sticking with it?
COB: With Applied, there are a couple of things going on. First, Oerlikon Solar had a couple of first-mover advantages. One was -- an important part of making a thin film module, there's a coating layer called a transparent conducting oxide, or TCO -- Oerlikon, from the beginning, had a TCO process that was integrated into the manufacturing process that allowed us to use a better material and make them better. Applied didn't have that at the outset and tried to develop it.
Oerlikon Solar was further ahead in the development of that Micromorph technology. As the market shifted, the impact was felt to a greater extent by those companies who were not selling a higher-efficiency thin film solar process. The majority of our customers are using the higher-efficiency technology, and are better insulated against the headwinds. Part of it was just the pace of technology development. I have a lot of respect for Applied, and they have the capability to get there. But they were struggling to get their Micromorph equivalent working well. Their customers had a competitive disadvantage.
Applied is continuing to work on thin film solar technology, at an R&D level, and just pulling back on their production and sales. They certainly have a lot of capability from their other businesses. The commercial decision on their part was that they were not at a point where they felt that they could ramp it up as expected.
SmartPlanet: But Oerlikon can?
COB: I think we're in a better position, but I would emphasize that we're feeling the same market pressures, and we don't have a lot of headroom on our technology road map. We're very focused on the execution of our technology road map and we recognize that we really need to be. First Solar are already today producing solar at $0.80 per watt, and many Chinese companies have solar that are well under $1.50 per watt, and edging downward. There's a general trend toward more and more competitive PV [photovoltaic] production costs.
Thin film solar can be competitive if you're producing it at $0.70 per watt or lower. Now we just need to prove our ability to do that.
The other point that I would emphasize about the broader market is that demand has been growing much faster than expected. End-market demand is expected to be 12 to 14 gigawatts [of capacity for the year], roughly double last year's market, which is extraordinary. This is all despite the fact that the number one market, Germany, has seen substantial cuts in their market. There's some uncertainty about what's going to happen with their feed-in tariff, but the broader trend is proving out pretty well. We're pretty bullish on the overall growth prospects of the market.
Go back a year. There were a lot of pundits opining about an extraordinary glut in capacity that would take years to work through. But in the market today, if you talk to installers in most major markets, you're hearing that they can't get the module that they want. There's a real shortage of qualified modules. As a result, the prices of crystalline modules have leveled off. The prices of crystalline cells have leveled off, or even gone up. The reality is that only a portion of that capacity is able to supply competitively priced modules for that market.
With those two trends, there's very likely to be a need for new capacity. We're starting to see a shift. Our customers are expecting that there will be a stronger market going forward, only if it can hit a cost of production competitive with market leaders.
Today's market is roughly 80 percent crystalline and only 20 percent thin film. Of that 20 percent thin film, the majority of that is First Solar. If you're looking at the size of addressable markets, most expected crystalline will continue to grow...thin film's share will grow, but it will be five years or longer until it comprises a majority of the market. They have a lot of smarts to improve the technologies they have and sell those to the companies that represent the majority of the PV market.
SmartPlanet: If First Solar already has the majority of the thin film market, and thin film is only a small portion of the entire solar market, what's in it for Oerlikon?
COB: We continue to believe that thin film solar offers somewhat of a unique combination: it's a proven technology [and has been] for close to 30 years, unlike some of the newer, exotic technologies being developed. A long track record is important.
At the same time, we have a lot of value to add in getting the cost down. We're among the folks that are uniquely positioned to achieve cost reductions, and we think we'll achieve cost reductions quicker than crystalline technology, which has been in the market for 40 years.
I've heard some anecdotes about crystalline silicon that people are starting to hit limits in the cell thickness -- nearing 150 microns. Getting thinner than that, and thereby reducing cost, really requires a redesign of the whole rest of the line, and the way you handle wafers downstream, because they become more fragile. A lot of the growth in crystalline silicon was the result of a supply-demand issue.
Some of today's cost leaders -- Sun Tech, Trina, Solarfun-- are achieving some dramatic improvements in the cost of production. But that said, we feel pretty good about the odds -- that if you're starting new production capacity today, over time, thin film silicon has a greater potential to reduce costs further.
This post was originally published on Smartplanet.com