Chapter 5 The Supply of Solar PV in the United States
5.7 Outlook for U.S. PV Suppliers
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The SunShot Initiative enacted by the U.S. Department of Energy in the year 2007 has put in place directives and goals intended to foster PV manufacturing in the U.S., including the PV Incubator Program, the Photovoltaic Supply Chain and Cross-Cutting Technology projects, and the Scaling Up Nascent PV at Home (SUNPATH) program. Separate from the SunShot Initiative, the U.S. Department of Energy also has the Advanced Research Project Agency-Energy program (ARPA-E), which has awarded funds to a silicon PV company to support research.
5.7 Outlook for U.S. PV Suppliers
The incentives put in place in the mid-2000s in several countries led to a surge in companies producing PV products. By the year 2011, there were more than 1,000 companies worldwide producing PV materials, components, and equipment. The lower prices for polysilicon and PV cells and modules have made it impossible for many PV manufactures to operate without sizable loses. The prices of polysilicon and PV cells and modules continued to fall in the year 2012 due to the continued problem of oversupply that hit the PV market strongly in the year 2011. “Blended module ASPs for Q4 2012 were down to $0.68/W, a staggering 41% lower than Q4 2011 levels of $1.15/W” (SEIA, 2013f).25
The two main markets for U.S. exports are Canada and Germany, and Europe as a whole accounts for about one third of the total. Due to the Information Technology Agreement (ITA), U.S. producers of PV cells and modules do not face tariffs on their exports, and tariffs for poliysilicon are mostly either very low or non-existent in destinations that are PV cell and module producing countries. Other barriers do exist for U.S. PV exports though, such as local content requirements and related policies that exist in countries such as Canada, Italy, and India. Regular customs taxes and specific product standards also make it harder for foreign companies to ship their products, as well as subsidies that support local producers (Platzer, 2012). In order to support U.S. PV Making matters worse, some producers are trying to expand production capacity in order to reach greater economies of scale and further cut costs in order to survive the environment of low prices. In this sense, low prices have helped create a vicious cycle of increased capacity and unhealthy margins.
25 ASPs represents average selling prices.
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producers in their effort to expand exports, government programs and banking funds have given direct loans as guarantees for exporting solar modules in some cases.
Although oversupply has made it difficult for many PV producers in the United States to achieve healthy margins, there may still be hope for U.S. companies able to weather the current storm. Demand for solar PV systems remains healthy and will likely continue to grow. However, demand for PV systems in the U.S. will not necessarily be enough to ensure survival for some of the companies that are struggling to remain solvent.
“… even if the popularity of solar systems grows, falling equipment prices are likely to further challenge the profitability of manufacturers and interfere with efforts to sustain a solar manufacturing base in the United States” (Platzer, 2012).
The solar shakeout is continuing with financial woes by many PV manufacturers being complicated by slowing growth of PV demand in Europe. Increases in domestic PV demand in the U.S. won’t necessarily result in a healthier environment for U.S. PV component manufactures. Between the year 2008 and 2010, Germany more than quadrupled its solar PV capacity. During the same time, installed PV systems in Germany that used PV modules manufactured in Germany declined from 77 percent to just 27 percent (Borenstein, 2012).
Current technology limitations to PV system enhancements could require significant research and investment procurements in order to achieve drastic industry changes. If new machinery for large-scale production capacity is needed to implement new production technologies, vast amounts of financing will need to be made available for PV component suppliers. Capital upgrading will likely be difficult or impossible for PV manufacturers considering the current market environment of low or negative margins and high debt.
Vertical integration along the PV products supply chain is becoming an increasingly popular strategy among the tier 1 PV producers; however, the global PV market in general is still reliant on a large network of component suppliers. The advantage of vertical integration of PV components and materials for PV manufacturers is better control over the entire manufacturing process. Producing their own materials to supply production for finished products also reduces the problem of timing deliveries and
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potential supply constraints caused by production and supply problems from other companies (Platzer, 2012).
Historically, there have not been great technological differences between most PV products and systems regardless of origin. Most manufacturers have had little opportunity for product differentiation and customization in order to achieve a competitive advantage over other producers. What has been more important is the net result, that is, the amount of electricity produced by the product for a given price (Platzer, 2012). However, this trend seems to be showing signs of changing. As mentioned in chapter 3 of this thesis, product differentiation and localized PV product specification requirements will likely play a more important role in a company’s ability to secure market share. The current market environment for solar PV demand suggest a shift from standard mass produced products shipped to various markets to one of unique micro supply and demand segments.
“These segments can be differentiated by the type of PV suppliers preferred, the technologies of the modules required, the supply channels in play and the returns that can be expected” (Colville, 2013b). This will create new challenges and opportunities for existing manufactures over the next several years and may significantly affect the viability of many U.S. suppliers in the future.
Large Chinese PV producers will have a strong advantage with Chinese domestic demand for PV systems increasing sharply but will no longer necessarily be able to use their economies of scale alone to penetrate the U.S. PV market. This is partly due to the trade wars and domestic protectionism within the global PV market, but it is also a result of market segmentation. Companies that are not leaders in their own domestic market will likely have difficulty allocating the resources needed for specialized outside markets with unique requirements. This will apply to U.S. suppliers as well (Colville, 2013b).
5.8 Summary
The United States was once a global leader in manufacturing PV components.
The global share of PV supply was first ceded to countries like Japan and Germany as manufacturers there increased production to meet increasing local demand. In the second half of the 2000s, as European PV growth surged, countries such as China and Taiwan ramped up PV production capacity in order to capitalize on the emerging global PV market. By the end of the decade, PV production capacity was outpacing global demand,
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which lead to the solar shakeout that began in 2011. The solar shakeout has continued, and many U.S. PV cell and module producers have had difficulty competing with the huge economies of scale that exist in Asia.
Falling PV component prices as a result of global overcapacity has placed pressure on U.S. manufactures, and many producers have become insolvent over the last couple of years. PV module and cell prices have shown some signs of stability in the year 2013, but the challenges of low margins continue. Polysilicon oversupply has caused prices to dip below the cost to produce it. The end to the polysilicon overcapacity is nowhere in sight. This will be a concern to polysilicon producing companies in the U.S.
considering it is a major global supplier of the material.
As the global PV market matures, domestic content preferences and local technical requirements will create new challenges for U.S. and global PV suppliers alike.
Even if the global oversupply of PV supplies subsides, U.S. PV manufactures will need to be able to produce low-cost components in an increasingly competitive market. PV customers are increasingly concerned with efficiency and reliability. These companies will need to find the funds needed for necessary capital upgrades in order to produce the PV products customers require in the future. PV manufacturers in the U.S. that fail to thrive in the domestic market will not likely fair well on the global stage.
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