Solar's battle of attrition

Solar manufacturers will soon glimpse rays of light at the end of the dark tunnel they have traversed in recent years, according to a leading solar analyst. The catch is they have to get through 2013, a year that will be one of attrition.

Comeback

With prices falling by around 80 per cent in the last few years, margins have been slashed and many firms have been left on life support. The falls have shown no sign of ending just yet, but according to SolarBuzz, in its latest quarterly report, major changes in the competitive landscape should ensure greater pricing stability come 2014.

Before then however, corporate casualties will rise. The fall in market participants will enable market share gains for the leaders in the sector and decrease pricing competition.

“The increasing globalisation of PV demand continues to soften quarterly demand swings,” Michael Barker, Analyst at NPD Solarbuzz, said. “This will soon allow production and shipment forecasts to be planned with increased certainty. However, in the short-term, margins continue to be under pressure until the market rationalises at an appropriate supply/demand balance.”

Reality Check

Third quarter results highlighted the financial depths from which the solar PV sector must recover. Leading PV module manufacturers in the quarter faced increasing inventory levels (from 66 to 79 days outstanding) and declining shipments (down 7 per cent), to go with lower prices. The end result was a sea of red, downward revisions to fourth quarter sales forecasts and plenty of analyst downgrades. The only players to turn a profit had shifted focus further down the supply chain and were reaping success through more active participation in the development of large-scale PV projects.

The lift in inventory levels has been a direct result of inflated demand expectations, with firms hoping the traditional second-half boom in orders would eventuate. It hasn't; at least not yet. Full-year shipment growth has consequently been amended to around half that expected six months ago.

“Although the fourth quarter will provide a significant boost in end-market demand, it is unlikely to match the record levels seen during 2011 when year-end demand resulted in over 10 GW of PV modules being consumed in a single quarter,” Barker said.

Instead, demand is forecast to reach 8.5-9.5 GW in the quarter, leaving 2012 to fall just short of 30 GW, according to NPD SolarBuzz.

Figure 1: Global PV Module Production, Shipment and Demand Q3'12 - Q3'13

Source: Q3 NPD Solarbuzz Quarterly

Market share gains key in 2013

The report contends that increased consolidation and liquidation of lower-tier manufacturers will occur next year, leaving the industry less competitive than it has been for several years. Such a circumstance will slow the price declines in modules

The major change from this year will be the origin of the bankruptcies. In 2011 and ‘12, it has largely been European and US firms going under. In 2013, expect tier-2 and tier-3 Chinese firms to make the calls to liquidators.

While China has previously stepped in to prop up its solar sector, reports yesterday suggested Beijing has now set its sights on saving its top 12 solar firms only, likely leaving the rest to fall by the wayside or get gobbled up by their larger competitors.

“(Industry) restructuring will bring much needed stability to the PV industry in 2013, including reduced pressure on ASP declines, breathing space for manufacturers to focus on cost reduction, and gross margin recovery,” Barker says.

“With reduced competition in the market, leading module providers will be afforded greater access to downstream sales channels, allowing them to align production and shipment forecasts.”

For solar manufacturers, 2014 can't come quick enough.