State of solar: More diversification than consolidation

The PV industry is fragmenting in terms of supply and downstream business models with the trend likely to continue next year.

NPD Solarbuzz

Benchmarking companies in the US solar PV industry used to be straightforward.

Some companies made key materials (polysilicon, wafers, cells, modules, or thin-film panels); others bought and sold these locally or through the value-chain.

Then project developers and installers added inverters and mounting and built the PV systems.

Customers typically released cash up-front, owned the systems outright and could then sit back and enjoy a revenue stream linked to a government incentive.

It may sound a bit like a history lesson, but this was the solar PV industry until just a few years ago: one of several phases in going from megawatts to gigawatts. Doing benchmarking then was simple.

But the shift from a few gigawatt annually to 35GW-plus this year, having module pricing in the 60-70 cents/Watt and seeing installed system pricing fall to $2-$3/W changed this legacy model overnight.* Anyone sitting pretty before (whether manufacturing, reselling or installing) had to change.

From 2011 onwards, these changes happened. Very few active in the industry today have a strategic roadmap that bears any great resemblance to the ones pitched to investors a few years ago. Those that clung on to module pricing dipping below the dollar per watt as being a temporary blip were finished. Installers that were contingent on local policies being maintained indefinitely were required to change business models, or get out of PV. And furthermore, new business models came on to the scene.

Indeed, what came into the industry – and in particular during 2013 – was a range of strategies on how to compete in this new PV landscape. A landscape that had gone global and was no longer about market-share gains in Germany, and was comprised of players that were not going to fit into any of the neat categories seen in the past.

In addition, installed system pricing levels could now usher in alternative financing schemes, with various types of free-solar, third-party ownership and crowd-funding – to name just a few. Coupled to this have been rapid increases in commercial and domestic energy tariffs and a far more pragmatic take on investments, where risk-free returns above 5 per cent can appear to be among the safest long-term bets on offer.

During 2013, a wide range of short-term and long-term strategies have been unleashed on the solar PV industry. In many cases, companies previously in direct competition at one stage in the PV value-chain are barely coming across one another; rather, existing in niche application or geographic based served addressable markets. (It is worth noting as the year-end top-10 charts are counted down.)

The rate at which certain markets have grown quickly (and barriers have been placed on other markets) has been one reason for this shift. Having domestic supply or brand in a rapidly growing market definitely provides a benefit, so long as business models can adapt. Being politically connected only adds to this.

Whether to manufacture or not is also more visible on the radar. Indeed, in this respect, the buzzword is flexibility and having the buying power to control supply through advantageous OEM deals (original equipment manufacturer). Choosing to land the problem of profitable midstream wafer or cell supply on a capacity-heavy lower tier manufacturer that lacks brand or global marketing prowess is simply sound business practice, nothing else.

The opportunity exists because many Asian producers wrongly assumed that having capacity and making product available represented a sustainable working model. Shipping crates to Europe and passing the point-of-sale responsibility to distributors only had a finite shelf time. Today, the market opportunity here is rapidly dwindling.

In a nutshell, there are now many different business models that are viable across different PV regions or application segments, where you can simply guarantee what the customer (be they a homeowner, project developer or utility) needs to fit their budget and timelines.

Only a few Asian firms (with patient and well-capitalised parent-companies or majority shareholders) can bypass the need for dynamic and flexible supply and sales strategies in the PV industry over the next 12 months. Having a long-term 5-10 year strategy is a luxury not available to the masses.

Therefore, while at the macro level, talk of global grid-parity and learning-curves makes for good reading, the reality is an industry that has never been more fragmented in terms of supply and downstream business models, with many companies now seeking to play on both sides of the fence.

Next year is likely to see more of the same. Indeed, some are now looking at the PV industry with a blank sheet of paper, no liabilities, and free to create a new business model that is different from existing market leaders. Whether these can co-exist, offer better value to the customer or are destined to fail before they start, will only become clear over the next 12-18 months.

Whether the PV industry follows any trends seen in legacy industries (consumer electronics, telecoms, semiconductor, etc) is also too early to call. But sitting back and waiting to see some orderly consolidation of me-too companies would appear to be rather naive.

The rollercoaster ride of the PV industry would appear to have more ups and downs ahead, before it emerges with a handful of global leaders with clearly-defined business models that makes the simple task of benchmarking once more a valid exercise.

Finlay Colville is vice president of SolarBuzz. This article was originally published by SolarBuzz. Reproduced with permission.

*All figures are in US dollars. $US1 = $1.10.

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