Dramatic price forecast to reshape PV industry: iSuppli

I was very fortunate to attend a webinar on solar PV a couple of days back, thanks to iSuppli, USA. The webinar looked at:

* Polysilicon — what is going on in the market?
* Cells and modules — where will the prices go?

Dr. Henning Wicht, senior director and principal analyst, iSuppli, made it clear that the intention was to show what’s coming out of primary industry research.

He said: “We believe that solar is a fantastic market. It has been growing over the last four years by revenue. It will continue to grow! There are not many industries with a growth path like that! However, in last the 18 months, the supply has been disconnected from demand.”

This is exactly the point iSuppli addressed in its webinar. Dr. Wicht was accompanied by Stefan de Haan, senior analyst, photovoltaics, iSuppli.

iSuppli’s recent findings are:
* Severe supply chain imbalances exist at polysilicon/wafer and cell/module levels.
* Short term polysilicon and module prices will decrease significantly.

Polysilicon: What’s going on with supply and pricing?
If you looked at the global solar PV industry, many plants are under construction, and there are huge capacity expansion plans. There has been a dramatic decrease in production. In 2008, iSuppli estimated total production of solar PV at 60,000 metric tons. In 2009, about 100,000 metric tons will be produced!

What are the reasons for this supply situation? In 2005-06, the high margins of this industry attracted several newcomers. The cycle time to ramp up a polysilicon plant is 24-36 months, and including another 12 months to get finance, it takes about four years.

He said: “The decisions taken in year 2005-06 are coming to the market now. This is also why we see the big ramp in 2009-10. This is also the reason why the industry will have big difficulties to react on a short term notice. The polysilicon industry is a big super tanker, which has difficulties to maneuver on short term.”

Looking at the demand side of things, iSuppli showed a graph where the two curves — polysilicon supply and polysilicon demand meet, or rather cross, in early 2010. From that point on, the supply line passes the demand line. “That means, from that time onward, we definitely see prices for polysilicon decreasing,” he said.

What will happen in 2009?
The key point to note is that the ramping rates of polysilicon and solar cells are completely different! The ramping rate of polysilicon is much steeper, than on the cell side. Polysilicon is more than doubling, while the cell industry is growing at 34 percent.

According to Dr. Wicht, the gap between demand and supply is already shrinking fast in 2009, which will lead to a price decrease in 2009.

Coming to prices, the polysilicon market boasts two kinds of prices — long term and spot market. According to Dr. Wicht, the long term prices are already decreasing from around $100/kg in 2008, and it is expected to be around $80/kg in 2009.

On the other hand, the spot market price peaked in 2008 at around $400/kg. Now, it has already dropped. It will continue to drop, far beyond today’s long term contract price, which will then, from 2010 onward, make up another round of discussion. This is because companies might tend to get out of their long term contracts to secure their silicon on the spot!

Summarizing, he said that polysilicon production will increase heavily. Next, supply will pass demand from 2010 onward, and then the industry will enter the oversupply situation for the next three to four years. The polysilicon industry will also react. In fact, iSuppli anticipates a recent announcement from a solar PV company to expand production capacity would be the last for quite a while!

What about projects on the way? These projects have to come on to the market and many of those will! This is precisely the reason why the industry will see silicon passing solar cells in capacity over the next few years.

Stefan de Haan added that the output of the PV modules industry will grow. The total module prod will likely grow to 11GW this year and to 20GW in 2012. Thin film modules will continuously gain market share and it probably account for 1/3rd of the total market by 2012. Production of crystalline cells will run in parallel. It is likely to reach 9GW for 2009 and 18GW for 2012.

Commenting on the competitive landscape, he added that many new players would be entering production in 2009, especially in the thin film business. “However, the current leaders — QCells, Suntech and First Solar — will increase their edge over the competition in terms of absolute production volumes,” he said.

In general, it is a good thing that the industry is growing and that all of this capacity is coming online. However, this raises the question: can demand can keep up with the supply?

According to iSuppli, in 2009, the installation market will be flattening. In the sense, iSuppli projects that 4.2GW will be installed this year, or about 10 percent growth. However, this growth is much smaller in comparison to the previous years. Some of the reasons for slower growth in 2009 include changes in sustained feed-in tariffs and the global economic slowdown.

Hann added, “In H2-2010, module demand will probably return to the previous growth rates, of more than 20 percent per year.”

Combining demand and supply, there is a massive oversupply of modules that has already been building up since early 2008. Back in 2008, this did not impact on the module prices as there was short term heavy demand from countries like Germany and Spain, from project developers and installation companies, etc. So, this was not noticeable earlier. However, in 2009, the oversupply situation is quite serious!

As a consequence, many suppliers will not be able to react to this situation in the short term. They will still need to run their factories to try and generate some revenue and satisfy the industry. Many had bet on some strong demand coming from USA and also China.

This year, the module prices will decline. Consequently, the declining prices will also create some additional demand. However, for the next two years, this fundamental oversupply situation will not change.

How far will prices drop?
So, what are the message for 2009? First, crystalline module prices will drop to about $2.50 per watt, and second, cost is going to be the differentiating factor! This was a point emphasized strongly by the iSuppli analysts.

Further, how should companies manage this situation, where supply is disconnected by demand? According to Dr. Wicht, there is 11.1GW of module supply vs. 4.2GW of installations. “We do not see that the demand is elastic and that everything will be good after the end of 2009. The gap is too large between demand and supply, and will last till end of 2010.”

Installation capacity will surely become a bottleneck. There will be falling prices for silicon, as well as solar cells and modules. Also, the demand is not that elastic enough to absorb all modules produced.

Therefore, given this situation, what are the options for success, rather, what are the ideas to re-orient the solar PV business?

The first option could be to shut down 50 percent of production till price recovers. However, this is not a realistic option. Another could be to put expansion plans on hold. Yet another option for producers would be to become the best in class in production cost, an option, which is excellent, but difficult!

Probably, the best option would be for mak
ers to integrate downstream. This includes new demand simulation in established markets as well as developing new markets.

Dr. Wicht said: “Anticipating bottlenecks are key for solar. The next bottlenecks are the bureaucracy and installation capacity. The production capacity would not be influential. Production cost and downstream integration are key.” He advised solar PV producers to monitor their PV market demand and supply situation regularly.

Solar/PV is just right for India

There have been significant investments in the solar/photovoltaic space in India in the recent past, and that does not look like ending any time soon.

Given the ongoing global financial crisis, and the state of the global semiconductor industry, it appears that India has bet quite successfully on the solar/PV segment. In fact, it seems that solar/PV is just right for India! In fact, it may just kick off the kind manufacturing activity India really needs.

Poornima Shenoy, president, India Semiconductor Association (ISA), says that solar/PV is right for India for a variety of reasons.

Firstly, India has among the highest solar irradiance, globally. Secondly, it is established as a low-cost producer and assembler of solar PV cells and modules. And thirdly, India has among the best quality reserves of silica in the states of Orissa and Andhra Pradesh.

She adds: “At present, solar PV may not seem to be an attractive option, primarily due to high generation costs. However, in the coming years, with increases in fossil fuel prices, rising environmental concerns, and a reduction in the cost of solar PV technology, it is likely to become a major source of energy.”

The ISA expects 2015 to be an important year for the solar/PV industry. Around this time, the product cost of the Indian solar PV industry is likely to match the semi grid parity (peak power) globally, and also to match the grid parity within India.

The four major segments offering maximum potential in the coming years for solar PV in India are: rural electrification — decentralized distributed generation (DDG); grid interactive solar PV power plants; backup power for telecom (base transceiver stations); and roof-based solar PV systems.

ISA-NMCC report on solar/PV
The ISA recently released a report on the solar PV market in New Delhi with NMCC (National Manufacturing Competitiveness Council).

According to the ISA-NMCC study, of the US$71 billion invested in new, renewable energy capacity globally in 2007, 30 percent of was in solar PV. Solar PV is the fastest growing area in the energy sector, with a CAGR of 47 percent over the last five years. The grid-connected solar PV segment saw 50 percent growth in 2007.

As per the report, the solar PV industry is likely to grow four-fold by 2011. However, there are various uncertainties in the short- to medium-term on both the supply and the demand side.

On the supply side, the main constraint is the lack of available polysilicon. The demand side is limited by the quantum of incentives for solar PV.

Gradually, there will likely be improvements in technology. The decreasing cost of manufacturing could drive the preferential tariffs lower, and ongoing demand for PV products could also attract significant investment.

As for the global solar PV supply chain. Thin-film production is one of the fastest growing segments in solar. The lack of available polysilicon is limiting growth, and this has led to the emergence of thin-film technology. This technology has enjoyed substantial growth since 2005: 80 percent in 2006 and over 100 percent in 2007.

Top 20 global solar photovoltaic companies

Alright folks! This has taken some time coming, but it is worth the wait! Presenting the Top 20 solar photovoltaic companies during Q1-2008. May I add here that I am extremely grateful to iSuppli’s Jon Cassell for giving me this opportunity.

I was also fortunate enough to discuss this table with Dr. Henning Wicht, Senior Director, Principal Analyst, iSuppli Deutschland GmbH, in Munich, Germany.

Parameters for rankings
First up, what were the parameters used by iSuppli to determine the top 20? According to Dr. Wicht, the top 20 cell-companies have been ranked by production in 2007 and by announced production capacity 2010. He clarified, “Ranking by revenue is not applicable because many integrated manufactures publish compound revenues for cells, modules and systems.”

Yes, there have been several announcements in the solar/PV space, in India, and globally, and some names could be missing here. However, the new cell manufacturing projects will be included as soon as they are announced.

Coming back to the topic, it is necessary to examine the role of subsidies. While photovoltaics have been getting cheaper, Dr. Wicht said that subsidies were still necessary to support the PV markets. “It shows that the time grid parity shortens faster than expected earlier. As an example, for Germany, the grid parity might be achieved in 2015, which is two years earlier than expected in 2007.”

That is to say, the support programs are benefical, both to support markets to become independent sustainable and to develop the regional industry.

Global interest in solar/PV
Critically, there seems to have developed a sudden interest in solar/PV, starting late 2007, when this (solar) has been around for some time. How has this happened?

According to Dr. Wicht, raising CO2 levels generated through fossil energy, CO2 certificates, rising prices of fossil fuels, political dependency from oil exporting countries drove the Kyoto protocol to reduce CO2.

“Renewable energy is a major pillar to achieve that goal. European governments have been frontrunners to implement and execute that goal. That said, solar has been around for a while. Japan was the first significant market. However, on a global basis, it took off in Europe from 2005 onward,” he noted.

With the spate of initiatives in solar/PV, can it not turn out to be a case of too many folks entering the same line?

Sure, over and undersupply happens along the supply chain! The iSuppli market research figures out imbalances, which drive prices/margins up and down.

Also, isn’t there a chance of solar/PV getting commoditized, or has it already become one? Well, PV modules are a commodity product, said the analyst. The market is still in its infancy and it will continue to grow for the next 10 years and further. The overall saturation will come, but still some years to go.

Is solar helping semicon?
Some industry folks have been saying that the solar/PV initiatives are not really helping the overall semicon industry, a statement I agree with as well. Also, it may only be benefitting some of the equipment makers.

Dr. Wicht said: “Indeed, semicon fabs are not able to produce competitively solar cells and the solar need for semiconductor devices is rather low. The semiconductor companies, however diversify into PV, e.g., Qimonda with a new cell production. Intel is investing in several PV companies, LG is investing in Conergy, etc., or supplying devices for power conversion, e.g, National Semiconductor. However, the overall impact on the semicon devices market is rather low!

Solar, semicon on par?
iSuppli made a forecast some time back regarding investments in solar and semiconductors being on par by 2010.

The investments for solar cell production raising up to several hundreds of Mio USD, up to 1 Bio $ per production site. That is coming close to a semiconductor fab. The total capex of semiconductor is still 10 times larger than PV. However, PV is rising much faster.

Magma's YieldManager could make solar 'rock'!

Make no mistake, folks! The EDA guys are getting their act together to penetrate the solar/PV segment!! Magma’s YieldManager is a great example of that effort! Yes, we all know the troubles of the EDA industry as well as of the key players. However, let’s not ignore this initiative from Magma!

Recently, Magma Design Automation Inc. announced the development of a new yield enhancement software system, the YieldManager software system, which is customized for solar fabs to improve conversion efficiency, increase yield and reduce the manufacturing costs of solar cells.

Magma is collaborating with Pegasus Semiconductor-Solar to refine the product specifications and test the new product, based on Magma’s YieldManager.

This is an interesting development, especially from the point of view of the solar/PV industry! Even more significant is the entrance of the EDA community [the one being Synopsys] into solar/PV, a segment, which has witnessed a substantial amount of investments worldwide, and specifically, in India.

It was fun catching up with Ankush Oberai, VP, Failure Analysis Business Unit, Magma Design Automation, in Silicon Valley, to find out more about the YieldManager software system, what it can do for the solar/PV industry, and why Magma decided to venture into an ‘unchartered territory’.

The first and most obvious thing, why YieldManager?

Ankush Oberoi says that in semiconductors, yield impacting parameters which are regularly monitored are mostly extrinsic, i.e., from outside, such as particles, over-exposure, under-exposure and miss-processing. In solar cells, the yield impacting parameters are mostly intrinsic, that is, something built into the solar cell material which can NOT be easily seen. Thus, a different “eye” is needed to see the solar parameters. The “eye” is the YieldManager here!!!

It would NOT be either inspection tools or litho optical proximity correction (OPC) detector. The solar cell efficiency is directly influenced by electro-physics of solar materials. A YieldManger is required to monitor any changes in those efficiency impacting parameters.

The most important parameter is the lifetime of current-generating carriers. As the solar energy generates the “hole-electron” pairs, they are collected separately as electricity.

If the solar material is “dirty” with many crystalline boundaries as in thin film solar cells, the solar generated hole-electrons get pulled into those crystalline boundaries and do not contribute to the electricity generation.

“Thus, if we can find a solar yield management system to detect the very subtle change in carrier lifetime, then we are at home with a greatest Home Run in solar cell business,” he contends.

Given the EDA background, why did Magma decide on a yield management technology?

He adds that yield management technology was acquired by Magma as part of the Knights Technology acquisition in Nov 2006. Magma’s Fab Business Unit (formerly, Knights Technology) is a pioneer (since 1994) in yield management for semiconductor technology.

The product is deployed and used in leading fabs around the world to help manage production wafer yield. Yield management has also been deployed for mask making and LCD productions.

It would be interesting to know how Magma’s new product will allow solar fabs to better monitor all metrology, inspection and performance data throughout the manufacturing process.

Oberoi says: “For Si wafer solar cell, the most important parameter to monitor is the solar conversion efficiency impacting parameters. An example would be a carrier lifetime.

“If the carrier lifetime fluctuates more than normal, the solar Yield Manager will quickly examine all of the key data, i.e., metrology, inspection and performance data, to pinpoint out potential root-causes of the fluctuation problem.”

For thin film solar cell, particles, laser cutting integrity and film thickness uniformity would be main things to monitor. Those data are quite similarly collected, as in semiconductors, and would be monitored as similar ways. The Solar Yield Manager would do well as proven in semiconductors in this case.

Next, it is important to find out how will the YieldManager enable fab operators to identify and correct root causes of solar-efficiency and yield degradation caused by subtle fab processing fluctuations or instability.

According to Oberoi, the carrier lifetime, which could be caused by various factors, is the most critical parameter to monitor for achieving and maintaining the good solar conversion efficiency.

He says: “As the Solar Yield Manager carefully monitors those factors, blindly committing ~400,000 wafers a day can be eliminated, when critical process instability starts appearing and persists. The solar conversion efficiency impacting factors could be monitored differently by different solar fabs.”

Some fabs may not have capabilities to monitor those factors. The Solar Yield Manager would define those metrology and performance tool requirements, when released.

It is also interesting to learn how improving the energy conversion efficiency, reducing the manufacturing costs and increasing the yield of silicon wafer-based solar cells are critical to the growth of the solar market.

Currently, the Si wafer for solar cell costs $2~$2.5/watt due to the severe shortage of Si. The selling price of a solar cell is $3~$3.5/watt, that is, the material cost is 60~70 percent of the solar cell price.

No market or industry would prevail with the 60~70 percent material cost, adds Oberoi. Thus, every milli-watt squeezed out of a solar cell would be very critically important for proliferation of solar industry.

In order to increase the power output of a solar cell, the solar conversion efficiency must be maximized. Once maximized, sustaining the good solar efficiency is the name of the game in the solar cell manufacturing business.

The effective manufacturing cost will be drastically lowered, if bad solar cells with poor solar efficiency is minimally produced. That is, some fabs will use ~400,000 wafers a day to generate ~500 M-Watt a year, whereas some ~450,000 wafers to do the same with poorer solar efficiency.

Innovation in the solar fabrication process must be accelerated, and today, no other enterprise-wide yield enhancement software exists for solar fabs.

Oberoi says: “Solar cell is an old technology, but a very new industry, simply because not enough money was being invested. Now, money is pouring into the solar industry and products like solar Yield will start to appear. It is not known yet that anyone commercially has tried to develop a similar product.”

Global estimate of solar/PV industry
There are several publications with recent estimates. The annual solar cell installation in the world: Germany ~46 percent, Japan ~23 percent, USA ~9 percent, Spain ~6 percent, Italy ~4 percent, the rest of Europe ~1 percent, the rest of Asia, including India and China ~6 percent, and the rest of world ~5 percent in 2006.

Magma is currently in the design and implementation stages of the product and plan to have version 1.0 of the product commercially available in Q1-09. The company has targeted solar fabs based in Asia that are eager for early implementation of the solar yield product.

Right then: those planning or having solar fabs! Now’s the time to test that home run theory with the YieldManager.