I started working as a solar industry analyst 10 years ago, and over the last decade, I have been a direct witness of the industry’s development and expansion. The growth has been extraordinary and surpassed the most optimistic forecasts, including my own!
Edurne Zoco
Back in 2007, less than 5 GW was installed globally; last year, it was almost 78 GW. At IHS Markit, we are currently forecasting that 90 GW of solar energy will be installed in 2017, and we could even reach the magic 100 GW threshold by next year, thus representing 20x growth within one decade.
Because the solar industry is remarkably dynamic, it would be impossible to summarize in 2,000 or so words everything that has happened in the last 10 years – in fact, we would likely need the entire October edition just to cover what has happened since the beginning of this year. Therefore, this article is intended to be a succinct overview of what, in my view, have been the five major trends shaping the global PV module market since 2007 to bring it to its current state.
1. China runs the solar show.
In the last 10 years, global PV manufacturing has moved from Western countries and Japan to China: Chinese manufacturers have become the indisputable leaders of most nodes of the supply chain. Of the top 10 module producers in 2016, seven were Chinese. For cell production, five of the top 10 were Chinese; for wafers, all 10 were Chinese. For polysilicon, there were five. Historically, the Chinese presence in polysilicon production had been less. However, the Chinese share has been rapidly growing since 2014 and is expected to reach 53% of total polysilicon capacity by the end of 2017.
This dominance at the upstream level has been accompanied by an astonishing growth of installations in China, making it the largest solar PV market. To illustrate, in 2007, PV installations in China practically did not exist, with the exception of some isolated systems mostly in Western Chinese provinces. This year, IHS Markit predicts that installations in China will exceed 45 GW, to be at least 50% of global installations.
2. Scale and cost reduction have made solar the most affordable source of energy in some regions.
The growth of solar demand during the last decade has allowed economies of scale to help reduce the production costs of solar modules, with lower prices generating additional demand. In quantitative terms, the annual module manufacturing capacity has multiplied by a factor of 20 since 2007 to respond to the explosion of demand.
C-Si module manufacturing capacity grew from 28.7 GW in 2010 to 116.4 GW in 2017.
During this period, the manufacturing costs for all players have declined significantly. This is mainly due to efficiencies of production, product and material innovations, and economies of scale. Automation of process technologies has increased the throughput of the lines within the factory, allowing more panels to be produced per year. On the material side, both the silicon and consumables have been reduced or lower-cost materials have been substituted to cut the material cost. Incremental technology improvements have been applied to the contact points on the cells or the lamination patterns on the modules to increase their performance. The average efficiency of commercial silicon modules has improved in the last 10 years by about 0.3 percentage points per year. All in all, in this very competitive environment, module production costs have declined by more than 70% in just the last six years.
3. Policy changes, trade disputes and legal barriers continue shaping the PV module industry.
The solar power industry has required, since its beginning, different forms of government support (such as feed-in tariffs or investment tax credits) to compete increasingly against conventional energy sources. To date, solar industry development is still greatly influenced by policy and economic regulations. 2017 is a very clear example of how much policy changes, trade disputes and legal barriers continue to affect the development of the global solar industry.
Trade disputes and legal barriers have had a great impact on the module manufacturing industry in the last two years after the U.S. followed Europe in imposing import duties to cells and modules manufactured in China and, since 2015, extended these import duties to Taiwan. Of the top 10 module manufacturers by shipment, eight are Chinese; to serve the U.S. and Europe, they needed to have access to cell capacity and production outside of China. It can be affirmed that the major trigger on building more than 13 GW of cell capacity by the end of 2016 in Southeast Asian countries was the presence of continuing trade disputes.
Not only module and cell manufacturers have been affected by these regulations. The polysilicon market has been equally affected by existing duties on polysilicon imports to the Chinese market, which has created a distorted and dual polysilicon market with different demand levels, product availability, and pricing inside and outside China.
4. Business models: from vertical integration to increased specialization.
Although Chinese suppliers are expected to continue to dominate solar module production, the industrial landscape is not set in stone. The business model of vertical integration, from wafer, to cells, to modules, was of great value in the early stages of the solar industry to balance fluctuating demand and supply and to reduce costs quickly through fully controlled in-house production.
Asian companies that followed this business model (e.g., JinkoSolar, Trina Solar, Canadian Solar and Hanwha Q CELLS) are now among the largest module makers. Yet, as the industry matures, a split-up into specialized areas is more likely to leverage scale and spend less capital; there have been movements in this area toward more outsourcing of the nodes that are most upstream (polysilicon, ingots, wafers) and a greater focus on internal expansion of both cell and module production capacity.
Moreover, the solar market offers long-term growth, which makes it interesting for investment. Despite the intense competition, new investors and business models might appear, and the list of top 10 module suppliers can continue to change as it has done so for the last 10 years.
5. The continuous search for high-efficiency modules.
At the technology level, c-Si modules have been confirmed as the main technology. While thin-film accounted for almost 10% of the total production market in 2007, it is forecast to reach only 6% in 2017. The major reason for this decline was the reduction of c-Si production costs in the last decade at the same time as cell and module efficiencies were quickly ramped up, which made c-Si the technology choice for most installation segments.
Within c-Si technology, Al-BSF cells have dominated the PV cell market for the last decade. IHS Markit forecasts that this technology will retain its leadership until 2020 because of its track record and lower production cost. However, it is facing increasing competition from other higher-efficiency cell technologies (e.g., PERC, HJT or IBC) because the module industry is changing to meet the increasing demand for products of higher efficiency. Thus, most expansion of cell production capacity is for high-efficiency products. IHS Markit forecasts that more than 50% of new capacity installed in 2017 will be high-efficiency (PERC and n-type) technology. PERC cell production capacity, which was only 5 GW in 2015, more than doubled in 2016 to reach 11 GW, and it is projected to increase to 46% of global cell capacity in 2020.
Another important trend is the rise of monocrystalline technology as suppliers seek higher efficiencies in order to differentiate themselves. IHS Markit forecasts that monocrystalline technology will account for almost 40% of manufacturing capacity by 2020, from 30% in 2010.
Future outlook: What is next?
Uncertainty continues to be the norm. After many years, one of the constants of the solar industry is that regardless of how mature it becomes, the level of instability and the lack of visibility remain high because of policy changes and big trade disputes that are not anticipated. They still have a very big impact on supply and demand.
In 2017, the market continues with antidumping and countervailing duties for Chinese and Taiwanese cell and module imports in Europe and the U.S., with a minimum import price, and duties in China for polysilicon imports. Furthermore, there is a new and ongoing trade case in the U.S., which could end up with additional import duties being implemented in the U.S. market.
On Sept. 22, the U.S. International Trade Commission ruled that a surge of imports did, indeed, cause injury to the domestic module manufacturing industry. Now, the commission is moving forward to the remedy stage of the investigation and will ultimately make its recommendation to President Donald Trump in November. In the worst-case scenario of a full implementation of the measures initially proposed by co-petitioner Suniva, IHS Markit estimates that PV demand in the U.S. could shrink up to 60% for the 2018-2021 period in comparison to its current forecast.
As of press time, India, the third-largest solar market, is also slated to decide whether to include additional taxes for imported solar components; there, modules manufactured in China account for more than 70% of the total installations.
Supply chain consolidation will be limited. Although thin-film supply has been consolidated in a few large players, c-Si supply (despite some important bankruptcies and companies exiting the industry) has remained largely unconsolidated. Because a large majority of manufacturing is based in China and the current high level of installation is projected to continue in the coming years, it is difficult to foresee any massive consolidation. As long as the Chinese market continues at this level of installation (at least 45 GW forecast in 2017), consolidation of the Chinese manufacturing industry will be rather limited.
Module and other system component costs will continue to decline, making solar more attractive in new markets. Module manufacturers continue to look for innovative ways to reduce their costs and are increasingly focused on improving their cell-to-module conversion rate. Most companies are now starting production of half-cell monocrystalline modules (both p-type and PERC) and modules with more busbars, which can increase module output by 10-15 W without incurring higher production costs on a per-watt basis.
Total module costs for industry leaders are forecast to continue to decline in 2018 after a very exceptional second half of 2017, when current high polysilicon prices are slowing down the original plans of module manufacturers to reduce costs to around $0.30/W for best-in-class p-type modules by year-end.
IHS Markit is currently forecasting at least 112 GW of annual installations by 2020. However, it should not come as a big shock if solar demand growth continues to surprise manufacturers, developers and analysts – all of whom have consistently underestimated demand, which will continue double-digit annual growth over the next 10 years. As long as the 80% of solar installations remains in a handful of countries – China, the U.S., India and Japan – sudden policy changes and the creation or elimination of commercial barriers will continue to make producing precise long-term PV forecasts one of the most challenging (but most interesting) jobs!
Edurne Zoco is research director of solar and energy storage at IHS Markit.
