The photovoltaic industry is increasingly under pressure: On the one hand, additional capping of feed-in tariffs become more and more probable while, on the other hand, Chinese suppliers are beginning to crowd the German market with inexpensive yet technically superior modules. Can German manufacturers still hold their ground?
By Sascha Rentzing
The fact that the German Photovoltaic (PV) industry is willing to make concessions in regard to the production of solar power is an absolute novelty. The tariff reduction set forth in the Renewable Energy Bill (EEG) could be cut by a further 5% by mid-2010, according to Matthias Willenbacher, member of the board at the German Solar Industry Association. The tariffs were already reduced at the turn of the year as scheduled─by 9% for roof systems and 11% for large-scale outdoor power plants. An additional step may be possible on July 1 2010, in Willenbacher’s opinion.
The reason for this new humility lies in the growing criticism of PV production in Germany, which awakens fears in the industry of a repeat of the recent Spanish debacle. Because the PV market in Spain was growing faster than the government desired, they introduced a production limit to throttle demand. Similarly, Germany is producing many more solar systems than the conservative-liberal government would like to see. Due to the global sales crisis the price of systems has dropped an average of more than 30% since late 2008, while government assistance has declined “Only” 17% to 21% in total. Currently, the prospect of high returns is driving multitudes of investors onto roofs and outdoors: According to initial estimates, as much as three Gigawatts (GW) were erected in 2009─twice as much as in 2008. In other countries with feed-in compensation, such as France or Italy, solar energy is growing much less dynamically. There are various reasons for this, including set extension limits, high administrative hurdles and the fact that only certain technologies such as building-integrated systems, for example, are being promoted.
Primarily, Chinese producers are pushing their capacities onto the German market. According to the market researcher pvXchange, the international spot market price for crystalline silicon modules from China dropped an average of 40.3% to hit 1.76 euros per watt between January and September 2009. European companies are hard pressed to keep pace: In the same time period, they reduced their prices an average of 32.9% to 2.14 euros per watt. Nonetheless, PV technology “made in Germany” is in demand: Warehouses that were full to the brim in summer are long since empty, and lines are running at high speed again. “At present, we are fully utilizing our 300 MW capacity,” states Schott Solar spokesman, Lars Waldmann.
Too Many Modules
In Germany, solar technology is being built in increasingly more powerful facilities: While the average capacity─according to the Federal Network Agency─was still 8.7 kilowatts (kW) in January 2009, it was already up to 21.6 kW in July 2009. This is an indication that above all agriculturists with large barn and stable power plants have become active. The farmers’ enthusiasm for solar energy is no coincidence: Although the production tariffs were cut back on 1 January, solar power plants in good German locations can still generate attractive returns of 10% and more. “Prices drop with the degression,” explains pvXchange Managing Director, Kai Malkwitz.
For manufacturers, however, the time of big profits is over. In spite of mass production expansion and technological progress, manufacturing costs have not dropped anywhere near as much as sales prices for the modules. This has shrunk their margins. “The price level is not satisfactory,” comments Waldmann. And there’s no trend reversal in sight. Since the global module supply is larger than the demand, the industry has no chance to push higher prices through for the time being. While it’s true that the boom in Germany is diminishing the huge supply fabricated by manufacturers during the crisis, it will not disappear entirely. According to market researcher iSupply, 8.55 GW worth of modules were produced in 2009, but only 5.16 GW installed. This leaves 3.39 GW for the international industry to depreciate.
The situation is not likely to relax in 2010: It is expected that 14.56 GW of modules will be manufactured globally and only 8.34 GW installed. And markets continue to develop slowly. Whether France, Italy or Greece, none of the Mediterranean countries will even come close to the GW limit with their annexes. In China and Japan, the installation numbers also bob around in the lower three-digit MW region. According to experts, only the U.S.A. is on its way to becoming a true mass market: For 2010, the European PV Industry Association (EPIA) expects installations of at least one GW there. But even with that a huge amount of modules will remain for Germany, as Bernd Schler, spokesman for Photon magazine emphasizes.
Equipment from Germany
The companies could produce less in order to alleviate pressure ”This, however, seems to be taboo. Thin-film market leader First Solar intends to manufacture 1.55 GW in 2010─550 MW more than in the previous year. And, after slowed growth in 2009, the Chinese PV concern Suntech plans to increase its production by as much as 900 MW to 1.6 GW of crystalline modules. With their combined 3.15 GW, these two companies alone could saturate the German market, which will─assuming the government goes easy with the EEG─account for three GW in 2010.
If Berlin curbs annexing with massive additional cuts in solar subventions, the pressure on the industry will intensify. German companies could easily get crushed between the price-aggressive competitors from the East and West under these circumstances. Particularly, the Chinese have a decisive competitive advantage: “Companies such as Suntech and Yingli can produce more cost-effectively than their European competitors,” explains Jess Pichel, an analyst at the U.S. investment bank, Piper Jaffray. This is possible due to lower salaries, as well as a technological advantage in regard to innovation and productivity. “China’s top manufacturers produce with state-of-the-art fabrication technology from Germany,” states Pichel. And the Asians pit their advantage mercilessly in the battle for market shares. Several companies have already announced massive price reductions for 2010.
While it does hold true that the U.S. and Chinese rivals are inflaming competition, the German solar industry is not entirely blameless for their difficult situation: “Several companies lost sight of their costs during the boom phase,” explains Gtz Fischbeck, an analyst with BHF Bank in Frankfurt. They received, for example, sufficient supplies of raw materials at relatively low prices during the silicon shortage thanks to long-term contracts with chemical companies. The Asian newcomers, by contrast, were forced to purchase silicon at much higher prices on the spot market and thus to keep other costs at a minimum in order to operate profitably. “The Chinese are now profiting from this. ”So far, the German solar industry has not found a suitable answer for the invigorated Asians. The first reaction was to demand measures against alleged price dumping, and quality, social and environmental standards. Meanwhile, however, the industry has recognized that these are false levers. One should not carry the supposed quality advantage in front of oneself like a monstrance according to Andreas Hnel, head of system supplier Phnix. Instead, one should press for more innovations and quickly cut costs.
Innovations Again in Focus
Q-Cells, who with a loss of close to one billion euros in the first three quarters of 2009 is among the biggest losers of the financial crisis, proceeds: The company plans to introduce a multicrystalline “Next-generation solar cell” in 2010 that transforms at least 17% of sunlight into electricity. Their current multi cells manage 15.5 % to 16.4%. At the same time, Q-Cells subsidiary Solibro is creating furore in the thin-film field with the development of a module of Copper, Indium, Gallium and Selenium (GICS) that features an efficiency factor of 12.3%. No other thin-film panel achieves higher efficiency. “We’re doing everything we can to advance our technological leadership,” states Q-Cells technologist Peter Wawer. Meanwhile, Solarworld, located in Freiburg, is establishing a “Technology campus unparalleled in Europe’s Next to the already completed wafer technical school, a new cell and module research center is being set up with the intention that “tomorrow’s technologies” be developed here as of 2010.
During their innovation offensive, the companies can draw on solar scientific input from renowned facilities such as the Fraunhofer Institute for Solar Energy Systems (ISE) in Freiburg, or the Centre for Solar Energy and Hydrogen Research (ZSW) in Stuttgart. The researchers at these facilities have developed various new cell concepts in the past few years that arewaiting for industrial implementation. Manufacturers can find state-of-the-art manufacturing equipment to this end more or less directly in front of their factory doors: German suppliers are in demand around the world for their machines, robots and solutions for turnkey solar plants and could help their neighbouring comrades-in-arms to significantly advance their production technology with their offerings.
Turnkey supplier Schmid, for example, has developed a print-and-etch technology with which the crystal layer can be manipulated directly on the surface of crystalline silicon cells so that more electricity is generated there. “In this way, the efficiency factor can be increased by up to 0.9%,” states Schmid technologist Helge Haverkamp. In the meantime, Centrotherm could help the German solar industry climb the thin-film Olympus, as the only company worldwide already offering turnkey lines for CIGS modules. The local industry is apparently striving for global technological leadership in this thin-film segment that experts believe have the highest efficiency potential: Next to Solibro, various German companies are now specialising in these copper-based panels. From 28 September to 1 October 2010, PV manufacturers can get an impression of the machine and equipment manufacturers” product ranges at “Solarpeq─International Trade Fair for Solar Production Equipment” Companies that offer production technology for thin-film or crystalline photovoltaic─whether machines and equipment for the manufacture of solar products or component and raw material suppliers─present themselves here.
The solar industry’s interest in modern equipment “Made in Germany” may well already have increased short-term: Manufacturers have recognized that they must promote innovation with complete commitment in order to quickly reduce their costs. Otherwise, they will not be able to stand up to their U.S. and Asian competitors.
Sascha Rentzing is a freelance author who writes about various solar-related subjects.
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