IMSPV Market Research

By Tom Haddon, PV Group Research Analyst, IMS Research

Following on from the strong first quarter of 2010, it is forecast that the PV inverter market will grow substantially building on 2009’s success. MW shipments are predicted to be over 60% greater than in the previous year with installations reaching close to 15 GW. With such high levels of demand, several suppliers are targeting aggressive capacity expansion strategies with SMA bringing its global production capacity to the 11 GW per annum mark and several suppliers are following suit…

The full blog from Tom can be read at FuturePV

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By Sam Wilkinson, PV Group Research Analyst, IMS Research

It is earnings call season once again for solar PV module suppliers and looking at the results of a number of the major suppliers Q2’10 looks set to continue the market’s recent record setting trend. A few things immediately stand out from the first few calls this quarter:

PV Module Costs are Down

Given that feed-in tariffs (FiT) and incentive schemes in major PV markets such as Germany are set to continue decreasing, perhaps faster than some might have expected a year ago, it is not a surprise that suppliers are maintaining a strong focus on reducing costs. This is of course essential in order to remain competitively priced and profitable in an industry driven by a desire to gain independence from the subsidy schemes on which it currently relies.

First Solar has become well known for its low-cost manufacturing and did not disappoint in Q2’10, by driving its costs down 8% to $0.74 per watt, citing improved throughput, increased efficiencies and reduced material costs as helping it achieve this.

As a result of the increased volumes and high utilizations predicted in the third quarter, IMS Research forecasts that module production costs will fall once again in Q3’10. However, as the supply of wafers remains short, crystalline cell manufacturers (particularly those that are not vertically integrated) are predicted to see increases in raw material costs, handing some advantage back to thin film suppliers such as First Solar and making it more difficult to reduce costs further – in the short-term at least.

Are PV Module Prices Really Falling?

Another unlikely trend throughout the data that IMS Research has collected from Asian and US suppliers is the decline of factory-gate selling prices – certainly unusual, given the current sky-high levels of demand and tight supply. However, although in Q2 these suppliers are reporting a decrease in the revenue generated by each PV module sold, due to exchange rate issues this has not translated into any decrease in prices to wholesalers, distributers or end-customers. So some caution needs to be taken when analyzing these companies’ Q2 results – lower reported ASPs does not necessarily mean ASPs have gotten any lower!

Although Europe accounted for some 82% of PV installations in Q2’10, the vast majority of modules were supplied by companies recognizing their revenues in currencies other than the Euro. As such, currency fluctuations over the last quarter have resulted in great differences between the amount that suppliers supply their modules for, and the amount of revenues that they realise from that sale.

For example, Chinese crystalline cell and module manufacturer, Solarfun, announced last week that its PV module average selling price (ASP) had declined by 6.8% in the second quarter to RMB 11.19/W. However, converted to Euros (at the appropriate quarterly exchange rates), where the majority of its revenues are generated (Germany, Italy, Belgium and France combined accounted for over 80% of its module shipments during Q2), the truth is its prices actually rose by 3.1%!

Whilst the depreciation of the Euro (against the US Dollar and the Renminbi) has negatively impacted on the margins of many module manufacturers, European suppliers will appreciate, at least temporarily, the aid in their battle to remain price competitive on their home ground against the aggressive pricing of their Asian competition.

The Second Half of 2010 and What Happens Next?

There is almost no uncertainty surrounding demand for PV in the second half of this year and 2010 will certainly prove to be another remarkable year for the industry. PV module shipments are forecast to increase by an incredible 60% over 2009 to reach 15.6 GW.

System integrators and project developers continue to rush to realise installations right through to the end of the year, particularly in Germany – despite the recent reductions in the EEG – driven by further cuts which will take place on October 1^st and January 1^st 2011. As a result, module shipments are forecast to increase to more than 4 GW in Q3’10 in order to complete and connect systems to the grid by the end of the year. Crystalline module prices are predicted to remain relatively unaffected by additional FiT reductions in Germany and are forecast to increase slightly (in Euros) in Q3, due to this strong demand.

Beyond 2010 the situation is less clear and questions remain over how the industry will respond to multiple FiT reductions in the largest European markets heading into 2011. A strong consensus is apparent in the market today that we will see another unhealthy drop in demand (similar to that experienced early in 2009 following the demise of the Spanish market) and the return of seasonality.

IMS Research forecasts that installations in EMEA will decline by 80% Q-o-Q in Q1’10. This, coupled with capacities that have been ramped to their maximum in order to serve the strong demand of H2’10, is forecast to quickly reverse the current imbalance between supply and demand and average PV module prices are forecast to commence their downward trend once again.

One supplier with a more optimistic outlook for the New Year is First Solar. The thin film supplier recently announced that it planned to construct 500-700 MW of systems in 2011 and boasted a ‘captive pipeline’ of utility-scale business that would buffer any fluctuations in demand. Following its acquisition of project developer NextLight, First Solar plans to begin the construction of a massive 290 MW power plant before the end of 2010 and install modules there throughout 2011.

One thing is for certain: most agree that 2011 demand cannot remain as strong as 2010, and if this is the case, not all suppliers can afford to be as optimistic as First Solar.

Ongoing analysis of the PV cell and module market is available each quarter from IMS Research’s ‘PV Cells & Modules – Quarterly Shipment, Revenue, Pricing, Margin, Capacity, Utilization and Market Share Report.’

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By Sam Wilkinson, PV Group Research Analyst, IMS Research

The PV market continued to perform strongly in Q1’10 and PV module shipments increased for the fourth consecutive quarter according to IMS Research’s latest quarterly report on the PV cell & module market. PV module shipments reached a record of 3.6 GW in the first quarter of 2010 fuelled by high demand from major PV markets, particular Germany where speculation over its proposed feed-in-tariff cuts has driven demand to new levels.  Module shipments are forecast to continue increasing for the next two quarters and predicted to reach 4.3 GW in Q3’10.

Module Prices

After declining by an average of 10% each quarter in 2009, high demand resulted in relatively small price decreases from Q4’09 to Q1’10. Average factory-gate prices of crystalline modules fell just 2% in Euros to €1.41 between the two quarters, despite the German FIT reducing by 9 to 11% as planned at the end of the year. In Q2’10, average crystalline module prices are estimated to have increased by 1% in Euros over the previous quarter. However, the weakening of the Euro in the first half of 2010 has meant that although module prices are forecast to remain relatively stable (in Euro terms) throughout the rest of 2010, revenues per Watt realised by suppliers outside of the Eurozone in local currencies will in fact decrease. By the end of the year, prices are forecast to have fallen just 1% from their levels in the final quarter of 2009.

Installations

New PV installation growth in 2010 will be capped by limited inverter supply. Total global installations are forecast to reach 14.6 GW this year. Q1’11 is predicted to be very different to the first quarter of 2010 when speculation of additional cuts to incentive schemes drove unusually high demand in Europe, where installations are normally slowed by cold weather. As such, classic seasonal installation patterns are predicted to return and completed installations are forecast to decrease by nearly 40% in Q1’11. IMS Research predicts that this stall in demand for installations after 31^st December 2010 will to initiate a slowdown in module shipments from Q4’10.

Increased Capacity Meets With Decreased Demand

PV cell and production capacity is forecast to continue increasing each quarter throughout 2010.  Production capacity for PV cells is predicted to exceed 33 GW at the start of 2011, with 78% of this capacity located in Asia.

Increasing capacity being met with slowing installations and shipments is likely to result in supply exceeding demand once again and utilization falling sharply. The resulting tougher competition, further annual reductions to European FITs indicates that price declines are likely again from Q1’11 and IMS Research forecasts that average PV module prices will decline 8% in the first quarter of 2011.

Consequently, module capacity utilization is forecast to decrease from its peak in Q4’09 to just over 50% in the first quarter of 2011. As a result of weakened demand and softening prices, gross margins are forecast to fall to 27% having remained over 30% throughout the second half of 2010.

First Solar Hang On To First Place But Chinese Crystalline Rivals Catching

First Solar remained the largest supplier of PV modules in Q1’10, although its share of module shipments decreased for the fifth consecutive quarter and the gap between it and it’s crystalline competitors closed further.  Although total PV module shipments are forecast to grow by 60% in 2010, shipments of Cadmium Telluride (CdTe) modules (dominated by First Solar) are forecast to increase by just 20% due to limited capacity increases for the technology until 2011.

Although Western suppliers still accounted for a larger share in Q1’10, Chinese Tier 1 suppliers (Suntech, Trina, Yingli, Canadian Solar and Solarfun) increased their share of PV module shipments every quarter throughout the last year and these five suppliers’ shipments accounted for 28% of the PV modules shipped in Q1’10. In total, 47% of modules shipped in Q1’10 were from Chinese suppliers.

Ongoing analysis of the PV cell and module market is available each quarter from IMS Research’s ‘PV Cells & Modules – Quarterly Shipment, Revenue, Pricing, Margin, Capacity, Utilization and Market Share Report.’

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By Ash Sharma, PV Group Research Director, IMS Research

Q1’10 was an outstanding and unique quarter for PV inverter suppliers for two very different reasons. All suppliers reported incredible performance making Q1’10 the largest first quarter on record in terms of inverter shipments. Despite this strong result, demand for inverters still outstripped supply; and the component shortage and inverter production problems that began in Q4’09 in fact worsened in Q1’10 with quarter-to-quarter supply falling.

Global inverter shipments reached 3.1 GW in Q1’10 – the largest first quarter total for the industry, and the second highest quarterly result on record. 57% of global shipments were to Germany, with Italy and France also providing strong demand.

This 1.8 GW of shipments to Germany does however contradict initial indications from the Bundesnetzagentur, which announced that installations were just 390 MW in the first two months of 2010. However, the Bundesnetzagentur only shows installations which have been registered and is not necessarily a good indicator of total demand in a quarter. IMS Research predicts that demand for inverters in Q2 will be as high as the previous quarter; and that total installations in Germany for the whole of 2010 will exceed 5 GW.Although Q1’10 presented some incredible results for inverter suppliers, with shipments up more than 300% year-on-year, sequentially shipments fell in all regions, including Germany. Total global inverter shipments were 3.7 GW in Q4’09, some 16% higher than Q1’10. In a “normal” year this kind of seasonality would be expected; however, as strong demand has continued into early 2010 with the impending cut to Germany’s feed-in tariff (FIT), this sequential decline of inverter shipments contrasts the increasing shipments of PV modules and highlights that the supply of inverters may still be restraining growth of the PV industry.

Production constraints still blight the PV inverter industry, with even market leader SMA having to issue a formal apology to its customers; it recently indicated its production capacity would be limited to around 1.3 GW in the second quarter and supply constraints would not ease until July at the earliest. Despite the supply of components strongly affecting SMA’s abilities to raise its production output, it did in fact gain market share in Q1’10, illustrating that this shortage is also impacting its competitors’ business and the issue is affecting the entire inverter industry.

During recent meetings with inverter suppliers, almost all indicated to IMS Research that they were suffering problems of component supply; some were worse affected than others. Many indicated delivery times of more than 30 weeks; a large proportion also suggested they were not accepting any new orders and were already sold out for the year. With four countries predicted to become GW markets this year, this is not at all surprising, and the lack of inverters is likely to leave lots of customers disappointed. Despite this continuing problem of supply, IMS Research still forecasts inverter shipments will grow massively this year, leading new installations to grow to more than 11 GW.

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By Sam Wilkinson, PV Research Analyst, IMS Research.

The size of the PV market in 2009 is currently under much debate and many conflicting numbers are floating around the industry. Analysts at IMS Research are currently analysing all areas of the PV supply chain and assessing all measurements of the market to present a clear picture of last year’s outcome. IMS Research has analysed three different data points: shipments of PV modules, shipments of PV inverters and the number and size of installations in more than 50 countries globally. This three-pronged approach has sized the 2009 PV market at between 7 and 8 GW. A considerable increase from the 6 GW recorded in 2008 considering the awful start to the year.

IMS Research’s recently released report “The World Market for PV Cells & Modules” analysed data from all of the leading suppliers and estimates that shipments of PV modules grew by over 30% in 2009 to >8.5 GW.  First Solar was the first supplier to ship over 1 GW of PV modules in a year, increasing its market share and becoming the largest supplier worldwide. All other major suppliers also recorded growth, particularly in the second half of the year when demand surged and prices began to stabilise.

The PV inverter market also surprised and showed impressive growth. Market leader SMA will shortly announce that its shipments grew by over 50% to 3.4 GW in 2009 and IMS Research’s latest report on PV inverters also revealed that the majority of other suppliers’ shipments grew significantly resulting in more than 8 GW of PV inverters being shipped in 2009.

Earlier in 2009, IMS Research had previously estimated that just over 6GW of PV installations were completed and connected to the grid in 2009, resulting in a difference of over 2GW between completed systems and shipments. However, as PV components (particularly PV inverters) are known to have been in short supply at the end of the year, and anything shipped was likely to have been installed almost immediately (some suppliers are reported to have been transporting inverters by air in order to get systems connected by December 31^st), IMS Research has since re-analysed each country’s PV demand and has found that new installations grew much more than originally predicted.

This new analysis of demand from more than 50 countries shows that new PV installations reached at least 7 GW in 2009. As predicted, Italy’s grid connection figures for 2009 were recently revised upwards by the GSE, to over 580 MW and final numbers are likely to be around the 600 MW mark.  The number of PV systems connected to the grid in Germany in December will also be announced shortly, but IMS Research estimates that total installations for the year will reach 3-3.5 GW.

So, although there are a number of different opinions on 2009’s performance being touted, IMS Research has analysed the market from several points of the supply chain from PV cells and modules to inverters, right down to surveying system integrators and producing country-level demand models. All these data points we have show that the market definitely grew at a double-digit rate in 2009.

Whilst there are some clear differences in 2009 market sizes depending on the method chosen to measure it, this is not surprising given the different lead times associated with module and inverter shipments and when a new PV plant being ‘counted’ as an ‘official’ installation. Whichever method you use to measure the market, its clear to see that the PV market grew substantially in 2009. More results will be announced by IMS Research shortly.

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By Tom Haddon, PV Research Analyst

In the past, inverters have often been an overlooked part of the PV supply chain – probably because of the relatively small proportion they account for in PV system costs. Recently however, inverters have become critically important to customers due to the severe lack of them available which delayed the connection of hundreds of installations at the end of 2009.

Unlike the PV module market, total production capacity of inverters is not massively higher than annual demand. In addition whilst there are several hundred module suppliers who can quickly fill the gap between supply and demand in a rapidly growing market, the much more consolidated inverter market was not able to quickly adapt to the rapid increase in demand seen at the end of 2009 and ramp up production quick enough. As such, a lack of inverters caused a major bottleneck at the end of 2009 which affected the entire PV industry.

Installations surged in the second half of 2009 partly fueled by speculation of cuts to Germany’s feed-in-tariff and strong demand has continued into Q1. At the end of November, Germany had recorded 2.4GW of new installations for the year and IMS Research predicts full year installations will be at least 3GW. Historically, the German market suffers from a seasonal slump at the start of the year, however this year new installations are predicted to remain high until changes to the feed-in-tariff take effect on July 1st.

Whilst PV module suppliers are currently enjoying strong demand, stabilized prices and a return to a ‘sellers market’, spiraling demand has left PV inverter suppliers facing new problems. Severe supply chain issues, including massively long lead times for critical components such as IGBTs (up to 6 months), have left manufacturers limited not by their own production capacity, but by the availability of materials.  Hence the long lead times for inverters are continuing to limit the expansion of the PV market further with PV module suppliers already reporting the negative impact on their business caused by this bottleneck.

Figure 1 - Latest PV Inverter Shipment & Pricing Data - IMS Research

The continued demand for PV inverters, (which may not be delivered for up to six months), does give some indication of the future beyond the German feed-in-tariff cuts.  Some industry commentators had made early claims that the cuts could lead to a collapse in demand in the German market. IMS Research predicts investment in the German PV market continuing despite the upcoming 15-16% cuts to the incentives. Whilst demand will undoubtedly slow in the third quarter and PV component prices fall, annual installations in 2010 are still forecast to at least reach the same levels as 2009 in Germany and grow globally.

Demand in 2009 was extremely volatile and varied significantly by country, with a record 8GW of PV inverters shipped worldwide. As such supplier market shares and rankings are likely to have changed significantly in the last year, though SMA undoubtedly retained its position as the world’s largest supplier. SMA once again gained share of the global PV inverter market in 2009. Its annual market share has increased each year for several years and has now reached above 40% in terms of MW shipped. Full market share tables and rankings will shortly be released by IMS Research for 2007 up to 2009.

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By Ross Young, SVP, PV and Displays

Preliminary findings from the Q1’10 issue of IMS Research’s PV Supply Chain Health Report indicate that Q4’09 was a strong quarter throughout the PV supply chain as integrators took advantage of low prices and impending FiT changes causing module, cell, wafer and poly manufacturers to operate at higher utilization levels and enjoy higher margins. These strong results point to a stronger than expected finish in 2009 than most analysts were expecting. The higher utilization also caused the suppliers to place orders for new capacity with the equipment market showing signs of a rebound.

Installations by Region
Installations finished very strong in 2009 with November and December accounting for 47% of Italy’s annual results of 582MWs, up 72%. While all segments experienced at least 42% growth in Italy, the largest installations enjoyed the fastest growth with 1GW+ installations rising 575% and accounting for a 16% share in 2009 as the power plant market accelerates.

Germany has not released their December results yet, but installations reached 2.345GWs through November and are expected to exceed 3GWs for the year. The power plant market, 500MWs+, has taken off in Germany rising from less than a 1% share in Q1’09 to nearly an 18% share so far in Q4’09.

Installations in Greece rose 242% to 35MWs as an improved FiT boosted demand with the commercial market dominating.

In the US, installations jumped 56% in 2009 in California to 173MWs although 2H’09 was flat. With the decline of the large commercial market due to delays in the DoE loan guarantee program, the residential market became the leading segment in Q3’09 and Q4’09. The #2 state for PV in the US continues to be New Jersey where installations rose 147% to 56MWs with 41% of installations occurring in Q4’09. New Jersey is dominated by the commercial market and the Federal ITC boosted its statewide rebate program which received additional budget in 2009.

Module Results
Q4’09 was a record quarter for both module shipments and revenues. For the 10 module suppliers that have released their financials, revenues were up 22% Q/Q and 50% Y/Y as shown in Figure 1. First Solar reclaimed the top spot overtaking Sharp on significant project sales with Sharp continuing to benefit from elevated prices in the Japanese market and the strong yen. Module shipments were up even more for these and other companies, rising 23% Q/Q and 115% Y/Y. For these same companies, module factory utilization jumped from a low of 53% in Q1’09 to 86% in Q3’09 and 92% in Q4’09. In addition, the companies who gave shipment guidance expect their strong results to continue into Q1, guiding towards 12% combined shipment growth and 96% utilization in Q1’10. Suntech even indicated in their earnings call that they could ship 30% more volume in Q1’10 if they had the capacity.

With utilization rising in Q4’09, the rate of ASP decline slowed from -13% in Q3’09 to -4% in Q4’09 with weighted average prices falling to $1.89/W for the companies which have released their financials. In Q1’10, despite utilization expected to rise further to meet the strong demand from the next German FiT change, prices are expected to fall faster in Q1’10 than Q4’09 with Trina pointing to a 5-10% decline, Canadian Solar expecting around a 7% decline, Solarfun guided to a 10% decline and Suntech anticipating a 10-15% decline. The primary cause of this decline is not changes in market prices, but changes in the Euro currency vs. the dollar and RMB. The Euro has depreciated more than 5% against the $US and RMB causing at least a 5% decline in ASPs for US and Chinese companies. Trina guided its gross margins down from 33% in Q4’09 to 26-28% in Q1’10 as a result of the change in the Euro vs. the RMB which significantly affected its stock price after its earnings call. Financial analysts were expecting to costs to fall at a faster rate to allow for a smaller gross margin decline and were not pleased that Trina guided to negative cash flow in 2010 as it expands capacity to 900 MWs and more than doubles its capital expenditures. It should be pointed out that the Chinese and US suppliers benefited significantly in 2009 from the Euro appreciation and now the European suppliers will benefit as the Euro depreciates although many of them have moved a significant portion of their manufacturing to Asia.

From a cost standpoint, Trina reported a 14% decline in module costs in Q4’09 to $1.24/W as shown in Figure 2 and is expecting another 5% decline in Q1’10 and we estimate another 5% decline in Q2’10 bringing them to $1.11/W. They are targeting $1.00/W in Q4’10 which appears achievable if non-silicon costs due approach $0.70/W as indicated in their guidance. Trina’s blended poly costs fell from $77/kg in Q4’09 to $67/kg in Q1’10 even though they purchased new poly in Q4’09 at $55/kg. Blended poly costs of $50/kg should get them to $1.00/W. However, they are also increasing the amount of wafers they outsource and are ramping a lot of new capacity which may make this target harder to achieve. Nonetheless, they should get close which should continue to narrow the margin gap between First Solar and tier 1 Chinese module suppliers.

Excluding First Solar which had significant low margin EPC business in Q4’09 by selling 41 MWs of projects, gross margins rose slightly to 21% for the remaining suppliers, but should decline in Q1’10 on the weaker Euro.

Cell Supplier Results
Although vertically integrated suppliers are taking share, the two largest cell suppliers, JA Solar and Q-Cells, each had strong quarters in Q4’09. JA Solar had shipments of 231MWs vs. their original guidance of 170-200 MWs putting them at 509 MWs for the year with gross margins rising to 21%, the highest since Q3’08. Q-Cells also turned in a strong Q4’09 with c-Si cell production of 155MWs and a smaller operating loss. For the year, Q-Cells produced 537MWs. If Q-Cells’ shipments were 95% of their production, then they were tied with JA Solar for 2009 cell production making it a very close call on an apples to apples basis.

With the cell-only business model coming under attack, both companies are adapting by increasing visibility for their demand with Q-Cells International becoming the #1 systems integrator in 2009 and JA Solar becoming an OEM module supplier, selling to other module brands.

JA Solar’s ASPs fell only slightly in Q4’09 to $1.26/W and are expecting less than a 5% decline in Q1’10 on higher utilization. To date, most of JA Solar’s business has been with Chinese module suppliers, 70-80% in 2009, making them more immune to swings in the Euro. However, they expect to boost the European share of their business to 50% which will make them more affected by the decline in the Euro. JA Solar’s cell conversion costs reached a record low in Q4’09, which we believe was $0.18/W and its wafer costs fell slightly to $0.82/W putting its COGS at $1.00/W for cells.

Wafer and Poly Supplier Results
MEMC enjoyed better than expected revenue and margin results, but it pointed to the recovery in the semiconductor market as the primary reason with its PV volumes flat Y/Y. It did point to a significant decline in its polysilicon costs from yield, utilization and other improvements and is expanding the number of wafer customers as it brings wafering inhouse.

REC’s revenues grew on gains made by all segments, particularly wafers. The revenue gains were a result of increased capacity and strong demand offset by lower prices, particularly in wafers where long term wafer contracts were re-negotiated to reflect market realities. Gross margins declined, but remained high at 58% led by continued impressive margins for silicon and silane. EBITDA margins rose in the polysilicon/silane space to 51% where it has more leverage and its long term contracts remain in place. In wafers, contract prices were revised significantly, falling 13% Q/Q, resulting in EBITDA margins of 22%. REC is expecting another 20% decline in wafer prices in Q1’10 which will put it closer to spot prices and enable it to boost its utilization at its new wafer lines.

Wafer and polysilicon prices in China are beginning to stabilize which we will report on once GCL-Poly, LDK and ReneSola report their results.

Equipment
PV equipment suppliers GT Solar and Applied Materials turned in better than expected quarters. Applied’s energy (PV/LED/OLED) revenues rose 15% Q/Q and 10% Y/Y to $321M. Its tin film business continues to slow with a book to bill of under 1, but its c-Si business is well positioned for growth. The energy business continues to lose money for Applied, however, reporting a -11% operating margin for the second consecutive quarter and a loss of over $549M since Q1’07. They are expecting solar to become breakeven sometimes this year excluding amortization from acquisitions.

GT Solar experienced significant revenue and margin growth in Q4’09 on gains by its poly CVD reactors as well as its furnaces for ingot production in China. Gross margins rebounded to 44% with net margins reaching its highest results to date at 21%. In the case of its poly reactors, it is now promoting a path to under $25/kg poly costs and it has raised its 2010 guidance by $50M.

Summary
Most layers of the PV supply chain got healthy in Q4’09 on strong demand and high utilization which will cause many analyst firms to revise their 2009 and 2010 estimates. The outlook for Q1’10 also appears to be strong on the impending FiT change in Germany as integrators look to lock in current, high project IRRs with utilization rising throughout the PV supply chain. However, the depreciation of the Euro will affect margins for most cell and module suppliers outside of Europe. The big question in the market now is what happens in Q3’10, after the German FiT change. How weak will installations be in Germany in Q3’10? Can other countries pick up the slack? Who is best positioned outside of Germany? What will happen with pricing? Will module suppliers absorb the FiT regression or will integrators? Are 8% IRRs satisfactory. We look forward to exploring these questions in future issues of this newsletter and detailing company by company responses to these questions in our Weekly PV Supply Chain Health Report. For more information on this report, please contact me at ross.young@imsresearch-usa.com.

Figure 1: Q1’08 – Q4’09 Module Revenues and Shipments

Source: IMS Research’s Weekly PV Supply Chain Health Report. Includes only companies that have released Q4’09 results to date which consists of Canadian Solar, Energy Conversion, Evergreen, First Solar, REC, Sanyo, Sharp, Solar Enertech, SolarFun, Suntech and Trina Solar.

Figure 2:  Trina’s Q4’08 – Q2’10 Module and Silicon Costs

Source: Trina Solar, IMS estimates. IMS Research’s Weekly PV Supply Chain Health Report

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by Ash Sharma, Renewable Energy Research Director and Sam Wilkinson, Renewable Energy Research Analyst, at IMS Research

Contrary to many announcements by analysts so far, IMS Research estimates that in 2009, the PV market – in terms of both new installations and shipments of PV modules and inverters — grew substantially.

The latest results from our recently published report ‘The World Market for PV Cells and Modules’ reveal that PV module shipments grew considerably once again in 2009 – by over 25%, to more than 8GW. However, IMS Research’s ongoing surveying of integrators and installers and analysis of grid-connection statistics also revealed that new installations grew by a much more modest 5-10%, but exceeding 6GW for the first time.

Like many others, following Q1 and Q2’s disastrous results, IMS Research had in fact expected 2009’s shipments to decline. However, following unprecedented growth in Q3 and Q4 and having collected and analysed data from all areas of the supply chain, results show that module shipments grew by over 25%.

While many may understandably be excited and encouraged by the news that shipments did in fact grow, market revenue growth tells a very different story. The collapse of the Spanish market, combined with a difficult economic climate, caused a significant drop in demand and prices plummeted by 40% as a result. Average prices were also driven down further by thin-film modules continuing to account for an increasing proportion of shipments. Consequentially, PV module revenues declined by over 20% in 2009.

The number of PV systems that were actually completed and connected to the grid in 2009 tells yet another story. Official statistics and government numbers are still being finalised and it will be some months before a final figure is arrived at.

However, IMS Research estimates that annual PV installations grew by 5% to 10%.

Installations in Europe were realised particularly quickly in the second half of the year. Germany led the way, installing around 3GW of new PV capacity. Italy did not disappoint either, although it will be some time before the GSE discloses a final figure for the year.

We understand that some 100MW of systems were completed before the end of the year in Italy, but not connected to the grid due to administration issues and the total for Italy will be closer to 480MW.

With 2009 PV module shipments growing far beyond expectation and installations growing less spectacularly, the natural question to ask is where all of these modules have gone?

We are seeing delays of two quarters between a module being shipped and it finally being connected to the grid and therefore being counted as an ‘installation’ in official figures – perhaps longer in very large installations.

In addition, we’ve seen that a significant proportion of PV modules were shipped in Q4 in anticipation of an unseasonably strong German market in the first half of 2010. This is likely to have been caused by intense speculation of a cut to the German tariff in July, reversing the country’s normal seasonality.

Early results show that the big winner in 2009 was First Solar, with shipments of its cadmium telluride modules more than doubling over 2008. As a result, thin film modules are estimated to have increased their share of the market further and accounted for 20% of shipments in 2009.

Another unlikely winner is Q-Cells International which IMS Research expects to shortly reveal as the largest PV system integrator in 2009 once it finalizes its research this month.

As for the PV market in 2010 as a whole, IMS Research forecasts that shipments will once again grow, not as fast as installations though as they continue to catch up with the surge in module shipments in 2009. With many expecting a drop in demand in the second half of the year, further falls in module prices are predicted.

Which begs the more important question, can the market grow in revenue terms this year too?

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By Ross Young, SVP, Displays and PV, IMS Research

I mentioned in my previous blog that the PV market has recovered in Q3′09, but let me now try and quantify it. The exact details can be found in our latest Weekly PV Supply Chain Health Report. As indicated:

• Revenues surged for most layers of the PV supply chain in Q3′09, as shown in Figure 1. This data is segmented by primary output of the company, so a company that produces wafers, cells and modules but primarily sells modules would be considered a module company. Module revenues were up 32% Q/Q, cell and wafer revenues were each up 36% Q/Q, revenues from poly/wafer companies were up 6%, and equipment revenues were down 20% Q/Q. Strong demand from Germany was the primary source of the growth. After a few consecutive quarters of minimizing procurement to deplete high inventories as demand remained weak, companies throughout the supply chain began ordering the wafers, cells and modules they needed to meet demand in Q3′09 and the anticipated strong Q4′09. We expect to see polysilicon revenues rebound sequentially in Q4′09 now that wafer inventories have fallen and polysilicon price reductions have slowed significantly. The equipment market was down due to the existing oversupply.

Figure 1:          Q3’08 – Q3’09 PV Supply Chain Revenues by Segment

Source: IMS Research’s PV Supply Chain Health Report. Based on the following companies: Applied Materials, Arise Technologies, Bosch Solar, Canadian Solar, Centrotherm, China Sunergy, DelSolar, Energy Conversion Devices, E-Ton Solar, Evergreen Solar, First Solar, GCL-Poly, Gintech, Green Energy Technology, GT Solar, JA Solar, LDK, MEMC, Motech, NSP, Oerlikon, Q-Cells, REC, ReneSola, Roth&Rau, Sanyo, Sharp, Sino-American Silicon, SolarFun, SolarWorld, Spire, SunPower, Suntech, Sunways, Trina Solar and Yingli Green Energy.

• On a Y/Y basis, companies that make modules actually showed a slight increase in revenues despite significant ASP declines. This was a result of higher volumes as well as additional revenue sources through system sales as they looked to capture downstream margins and improve their demand visibility. The PV industry seems to be one of the few industries where companies are looking to increase their value added these days while older, more established companies seem to be spinning off as much as possible. Cell and wafer company revenues were down 33% and 34% respectively on sharply lower prices as well as the increased vertical integration of their customers reducing their relative total available market.

• Speaking of ASPs, we are showing volume weighted average module prices for thin film and crystalline silicon modules at an average of $2.06/W, as shown in Figure 2. Prices for c-Si only would be about $0.10 higher. Because thin film prices have been falling more slowly than module prices, the module ASP decline was slower than cell, module and wafer ASP declines. Cell ASP declines are down around 55% Y/Y, with wafer ASPs down 65% and polysilicon spot prices down 82%. This industry is clearly not for the weak at heart. We are encouraged by single digit Q/Q declines in polysilicon ASPs from the standpoint that it should lead to greater price stability in the market, which should encourage those waiting for further price reductions to purchase now.

Figure 2: Q3’08 – Q3’09 PV Supply Chain ASPs by Segment

Source: IMS Research’s PV Supply Chain Health Report

• In terms of gross margins, big improvements were made by cell manufacturers rising from 0% in Q2′09 to 7% in Q3′09, as shown in Figure 3, and wafer manufacturers, -45% in Q2′09 to 12% in Q3′09, which wrote off significantly less wafer and cell inventory than in previous quarters. Polysilicon and equipment companies continue to have the highest gross margins.

Figure 3:  Q3’08 – Q3’09 PV Supply Chain Gross Margins by Segment

Source: IMS Research’s PV Supply Chain Health Report

• In terms of operating margins, similar improvements were shown for cells if we exclude Q-Cells, which is undergoing significant restructuring. Polysilicon, on the other hand, had negative operating margins for the second consecutive quarter on various restructuring efforts at the existing players. Equipment manufacturers suffered from negative operating margins for the third consecutive quarter on shrinking tool shipments.
• Looking at regional growth for cells and modules, sharp gains were achieved by China, Japan and Taiwan, as shown in Figure 4, while the US and German companies grew significantly slower on lost market share. On a Y/Y basis, US companies have the highest growth, though, due to First Solar’s rapid annual growth. Japan has the second fastest growth on new stimulus efforts there, with Germany and Taiwan suffering from lost share.

Figure 4: Q3’08 – Q3’09 Cell/Module Supply Chain Growth by Region

Source: IMS Research’s PV Supply Chain Health Report

• In terms of operating margins by region, the US led with 17%, followed by China at 11%. Japan and Taiwan margins were the lowest.
• In terms of shipments, module volumes were up 49% Q/Q and 82% Y/Y for the included manufacturers to 1.4GW, as shown in Figure 5, while cell manufacturers were up 61% Q/Q and 42% Y/Y to 540MW. On a Y/Y basis, the cell manufacturers’ share of output has fallen from 33% to 28% as module manufacturers increasingly look to lower their costs by producing cells in house. Utilization for the cell and module manufacturers included in this report improved from 62% in Q2′09 to over 80% in Q3′09.

Figure 5: Q3’08 – Q3’09 Cell and Module Shipments

Source: IMS Research’s PV Supply Chain Health Report

Thus, it is quite clear that the market has rebounded. Demand is expected to continue to remain strong throughout 2010 as pointed out in my first blog. In addition, with renegotiated contracts for polysilicon and wafers expected to result in lower costs for more manufacturers and cell and module prices firming, the margin outlook is getting brighter for cell and module manufacturers. In addition, with more manufacturers already operating at high utilization levels in China and Taiwan, they are announcing new capacity expansions, which will boost the outlook for equipment suppliers.

For any questions, please contact me at ross.young@imsresearch-usa.com or call at  (512) 302-1977

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By Ross Young, SVP, Displays and PV, IMS Research

The PV market more than recovered in Q3’09, in fact, it reached new highs in quarterly revenues for some layers of the supply chain as shown in Figure 1. In addition, the weak seasonality that many analysts predicted from December through March of 2010 is no longer expected, price reductions are slowing and margins are projected to increase through the first half of 2010. Solar stock prices are surging. How did this happen so quickly?

Figure 1: Q1’08 – Q3’09 PV Supply Chain Revenues

Source: IMS Research’s PV Supply Chain Health Report. Based on the following companies: Applied Materials, Arise Technologies, Bosch Solar, Canadian Solar, Centrotherm, China Sunergy, DelSolar, Energy Conversion Devices, E-Ton Solar, Evergreen Solar, First Solar, GCL-Poly, Gintech, Green Energy Technology, GT Solar, JA Solar, LDK, MEMC, Motech, NSP, Oerlikon, Q-Cells, REC, ReneSola, Roth&Rau, Sanyo, Sharp, Sino-American Silicon, SolarFun, SolarWorld, Spire, SunPower, Suntech, Sunways, Trina Solar and Yingli Green Energy.

The short answer, as indicated in the title of this blog, is fear and anxiety over changes to feed-in-tariffs (FiTs) along with lower prices. It seems changes to FiT rates have become a catalyst to boost market demand as customers and installers don’t want to miss out on a good thing and often they will wait until the last minute to make this decision. I know this was the case with my rebate from my local utility. Even if costs fall further in the future and internal rates of return (IRR) possibly increase, it is better to take advantage of a good thing now than hope for a good thing in the future.

In Germany, where the FiT is set to change in January and there is expectation of additional FiT reductions in the middle of 2010, integrators are rushing to complete installations. In Q3’09, according to Germany’s Federal Grid Agency, 953MWs were installed, a record quarter for any region I believe. Q3’09 results were nearly double Germany’s installations in Q1’09 and Q2’09 combined. Furthermore, sequential growth is expected in Q4’09 causing a growing number of cell and module suppliers to run at full capacity this quarter. Some module suppliers even indicated that their customers were requesting deliveries via air rather than sea to ensure that the installation is completed before the FiT changes. FiT reductions are not only expected in Germany, but in the Czech Republic as well with a growing number of module suppliers pointing to the Czech Republic for growth.

There are additional catalysts already in place to spur 2010 demand as well. In Germany, the new government is expected to announce in 1H’10 a lower FiT for at least ground mounted installations that would start in 2H’10, causing 1H installations to account for a much higher share of annual installations than usual.

In Italy, the FiT is to be lowered once cumulative installations reach 1.2GWs which could happen in 1H’10 resulting in lower FiTs from 2011 or possibly earlier creating urgency and likely strong market growth in 2010.

These FiT adjustments will not only serve to boost demand but also smooth out traditional seasonality in 2010 which will result in slower price reductions. In fact, numerous module companies indicated in their Q3’09 earnings calls that they expected module prices to decrease slightly, remain flat or even increase slightly in Q1’10, traditionally a seasonally weak quarter. On the other hand, 2H’10 demand in Germany is certainly a concern with much of the demand shifting to the first half. However, there is a strong possibility that China will have their regulatory and approval processes in place by then to implement their rooftop, power plant and FiT programs and the US market will accelerate on growth in utility-scale projects minimizing the likelihood of a decline from 1H to 2H.

Thus far the PV market has accelerated from impending changes to FiTs and growth in subsidies. In 2010, we will have a significant amount of both. In 2010, Germany and Italy will announce at least one FiT change which should spur demand before the FiTs change. On the other hand, growing subsidies in Canada, China, France and Japan should also boost 2010 demand. In addition, the US market appears ready to surge on DOE loan guarantees, the continuation of the federal ITC, growing availability of federal land and buildings, state carve-outs and state renewable portfolio standards and other requirements. Thus, 2010 looks to be a great year for the PV industry.

In my next blog, I will analyze in detail the aggregate Q3’09 financial and operating results.

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