In 47 BC after his rapid defeat of Pharnace, King of the Bosphorous at the battle of Zela, Julius Caesar announced to the senate: Veni, Vidi, Vici – I came, I saw, I conquered.

In just a few short years, China’s PV manufacturers entered global cell and module manufacturing and rapidly dominated it. Since 2002, with annual shipments of 2-MWp, shipments from its manufacturers and domestic PV deployment have grown faster than the global market as a whole to over half of total shipped in 2017.

There is no doubt that in terms of solar, China came, it saw, it conquered. But…corrections happen, and a hiccup in either China’s production of PV cells and modules or in its deployment of PV systems would ricochet around the global PV industry.

Figure 1 depicts global shipments of PV cells and modules and shipments from China. During this 15 year period shipments of cells/modules from China grew at a compound annual growth rate of 97%, while global shipments (including China) grew at a CAGR of 41%. China has become the engine driving the global solar industry.

Figure 1: China and Global Shipments, 2002 through 2017

China and Global Shipments, 2002 through 2017

The global PV industry has been gliding along on the strength of China’s manufacturing and deployment strength for several years.  During these years the market for PV deployment boomed mostly driven by Chinese manufacturer acceptance of low margins and by almost relentless deployment of PV systems even when China’s Central Government indicated it wished to slow its market.

Figure 2 presents China’s domestic deployment of PV systems and those of the Rest of the World from 2012 through 2017. Installations can differ from shipments on an annual basis depending inventory and the application focus. That is, multi-megawatt installations can lag that of other categories for a number of factors including the development process itself. For simplicity, shipments have been used as the standard in this one case, understanding that it presents a simpler, big-picture view.

In 2012, China’s PV deployment was 16% of the global total.  Its share of global PV deployment doubled in 2013 to 32% and then held at ~30% until 2016 when deployment of PV in China surged to 49% of the global total. In 2017, China deployed 53-GWp of PV systems giving it a 58% share of global installations.

Figure 2: China and Rest of World installations, 2012 through 2017

China and Rest of World Installations, 2012 through 2017

Figure 3 offers China’s annual share of global shipments from 2012 through 2017. During the period depicted in Figure 3 China’s share of global shipments increased from 45% in 2012 to 57% in 2017.  China’s complete domination of PV manufacturing means that it dominates price at which cells and modules can be sold – globally. It also means that other manufacturers are captive (to an extent) to the low margins that are acceptable to manufacturers in China. The solar industry has suffered through decades of low to negative margins and now finds itself with an average gross margin of ~8%. Examples from other industries include: Coal 40% to 50%, Iron and Steel 20%, Construction ~30%, Appliances 30%, Aluminum 20%, Industrial Machinery and Components 40%, Aerospace 40% and Agriculture 8%.

Figure 3: China and Rest of World Cell/Module Shipments, 2012 through 2017

CHina and Rest of Wolrd Cell Module Shipments, 2012 through 2017

China Came, it Saw, it Conquered, It backed off

The global PV industry has been gliding along on the strength of China’s manufacturing and deployment strength for several years.  During these years the market for PV deployment boomed mostly driven by Chinese manufacturer acceptance of low margins and by almost relentless deployment of PV systems even when China’s Central Government indicated it wished to slow its market.

China’s central government may get its wish this time, though, not as rapidly as it might want to.  Though China’s system of government is essentially one party with one man at the top, there are layers of provincial and local governments making decisions, lending money and otherwise supporting their local industries. In other words, as the theme of the changes to China’s PV deployment are to, essentially, shuffle unwanted projects back to the provinces, it may take a while for the expense of supporting domestic deployment to slow things down. As an analogy, a large tractor trailer truck weighing 80,000 pounds and going 65 miles per hour needs 315 feet to stop.

China’s market, which had been accelerating, will need some time to slow.

Measures that China’s central government are taking are (in a nutshell):

  • DG capped at 10-GWp for 2018
  • Systems connected as of May 31 receive the FiT, after which developers must turn to the local government (a move that favors local companies)
  • A pause in utility scale deployment (meaning approvals) until further announcements
  • A reduction in grid curtailment, meaning that more electricity will be fed into the grid and that FiT payouts will increase

As with many countries, faced with the high cost of supporting PV deployment, China’s central government is (and has been) moving towards a bidding scheme.  Bidding schemes always undervalue solar and further constrain margins.

Though governments plan incentive programs for solar with the best of intentions, they also consistently under estimate their success and it is this very – expensive – success that leads to the collapse of many programs.
Figure 4 depicts the rise and fall of select country solar markets during the EU FiT period.

Figure 4: Rise and Fall of EU FiT Programs, 2005-2015

Rise and Fall of EU FiT programs, 2005 through 2015

And where will it all go if China slows?

At one point during the FiT era, referring to Figure 4, the market in Europe annually consumed over 80% of PV modules shipped. As markets collapsed the refrain was – where will it all go?  Then came the market in China to rapidly pick up the gigawatt slack. In 2018 there are several country markets where demand is ~10-GWp annually.  It will take more than one country market to make up for a slowing in China. Should China slow by 10-GWp in 2018, that 10-GWp will float out to other markets at, likely, negative margins. Good for developers but not good for PV manufacturing. A slowing China means that the market as a whole will be flat or potentially shrink in 2018.

Past 2018 … the market in the US, despite the Trump administration, is accelerating. Countries in the Middle East and Africa are making and implementing plans to install solar. The next big markets are already here and as long as we do not repeat the mistakes of the past, growth for the near to long term appears set to continue.

Figure 5 offers the original outlook for 2018 – which included a still accelerating China market, and a lower forecast with a slowing market in China. The most likely scenarios are, in both cases, the accelerated case.

The lesson is that the solar industry is still young, still immature, still struggling to find balance and that planning ahead requires an acceptance of the ever present risk of market collapse.

Figure 5: Six Scenarios for 2018 – all dependent on China

Six Scenarios for 2018, All dependent on China

Written in 2016 for The Solar Flare and still true in 2018

Historically, participation in the global solar industry has been subject to volatility from one end of the value chain to the other. Jobs have been lost and are not always regained. Money has been lost, businesses have failed. Dreams have come true and have been shattered.

Solar is an addictive industry in good and bad ways. Floating overhead is the chance – again, at every point in the value chain – to change the world, to be part of something bigger than oneself and to potentially profit from doing so. Think about it, a person could actually make a living being part of the solution to the climate change crisis.
Often, it is not an easy living.  High hopes and optimism float uneasily on top of volatility creating an environment where:

  • Observers make a living or garner attention for announcing big deployment numbers at cheap prices while oversimplifying and ignoring pesky and unpleasant details
  • Governments offer generous incentives without properly considering what measures can be undertaken if the market accelerates and whether any control measures will actually result in controlling an out-of-control market
  • Governments enact tariffs or price floors (minimum price levels) to counteract what they perceive as dumping seemingly without realizing that an entirely new grey market may spring up as a result
  • The price function and the true cost of manufacturing PV cells and modules is poorly understood while the lowest price, which may be a grey market price, a black market price or an inventory price is celebrated as the global average
  • Downward price pressure often forces manufacturers into the uncomfortable position of choosing quality over margin or unfortunately, margin over quality
  • The solar roller coaster is celebrated while ignoring those who broke their necks or hearts on the ride
  • Low margins for developers and manufacturers are ignored while low bids and prices for components are celebrated as proof of the solar industries competitiveness with fossil fuels
  • Business models with obvious flaws such as the residential solar lease are lauded while also scorned while losses pile up and the negligible value to customers is left more or less unexplored.
  • Companies such as SunEdison announce new products and ventures often expanding in too many directions often far from their true core competencies. Example: SunEdison announced an expansion into off grid micro-grid deployment at the 2015 Solar Power International mere months before it failed. The vision of SunEdison’s Frontier Power was energy, connectivity and water, viewed through the lens of an off grid utility where SunEdison owned the assets. Now SunEdison’s creditors own its assets.

The Point

Though the global solar industry has been historically volatile it does not have to continue in this vein.  A new path would require participants and stakeholders to choose slower more careful growth based on sustainable margins and value to customers.

 

Less volatility and sustainable growth means … slowing down, taking a breath and bypassing business that in the end serves no one well.

 

 

Quantifying future production from photovoltaic systems of all sizes and into all applications is important for LCOE modeling and by extension, tender and PPA bidding. For these models to be useful uncertainty, that is risk of poor performance, must be appropriately weighted. Underweighting the effect of potential poor performance due to low quality installation practices, low quality components, and unexpected weather pattern shifts can lead to underperforming installations that fail to meet economic goals. As tender and PPA bidding are in part based on production expectations, care must be taken to appropriately quantify the risk(s) of poorer than expected performance.

There are solid and observable reasons humans often fail to foresee negative outcomes and outright disaster. Humans are hardwired to highly weigh optimistic outcomes, and prone to choose data or assumptions that back up their biases.  In sum, we cannot imagine a disaster outside of our experience and thus will, most of the time, discount the probability of it. Optimism bias, the tendency to over weigh the potential of positive outcomes, and under weigh the possibility of negative outcomes is difficult to overcome, even for those trained to look out for it. Precommitment to a positive outcome can outweigh data that might indicate the need to consider a less positive outcome, in this case, poorer than expected performance.   Biases aside, as photovoltaic installations become a larger part of global electricity generation, forecasting the risk of poorer than expected production is crucial to the industry’s maturity and continued health.

The Photovoltaic Manufacturer Shipments: Capacity, Price and Revenues report provides an analysis of quantitative shipment, capacity, and module price data for the supply side of the terrestrial photovoltaic industry. This report has been published annually since 1975. It focusses on the most recent two years of supply side activity also forecasting the next five years of crystalline and thin film shipments.

Report Highlights:

  • Cumulative shipments from 1975 through 2017 reached 376.6-GWp
  • Cell and module revenues to the first buyer grew by 15% from $39.7-billion in 2016 to $45.8-billion in 2017, with shipment volume (32% growth) ameliorating the decrease in ASPs
  • Cell and module revenues to the first buyer expected to be flat at an estimated ~$60-billion in 2018 under both the conservative scenario, 105.5-GWp, and the accelerated scenario, 116-GWp. Under the accelerated scenario volume ameliorates low prices
  • Average cell/module prices to the first buyer decreased by 8% from $0.53/Wp in 2016 to $0.49/Wp in 2017
  • Average cell/module prices to the first buyer expected to increase by 6% in 2018 due to tariff and other trade issues
  • Prices to the first buyer reported as low as $0.29/Wp in 2017
  • In 2017 China had a 57% share of global shipments at 52.9-GWp (total shipments of 91.9-GWp), and a 57% share of PV deployment at 53-GWp (total installations 92.9-GWp)
  • Shipments of cells and modules to the first buyer grew by 32% from 69.5-GWp in 2016 to 91.9-GWp in 2017
  • Commercial cell/module manufacturing capacity grew by 36% from 79.6-GWp in 2016 to 108.1-GWp in 2017
  • Module assembly capacity reached 134.3-GWp. Currently there is 26.2-GWp more module assembly capacity than cell manufacturing capacity, indicating price pressure on module assemblers (buying cells and shipping to second buyers in the value chain). In this case, cell suppliers can increase price as long as demand remains high, while module assemblers have little power to increase price to buyers
  • In 2017 shipments of monocrystalline grew by 47% over 2017 for a 45% share of total shipments (91.9-GWp) Trend favoring p-type PERC mono expected to continue.
  • 72+ cell modules now dominate shipments with manufacturers of 60-cell modules hoping to command a price premium. Unfortunately, the price premium has been eroded and the slight premium is unlikely to hold in the long term

Hot off the Trump Administration announcement that it would impose tariffs on all major PV manufacturing countries, the administration appears poised to ask for 72% cuts in funding for the Energy Department’s renewable energy and energy efficiency programs in 2019.  Current funding is at $2.04-billion, with the reduction calling for a budget of $575.5-million and staff reductions from 680 to 450 or 34% of staff. The budget request makes clear the administration’s focus on fossil fuel energy sources and nuclear. In 2017, the Trump Ad-ministration had indicated a goal of significantly increasing the US nuclear weapon capability, which falls under the DoE purview.  NREL (National Renewable Energy Laboratory), is likely to be significantly affected by cuts as its primary funding mechanism is the DoE.

Though NREL has suffered through budget cuts throughout the years, reductions recommended by the Trump Administration would be the most significant if approved by congress.

NREL’s predecessor, the Solar Energy Research Institute or SERI, was established by President Gerald Ford, a Republican, in 1974 when he signed the Solar Energy Research and Demonstration Act.

In 1977, President Jimmy Carter, a Democrat, established the Department of Energy and NREL began operations in Golden Colorado.

In 1991, President George H. W. Bush, a Republican, designated NREL a national laboratory.

Comment: Presidents suggest budgets, congress passes budgets, and in the mix, there will be adjustments and changes.  This isn’t the first time that the Trump Administration requested significant cuts to clean energy research. The budget request to congress for 2018 was originally $636.1-million, representing a two-thirds cut in funding for clean energy research.  As for various reasons and congressional impasses this did not happen, the budget of $2.04-billion stands until October 1.  It’s up to congress now. Both Republicans and Democrats like solar and solar jobs and they particularly like it when there are solar jobs in their states. It is contradictory to impose tariffs touting a return to US solar manufacturing strength (as unlikely as this may be) and then impose tariffs that cut the ability to nurture manufacturing startups.

Lesson: The lesson is clear, when Trump said he didn’t believe in climate change and supported coal, oil, natural gas and nuclear power he meant it. When it looks like a duck, quacks like a duck and waddles like a duck – it’s a duck. Seriously, it’s not a canary it’s a duck. The Trump Administration ended the CPP. The Trump Administration is systematically gutting the EPA, removing environmental protections and removing protections for national monuments such as Bears Ears and Grand Staircase — wonders of nature that cannot be replicated. The DoE recommended a price resiliency rule. The administration-imposed tariffs on solar module imports. The administration is ignoring utility and individual state activity that makes it clear that the trend is towards implementing solar and wind.

Again, clearly a duck.

Mr. Trump does not care about bucking the clean energy trend no matter the fallout. However, again, Mr. Trump cannot make budget cuts without congressional approval.

What do the US DoE Grid Resiliency Pricing Rule and Australia’s proposed National Energy Guarantee have in common? – both decisions represent attempts to balance the grid while appearing to favor fossil fuels for electricity generation above solar and wind.

The federal governments of both Australia and the US are defining energy security and reliability as possible only with fossil fuels and nuclear energy as the base upon which other energy options (renewables) can be built. This argument assumes that renewable energy technologies are inherently unreliable and ignores storage, system configurations that use different RE technologies, energy efficiency and conservation as the energy paradigm of the future. Doing so ignores international agreement that the climate warming must be held to 2 degrees centigrade or lower.

Australia’s proposed National Energy Guarantee does not include a renewable energy target, carbon pricing or other clean energy mechanism.  It does have an emissions guarantee but favors coal, natural gas and oil via its reliability guarantee.  Emissions and reliability guarantees can be traded between utilities and even traded internationally.  In fact, the emissions guarantee may be satisfied through international marketing. The guarantee levels have not been set and will vary state-by-state depending on the level of wind and solar in each state. The state of Western Australia is not part of the plan. As to Australia’s future deployment of wind and solar, the country’s Energy Minister Josh Frydenberg has apparently indicated that the country’s RE target appears to be 95% met via projects in development and already installed. Recently Minister Frydenberg indicated that new coal plants need to be considered and indicated that the government could intervene to ensure a stable energy supply.

NEG Commentary:  Concerning Australia’s National Energy Guarantee, is the government intervening as Minister Frydenberg suggested was possible? Details about the NEG are in such short supply that an assessment of its impact is in the realm of speculation. Though an anti-RE stance can be inferred, in particular from Energy Minister Frydenberg’s comments, it cannot be confirmed even though the bare outline of the NEG indicates a preference for fossil fuel generated electricity. Two well-known entities have taken starkly different views on the NEG.  Despite a lack of detail Bloomberg termed it “innovative” and called it a “blueprint” for other countries. An idea can be innovative, though the devil is in the details, blueprints, however, require detail.  Meanwhile, Deutsche Bank downgraded the value of Tilt Renewables, an Australian wind and solar development firm, assessing that its 1.7-GWp pipeline had little chance of being developed.

When two companies, one known for punditry and one a financial institution make radically different judgments on a subject, follow the money.

History

 In 2012 SolarWorld, facing significant price and margin pressure from cells/modules imported from China, filed trade petitions in Europe and the US under section 337 of the 1930 Trade Act. As a refresher on the Trade Act of 1930; this was the infamous Smoot-Hawley Act which began as a protection for farmers but after much debate fed by many special interests it was eventually attached to a wide variety of imports (~900).  Other countries retaliated with their own tariffs.  The US trade deficit ballooned.  Smoot-Hawley did not push the world into the Great Depression but it certainly was a card in the Depression playing deck.

In 1934, as part of the New Deal, President Franklin Roosevelt pushed the Reciprocal Trade Agreements Act through and the short reign of protectionism in the US ended.

Back to 2012, following an investigation, tariffs on cells and modules imported from China were put in place. Despite high anxiety in the US and Europe over potential price increases, and a highly divided solar industry prices did not increase significantly. In many cases, for larger buyers, the tariffs were absorbed.

In 2014 SolarWorld amended its original petition to include cells imported from Taiwan. Significant tariffs were put in place.  Despite renewed high anxiety in the US over potential price increases, prices did not increase significantly. In many cases, for larger buyers, the tariffs were absorbed.

In late 2016 China slowed it exploding market sending global PV capacity immediately into an oversupply situation. Overnight prices crashed and margins collapsed. To support current production manufacturers began selling future production to large buyers at extremely low prices.  Price decreases were in some cases available to buyers of smaller quantities.

Prices, in some cases, dipped below $0.30/Wp, lower than the price of a cell and below the cost of wafer-to-cell-to module production.  Manufacturers, trapped in a spiral of buyer expectations and low margins, doubled down by selling future production to large quantity buyers in the $0.30/Wp to $0.40/Wp range.

In April 2017 US-based (and 63% Chinese Owned) monocrystalline cell manufacturer Suniva filed for bankruptcy and shut down its cell and module facilities in the US. Simultaneously it filed a new petition under Section 201 of the Trade act of 1974 asking for a 0.78/Wp minimum price on all crystalline module imports and an additional $0.40/Wp tariff on imported crystalline cells.

The Trade Act of 1974, in theory, was designed to expand US manufacturing participation in global markets and reduce trade barriers. It also – and this is important – gave the President broad fast-track authority.  Under it the US president can give temporary relief to an industry.  Gerald Ford, who became the 38th president after the resignation of Richard Nixon, was president at the time.  The Trade Act of 1974 was deemed necessary because it gave the president a stronger negotiating position during the Tokyo multilateral trade negotiations. It was set to expire in 1980 and has been extended several times. President Bush used Section 201 in 2002 to increase tariffs on some steel imports to the US.

Back to the uncomfortable present

 In sum, reports were released by both sides offering catastrophic assessments of what would happen depending on the perspective of the party commissioning the report, the ruling was in favor of the petitioners, remedy testimony was heard in early October and now everyone waits for November 13 when the US ITC will deliver its recommendations.

During the remedy hearing neither Suniva nor SolarWorld delivered compelling arguments as to how they would recover with tariffs in place and nor could they deny that market participants would be hurt. This is because, and it is particularly true for smaller participants, there will be damage to smaller installers who cannot afford a bump up in module prices no matter how slight while module assemblers will pay more for cells and either absorb the cost in their margins or increase prices thus (again) harming smaller installers.

Meanwhile, First Solar recently sent a letter to the US ITC stating it sided with the petitioners.  As First Solar’s letter came after the ruling in favor of the petitioners and following its conspicuous silence at the remedy hearing the motives for an after-the-fact statement from a CdTe manufacturer not subject to tariffs are at the very least worth a few questions. Here are two: Why now and not before the first hearing?  Or, since First Solar stands to benefit, why not remain silent?

Prices for cells and modules have been very low for a decade and the margin expectations for the industry have fallen in tandem with prices.  At this juncture no one knows what the true cost of manufacturing is as it is obscured by subsidies and by financial releases where outsourcing (buying of cells and modules from other sources and rebranding and reporting as internal production) renders the simplistic assessment of price from public statements moot.

Manufacturers outside of China have been forced to operate at like low margins without the benefit of support similar to those enjoyed by manufacturers in China.

All manufacturers and industry participants have benefited in various ways from the larger market available because of the artificially low prices and tight margins.  It may be too late to course correct the margin situation and this makes it extremely difficult for startup manufacturing to thrive outside of China as well as Malaysia, Vietnam and Thailand.

Energy is a tough business filled with tough and often fascinating competitors. From its inception the deployment side of the solar industry has had the same wildcatter soul as oil and natural gas.  The difference between a sun wildcatter and oil/natural gas wildcatters is that the sun is always there to one degree or another. There are places with filtered sun, short periods of sun and some regions where for part of time there is no sun. Nonetheless, the sun does not have to be found or drilled for – its energy can be accessed and in conjunction with storage technologies provide a reliable and non-polluting source of energy as well as true energy independence.

The current trade petition filed by Suniva, joined by SolarWorld and belatedly supported by First Solar has divided the US solar industry into angry for/against camps.  The most significant damage done by the petition may be to industry relationships. Until the US ITC makes its recommendations damage to US module assemblers, installers and developers can only be guessed at and with the final decision up to President Trump, the outcome is a close-to-complete mystery.

All the turmoil in the US would be understandable if the US share of global shipments had been increasing since the last tariffs were imposed. However, the US share of global shipments has been steadily decreasing for two decades.  A better time to intervene with supportive subsidies and incentives for manufacturers would have been in 2001 when the US still had a ~28% share of global shipments.  Nothing was done until the US share of PV shipments was 2% of the global total. In 2017 the US is on track to drop below 1%.

The US Solar Vortex

 During his testimony on October 12 to defend the DoE’s new orders to FERC and from there to ISOs and RTOs (independent system operators and regional system operators) Secretary Perry seemed unclear on some facts including what the acronym RTO stands for and that energy markets are all subsidized and that his new order is yet another subsidy for fossil fuels.  He also indicated that he favors an end to the ITC and the PTC (investment and production tax credits).

In the US the renewable energy community is currently perched on a slippery slope with a president who has stated he does not favor incentives for solar and wind, has rolled back the CPP (Clean Power Plan) via executive order, with the head of the EPA diligently working to undo all regulations and with the DoE pushing to provide incentives to fossil fuels via an order that will encourage the use of coal/natural gas and nuclear by offering preferable pricing and requiring that these sources be purchased.

While most changes affect utility scale and large-scale commercial, state-by-state changes to net metering threaten to slow DG deployment.

Yet, at this crucial moment in US solar industry history when all participants need to stand together they are once again lined up against each other arguing internally over a trade petition that should never have been filed by at least one company that will not benefit from the tariffs, another that had its own reasons for joining the petition and one that jumped on the trade petition train after it had safely pulled into the station.