The Pain and the Joy of the PV Module Price Decline, or Why I Wish I was Close to 1GW Manufacturing Capacity Already . . . .

As discussed in my previous post, photovoltaic (PV) module prices have dropped by 50% or more over the past 18 months. Recent Wall Street guidance by Tier 1 crystalline (c-Si) companies says that they will easily reach a manufactured cost of $1/Watt by mid 2011.  First Solar, the leading thin film manufacturer, already has an aggressive cost structure at $0.80/W currently (and is heading to $0.74/W in 2011).  Together, these two price drivers make the launch of a new solar energy PV modules product extremely difficult.

solar energy, photovoltaic thin-film, solar cells

Thin-film on Glass Production

Many new thin-film photovoltaic companies have been caught off-guard by the steep economic downturn and the lack of access to technology development and expansion capital. During this time, mature PV module companies greatly expanded their manufacturing capacity, lowered non-material production costs and increased yield ( Grade A salable product) resulting in the cost advantages described above. Thin-film companies’ strategic models created 4- 8 years ago used assumptions that c-Si companies would never achieve a manufactured cost below $1.50/W and they are now scrambling to compete with these new solar energy market dynamics.

Unfortunately for many of these promising companies, the days of doing incremental 50MW to 100MW capacity expansions annually is over. While expansion capital is hard to secure in the best of circumstances, the real problem is the manufacturing economies of scale required to reach production costs below $1W. Most successful companies with aggressive <$1/W cost structures are close to, or exceed 1GW of production capability.  Going from less than 100MW total production to 1GW has never been done before in the PV industry (although Solar Frontier is bravely in that process now). The operational scale-up risks of not “getting it right” is quite high, not to mention that finding approximately $1.3B in capital to finance that scale of production is almost impossible to secure. To overcome this GW scale necessity, new thin-film companies need exceptional (>12% efficient) solar cell technology combined with very lost-cost manufacturing machinery costs. This is a very rare combination, as semiconductor machinery is very high-cost and production line solar cell efficiencies are 6% – 11% depending on technology type. A good piece on this situation from Vinod Khosola can be found here.

photovoltaic thin-film, solar energy

Thin-film Production Line

Products based on amorphous silicon (a-Si) photovoltaic technology are under the most pressure, as solar cell efficiencies are generally below 10% and manufacturing costs are well above $1.45 on average. Recent scaling back announcements from early stage Sunfilm and Signet Solar are examples of this pressure, as is ENER’s running at substantially less than 50% of full production capacity with negative gross margin sales data. These are well run companies that unfortunately have been caught by exceptional market dynamics.

The PV module industry is heading toward the perfect storm of commoditization and temporary oversupply. Downward sales price pressure will continue while solar energy module supply in 2011 will exceed demand by more than 50%. M&A activity along with bankruptcies will be on the rise. And this is happening before the hyper-efficient electronics manufacturing giants such as Samsung, Foxconn and others drive down costs further as they become fully operational in the fast approaching $100B global PV marketplace.

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