The solar energy industry also failed to avoid the global economic downturn and financial market turmoil last year, but the situation in 2010 has shown signs of improvement. It is expected that the installed capacity of global PV systems will increase by 68% this year to 8.6 GW. This means that with the weakening of the global economic recession and the demand in more regions and fields, the growth rate of the photovoltaic market will return to the pre-crisis level of 2008.
However, the prices of photovoltaic systems and components have fallen sharply last year. The average price of polysilicon modules dropped by 38%, solar wafer prices fell by 50%, and polysilicon spot prices dropped by 80%. We believe that this represents a permanent decline in prices, which will make the photovoltaic industry become a highly competitive market. The weak will be eliminated and only a few companies will occupy a relatively large market share.
The main revelation is that manufacturers in the industry will need to continue to accelerate cost reductions and strive to keep up with the pace of price declines and adapt to the situation where profit margins continue to shrink.
Following losses in most of 2009, manufacturers resumed profit in the fourth quarter. It is expected that the profitability will continue to improve in 2010, but it will not rise back to the level before the economic recession. The average profit margin in most areas of the photovoltaic industry will rise to more than 10% by the fourth quarter of 2010. However, the oversupply of the polysilicon sector will lag behind.
The main factor driving the improvement of profitability of cost reduction plans is to catch up with the speed of falling prices. In 2009, the average price of photovoltaic systems fell by about 11%, while the average price of crystalline silicon components fell by 38%. It is expected that the price of PV systems will drop by 10% in 2010, and module prices will drop by 20%.
Three factors contribute to the difference in the rate of decline of this price. One is the system balance (BOS) device and the installation-related costs, namely, engineering, procurement, and construction (EPC), which have fallen more slowly. Another reason is the decentralized nature of the installation business, leading to its enthusiasm for cost savings. The third reason is related to the second one. It is related to the preferential policies provided by the state to encourage photovoltaic power generation projects, such as preferential long-term purchase price (FIT), discounts, and tax incentives, which help the system price stay at a relatively high level. . Related to the last point, project developers and installers need only show the system owners attractive return on investment (ROI) and payback period to make business, without having to provide the lowest price.
FIT leads to uncertainty Germany is the world's largest solar power generation country, and the country's solar energy industry is currently experiencing great uncertainty. Like Spain's practice in 2008, the possibility of further reductions in FIT has led to a significant increase in demand for photovoltaic systems in the German market. It is estimated that Germany accounted for 50% of the global installed capacity of photovoltaic systems in 2009.
It is expected that more companies will enter the photovoltaic industry in 2010, and they all want to use the potential competitive advantages given by other industries. The most prominent are Samsung and LG Electronics, which is the largest shareholder of LG Displays. They are already the world's largest manufacturer of LCD panels, and they are global television, mobile phone and appliance manufacturers.
The production of LCD panels has many similarities with the production of solar panels. Both involve large glass substrates with deposited thin film polysilicon and other materials. These companies are experienced in reducing costs, improving quality, and expanding volume. These companies can benefit from the purchase of glass, wafers, polysilicon, and manufacturing equipment. These companies are also good at entering ready-made fields and eventually occupy these areas.
Industry may once again flood with excess supply Although the PV industry has done a good job of reducing inventory, the situation has not improved significantly because the utilization rate of existing production capacity has fluctuated. Due to the demand bubble caused by the FIT in the industry, the German market is the latest example, so it is difficult to make effective plans. Indeed, the market is now absorbing the supply of components, but by mid-year, the industry may once again flood with excess supply.
From polysilicon to components, companies have reduced production through idle production lines and reduced shifts. We estimate that the average capacity utilization rate of all nodes in 2009 was 70%. Some companies have out-of-stock products throughout the year, while others have surplus products. In addition, many manufacturers expanded their production capacity in 2009. There is a big debate about how to calculate the output. Our definition is to use the installed production line/equipment 24 hours a day, seven days a week. We believe that the continued surplus or near surplus of capacity in 2010 will keep the price flat.
China, the United States, and Italy will be the battleground. For this year, we predict that several major new growth markets will become a contestable place for suppliers. The most prominent are China, the United States and Italy, which together will account for 50% of the 2010 incremental market. Germany will still be the largest market, but the importance of these countries will continue to rise.
China is a latecomer and is eager to increase the share of renewable energy in its total energy. Companies with strategic positioning in these markets now face the greatest chance of seizing their share in the coming years. Some companies are using EMS providers to produce components to minimize capital investment and base on localization. The relationship between Jabil Circuit and SunPower is an example of this.
Downstream of the suppliers' transition to the industrial chain continued the trend that began in 2009, and more companies in the photovoltaic industry will be closer to users and add value to photovoltaic power generation users. PV supply chain companies are investing directly in the long-term and development-period ownership of solar power plants, as well as controlling EPC (design-procurement-construction) or installation services. Major examples include MEMC's acquisition of SunEdison and LDK's investment in solar farms in China. Conergy has changed from a supply chain company back to a project developer. Focusing on the downstream business has multiple benefits, including creating more developed and sales channels, developing its own customers, and some can also improve profitability.
However, the prices of photovoltaic systems and components have fallen sharply last year. The average price of polysilicon modules dropped by 38%, solar wafer prices fell by 50%, and polysilicon spot prices dropped by 80%. We believe that this represents a permanent decline in prices, which will make the photovoltaic industry become a highly competitive market. The weak will be eliminated and only a few companies will occupy a relatively large market share.
The main revelation is that manufacturers in the industry will need to continue to accelerate cost reductions and strive to keep up with the pace of price declines and adapt to the situation where profit margins continue to shrink.
Following losses in most of 2009, manufacturers resumed profit in the fourth quarter. It is expected that the profitability will continue to improve in 2010, but it will not rise back to the level before the economic recession. The average profit margin in most areas of the photovoltaic industry will rise to more than 10% by the fourth quarter of 2010. However, the oversupply of the polysilicon sector will lag behind.
The main factor driving the improvement of profitability of cost reduction plans is to catch up with the speed of falling prices. In 2009, the average price of photovoltaic systems fell by about 11%, while the average price of crystalline silicon components fell by 38%. It is expected that the price of PV systems will drop by 10% in 2010, and module prices will drop by 20%.
Three factors contribute to the difference in the rate of decline of this price. One is the system balance (BOS) device and the installation-related costs, namely, engineering, procurement, and construction (EPC), which have fallen more slowly. Another reason is the decentralized nature of the installation business, leading to its enthusiasm for cost savings. The third reason is related to the second one. It is related to the preferential policies provided by the state to encourage photovoltaic power generation projects, such as preferential long-term purchase price (FIT), discounts, and tax incentives, which help the system price stay at a relatively high level. . Related to the last point, project developers and installers need only show the system owners attractive return on investment (ROI) and payback period to make business, without having to provide the lowest price.
FIT leads to uncertainty Germany is the world's largest solar power generation country, and the country's solar energy industry is currently experiencing great uncertainty. Like Spain's practice in 2008, the possibility of further reductions in FIT has led to a significant increase in demand for photovoltaic systems in the German market. It is estimated that Germany accounted for 50% of the global installed capacity of photovoltaic systems in 2009.
It is expected that more companies will enter the photovoltaic industry in 2010, and they all want to use the potential competitive advantages given by other industries. The most prominent are Samsung and LG Electronics, which is the largest shareholder of LG Displays. They are already the world's largest manufacturer of LCD panels, and they are global television, mobile phone and appliance manufacturers.
The production of LCD panels has many similarities with the production of solar panels. Both involve large glass substrates with deposited thin film polysilicon and other materials. These companies are experienced in reducing costs, improving quality, and expanding volume. These companies can benefit from the purchase of glass, wafers, polysilicon, and manufacturing equipment. These companies are also good at entering ready-made fields and eventually occupy these areas.
Industry may once again flood with excess supply Although the PV industry has done a good job of reducing inventory, the situation has not improved significantly because the utilization rate of existing production capacity has fluctuated. Due to the demand bubble caused by the FIT in the industry, the German market is the latest example, so it is difficult to make effective plans. Indeed, the market is now absorbing the supply of components, but by mid-year, the industry may once again flood with excess supply.
From polysilicon to components, companies have reduced production through idle production lines and reduced shifts. We estimate that the average capacity utilization rate of all nodes in 2009 was 70%. Some companies have out-of-stock products throughout the year, while others have surplus products. In addition, many manufacturers expanded their production capacity in 2009. There is a big debate about how to calculate the output. Our definition is to use the installed production line/equipment 24 hours a day, seven days a week. We believe that the continued surplus or near surplus of capacity in 2010 will keep the price flat.
China, the United States, and Italy will be the battleground. For this year, we predict that several major new growth markets will become a contestable place for suppliers. The most prominent are China, the United States and Italy, which together will account for 50% of the 2010 incremental market. Germany will still be the largest market, but the importance of these countries will continue to rise.
China is a latecomer and is eager to increase the share of renewable energy in its total energy. Companies with strategic positioning in these markets now face the greatest chance of seizing their share in the coming years. Some companies are using EMS providers to produce components to minimize capital investment and base on localization. The relationship between Jabil Circuit and SunPower is an example of this.
Downstream of the suppliers' transition to the industrial chain continued the trend that began in 2009, and more companies in the photovoltaic industry will be closer to users and add value to photovoltaic power generation users. PV supply chain companies are investing directly in the long-term and development-period ownership of solar power plants, as well as controlling EPC (design-procurement-construction) or installation services. Major examples include MEMC's acquisition of SunEdison and LDK's investment in solar farms in China. Conergy has changed from a supply chain company back to a project developer. Focusing on the downstream business has multiple benefits, including creating more developed and sales channels, developing its own customers, and some can also improve profitability.