2010 PV Industry Cell Production - declining share in growing market

For years now, analysts have looked at the solar PV industry with its red-hot growth, and predicted near-term shakeout and consolidation.

The continued rapid growth rate within the PV industry is a textbook example of how high industry growth rates can dominate competitive influences. At its breakneck pace, even the largest PV cell manufacturers have struggled to keep up with the overall industry.

At the start of 2009, for example, Deutsche Bank predicted that the two ends of the spectrum – low cost, low efficiency and high cost, high efficiency – would be able to differentiate themselves and pull away from the pack.

We believe industry leaders are gaining market share, will gain market share through the shake-out, and will consolidate market share as industry growth accelerates at the expense of non-differentiated players with weaker balance sheets.
We view First Solar and SunPower as industry leaders with sustainable, technology based competitive advantages. We believe First Solar can retain industry leading margins through and after the shakeout, and SunPower has the most mature business model, addressing the industry’s broadest markets and geographies, with a healthy long-term model. We expect these companies to benefit disproportionately as the industry recovers.

By the end of 2010 – just two years later – First Solar had risen to first place and then dropped to third even though it had expanded almost three fold in the process. SunPower, meanwhile, was no longer part of the Top Ten.

This is not to say that the rising tide of industry growth has lifted all ships. There have been casualties, most notably at the low efficiency end of the spectrum. As prices have dropped, lower efficiency options have found themselves at an increasingly disproportionate advantage.

A race where the favorites drop out faster than the followers

While there has been both up and downstream integration, the industry is becoming increasingly fragmented and differentiation remains challenging. Bankability has become increasingly important in PV installations, suggesting that those firms with operating history and market strength should win out. Market shares for cell manufacturers are shrinking, however, and long operating record appears to almost be a liability.

As the market has grown, market share has shrunk

Even as the top firms have grown at incredible pace, their individual and collective market share has declined.

Since 2005, no PV cell manufacturer has been able to retain a top two placing for more than two years. Only half of the 2006 Top Ten were still part of this group in 2010. Of those five, only four had managed to remain in the Top Ten for each year between 2006 and 2010. Unique amongst PV cell producers, Motech, thanks to financial support from TSMC, rejoined the Top Ten in 2010 after missing the cut in 2009.

Back in 2005, Sharp had a 24% market share. In 2010, it took the combined production of the top five players to achieve the same overall market share portion. Of the current top five, only Q-Cells was one of the Top Ten player in 2006.

In what appears to be a reverse consolidation, the combined market share of the Top Ten has been reduced sharply. In 2006, the top ten PV cell manufacturers represented 66% of the industry production. At that time, the rest of the world’s production was roughly equivalent to that of the top three producers – Sharp, Q-Cells, and Kyocera.

In 2010, just five years later, the industry had grown almost 11-fold. Rather than keep pace, the share of the Top Ten had been reduced by over a third to 40% overall.

Is Consolidation Ahead?

Can the relatively recent entrance of Fortune 100 global giants like GE, LG and Samsung finally lead an industry consolidation? These are companies have learned how to stay big.

At the end of 2010, Shyam Mehta, author of GTM Research’s PV Technology, Production and Cost Outlook: 2010–2015, offered these thoughts:

“Whether it be through product differentiation, contract manufacturing, technology innovation, or vertical integration, higher-cost producers will have to develop differentiated business models to stay alive in the long term.”

Mehta and other analysts may be right. Flat PV industry demand growth is expected in 2011, and may allow conventional competitive factors the opportunity to make an impact. Growth in 2012 and beyond, however, could be more consistent with industry norms.

If the recent record of the PV industry is any indicator of the future, one thing is certain.

Even giants like GE, LG and Samsung may need to re-learn how to grow quickly in this industry to even keep pace with it. Consolidation, if it happens, will need to be quick and nimble business management will be critical.

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2 Responses to “Will the Solar PV Industry Ever Consolidate?”

  1. David,
    I agree whole heartedly with this posting. Please see the article my colleague Scott Mueller and I published a couple of months ago that points out the same dynamics in the module market and installer market.

    http://www.renewableenergyworld.com/rea/news/article/2011/03/the-u-s-pv-market-a-tale-of-david-vs-goliath

    Elliott

  2. Thanks Elliott.

    Fascinating to see the dynamics up and down the value chain.

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