China Photovoltaic Industry: the Cost Competition Is Vital

[Michael_Q]

China Photovoltaic Industry: the Cost Competition Is Vital
In 2006, Solar cell manufacturers have been troubled by the polysilicon scarcity. In the retail market, the polysilicon raw material of which the cost was ＄30 /kg. could be sold by ＄300/kg.. The solar module price, in the past 30 months, has been in an upswinging trend. The price index showed by Solarbuzz started to go down in February, 2007. Does it foreshow that the solar module price will run down thoroughly; or is it just a short period adjustment because of the inconvenience of the photovoltaic power system installation during the off-season? To what extend can the polysilicon scarcity affect the PHOTOVOLTAIC industry this year or the next year?
2006: no obvious increase in the global market
In early 2006, Piper Jaffray, the analyst with Investment Bank, pointed out that because of the great polysilicon scarcity, the 2006 solar market would develop slowly, which perhaps increased only by 5% than it was in 2005. Now one year’s time has passed, how did the solar market indeed perform?
The ultimate statistics have not come out. We can take the latest estimates from BSW and EPIA to fill in it. In 2006, the total global PHOTOVOLTAIC market reached to 1,420MW, which was less than 1,460MW in 2005. Leaving alone the statistical error between the various institutions, we can reach a consensus that there is nearly no growth in photovoltaic market in 2006. If the solar energy market has been not promoted by the rising crude oil price, the negative growth of the market could be inevitable. Take Germany for example; although it still occupies the 47% global market shares, the 660MW installed capacity had already declined by 22% comparing with the 837MW in 2005. The leading reason of this was the growing price. The durative high module price together with the consumers’ being aware of the gradual soothing polysilicon scarcity led to peoples’ refusing to budget. However, the lost German market was filled up by other countries, such as Spain and Italy which have been the dark horses in PHOTOVOLTAIC market. While Japan, America and other counties the like still kept over 20% growth in 2006.
The polysilicon scarcity is certain in terms of the global cell manufacturers’ production. According to Photon International, the 2007 global cell production will reach 5GW. If 90% of it uses the crystalline silicon while 1GW needs 9 ton polysilicon material, the total solar cell product line will consume approximate 10,000 ton polysilicon in 2007. Then how much polysilicon can be supplied for the industry? From the data showed by Solarbuzz in 2005, the available silicon for photovoltaic industry in 2006 was 14, 400 tons. During one year’s time, the increased production of Hemlock, ASiMI and Waker separately reached 3,000 tons, 900tons and 1, 500 tons. If being successfully put into production, China’s Xinguang Silicon will create a production of 500 tons in 2007; Luoyang Silicon and Emei Semiconductor can get together an increased output of about 500 tons. Whereas, the 2007 global stockpile available will decrease by 1,500 tons, while the demand for electronic-grade silicon material will increase by 1,000 tons. From above, we can see that the available silicon material for photovoltaic industry in 2007 is about 18,000 tons.
The huge difference between 40,000 tons and 18,000 tons is obvious. It is also the reason why solar cell manufacturers are willing to sign long-term contracts with silicon suppliers and why they set up raw material purchasing departments to procure silicon materials. But from the market aspect, things will be different.

According to 9 ton per 1MW, 18,000 ton polysilicon can be used to produce 2 GW crystalline silicon cells; plus 10% thin film solar cells, a total of 2.2 GW solar cells will be produced globally in 2007. From another statistics, most cell and module manufacturers still keep great stockpiles. It is unwise to keep these stocks till 2008 for the improved polysilicon supply and the reduced module price. Therefore, the total amount of the solar cells for sale in 2007 will reach over 2.5GW, which is enough to meet the 60% growth of the market.
Taking all these factors, we believe that the price will further go down as a result of the surplus solar energy output.
2007: the cost is more important than the growth

It is optimistic for us to predict the 2007 market; and the total amount of the 2007 global photovoltaic market will be staying between 1.7~1.9 GW.
The Japanese market will become more mature. For the lack of energy, the electricity price in Japan approaches to the photovoltaic power cost. In addition, the scanty land resources and the high house prices make the photovoltaic power system integrated with buildings as the main stream of the Japanese market. A lot of housing corporations in Japan are also solar installation corporations; new buildings with photovoltaic power systems ought to gain 3% house purchase loans. These steps greatly stimulate the photovoltaic market. It is estimated that following the reduced price, a steady growth will emerge in Japanese market. The installed capacity of photovoltaic system will reach 430~450 MW in 2007.

Because of the rising price, 2006 German market seems to narrow a bit. In Germany, however, the preferential subsidy policy for the online electricity price brings unremitting momentums to the growth of the solar energy market. In 2007, the depression state of the market will be avoided. While other low latitude regions like Italy, Spain and Portugal which are abundant in solar energy resources and have set supporting policies will be the main forces in European market, especially the Spanish market. It is predicted that each year there will be a 100% increase in Spain before 2010. And in 2007 the total amount of the European market will get around 950 MW.
California, North Carolina, Texas and other state governments in America all enacted relevant policies to regulate in detail the online electricity price and tax revenues. From 2005-2006, the American market had been keeping strong growth momentum. A 170 MW output will be realized in 2007 in America as a result of 30% growth.
Yet the Chinese market has attracted more attentions. As a matter of fact, the 450 MW installation target in 2010 which was proposed by the National Development and Reform Committee is likely to be overfulfilled by more than 600 MW. Meanwhile, the 2007 domestic market of China will be above 20 MW. Although it is growing rapidly, the global share of the Chinese market is still limited. In the face of a huge market and the 2~3 times production, the global solar cell and module manufacturers will be involved in an intense competition. 95% of the cells and modules produced in China will be put into export; In the case of no home market support, only the cost can be an available advantage to have to compete with the international corporations.
From the last half year of 2006, the price pressure on the module producers has been delivered upstream along the industry chain. The most profitable silicon and silicon chip suppliers in this chain were also affected. We could see that the silicon chip price began to go down, while the silicon suppliers performed more actively in seeking long-term cooperative partners. Unless the market pressure reduced, the cell and module manufacturers who could be able to gain silicon by low price would not first sale by lowing their prices. As a result, manufacturers who could not get or get low-price silicon materials ought to face great price pressures.
As to the manufacturing cost, Chinese enterprises have a relative advantage. But from a long-term perspective, the real solution lies in standardization, automation and scale-production.

The solar energy industry is an international industry. Only enterprises featuring international competitiveness can survive. Now that the two ends (material, market) of the industry in China lie abroad, it is important to solve the two-ends problem. On the one hand, long-term supplying deals should be sighed with silicon suppliers; on the other hand, the overseas market should be exploited more actively. At the same time, the forty-year solar energy industry rule must be not forgotten: the price will run down by 20% when the installed capacity of the global photovoltaic system increases by one time.