By Gerard Wynn
LONDON May 22 Overcapacity in the global solar
industry is unlikely to disappear soon, suggest data and
strategies outlined in the recent financial reports of top
That surplus has contributed to sharp falls in the average
selling prices of solar panels, or modules, with knock-on
impacts for manufacturing profit margins.
Strategies to maintain margins, as prices continue to fall,
include mothballing or closing existing factories.
But there is a delicate balancing act where no company wants
to give up its share of a global market which grew at a compound
annual rate of 52 percent from 2002 to 2012 (Chart 1).
Companies are choosing between market share and profit.
Evidence from the larger listed manufacturers suggests that
leading companies at present are split on strategy, with some
continuing to ramp up loss-making capacity, while others have
shelved expansion plans, but only a small minority have
mothballed or closed factories.
That may not bode well for the wider, global industry, where
leaner capacity will be the main route to a return to
profitability, and suggests more value destruction to come as
companies continue to take provisions on inventory, close
factories or file for bankruptcy.
Chart 1: (page 14)
The stratospheric growth of the solar industry is
illustrated by the recent expansion of seven of the top 10
producers by shipments which publish relevant data. (See Chart
Those companies were: First Solar, Hanwha Solar
, JA Solar, Jinko Solar, Trina,
Yingli and Canadian Solar.
The manufacturing capacity of those seven module makers
alone at the end of last year corresponded to 44 percent of
actual global demand for solar panels in 2012.
That suggests the scale of industry overcapacity, given
there are 100 or more smaller module manufacturers worldwide.
The seven had combined module production capacity of 13,650
megawatts (MW) as of December, their financial reports show,
compared with actual global demand (as recorded in installed
capacity) last year of 31,095 MW, according to the European
Photovoltaic Industry Association (EPIA).
Regarding their manufacturing strategy, two of the seven cut
capacity in 2012, one left capacity unchanged, and the remaining
Their total manufacturing capacity in aggregate grew by 12
percent or by 1,470 MW.
Three companies provided forecasts for manufacturing
capacity expectations in 2013, two expecting this to remain
unchanged (Jinko and JA Solar) and one possibly to expand
slightly (by 4.2 percent, Trina Solar).
The leading companies are not a representative sample: they
are the firms with the most resources and clout to ride out the
solar shakeout, and so may be expected to contract less.
There have been plenty of bankruptcies among weaker players
and no doubt capacity destruction is proceeding.
Two opposing strategies now for surviving the shakeout and
becoming a leader in a subsequent, consolidated industry might
be: first, to build a leaner, more sustainable business, or,
second, to continue ramp up in the hope of a revival in prices
soon after more companies have gone to the wall.
An example of the latter, "keep expanding" approach might be
Yingli, as suggested by the trajectory of its continued rapid
growth in factory capacity and supported by statements in its
2012 annual report.
"The size of manufacturing capacity has a significant
bearing on the profitability and competitive position of PV
product manufacturers. Achieving economies of scale from
expanded manufacturing capacity is critical to maintaining our
competitive position," it said.
Danish wind turbine maker Vestas might be an
exponent of the more cautious, "focus on profit" approach in its
latest annual report.
The wind industry has dealt with similar problems to solar,
including coping with falling power demand and subsidy cuts in
key markets plus global over-capacity.
"We should not aim for higher revenue at any cost. Vestas
will only embark on projects that are profitable to our
customers and our business," it said in a report which announced
cost cuts following a drop in new orders.
One alternative to expensive capacity expansions is to
outsource more of the supply chain, an approach adopted by
Leading module maker Canadian Solar appears to be an example
in the solar industry, recently announcing that it would achieve
a ten-fold increase in its production capacity of wafers (an
intermediary product in module manufacture) over the next two
years partly through external relationships.
Of the near-2,000 MW expected expansion, 300 MW would be
made internally, 600 MW through a joint venture with GCL Poly
Energy Holdings, and a further 1,000 MW through
long-term supply contracts, it said in its March 2013
That could be a safe, half-way house, retaining the
flexibility to ramp up when prices settle and in the meantime
focusing on profitability.