Consolidation and Capacity Cut in Solar Industry Expected Due to Gradual Phase-Out of Subsidies Worldwide

Source:TrendForce
2018/10/10
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EnergyTrend, a division of TrendForce, reports that some countries are planning or have started phasing out their solar subsidy programs as the global solar photovoltaic (PV) industry and market show stability in their development. During 2013-2017, the average annual growth rate of total PV demand was above 20%. However, this strong growth scenario will unlikely to happen in the future. As the market enters a stagnant phase, manufacturers across the PV supply chain have to be more cautious when planning capacity expansion so that they do not risk incurring losses.

In the latest Gold Member Solar Report by EnergyTrend (3Q18), the grid-connected PV generation capacity worldwide is estimated to increase by around 95GW in 2018. However, the actual PV demand for the entire 2018 is estimated to reach just 86GW. During 2017, numerous developers of PV power plants in China had to move their installation target dates forward. At the same time, the US solar companies also stocked up in advance due to their government’s investigation on PV imports under Section 201 of the 1974 Trade Act. Consequently, a part of demand originally reserved for 2018 had been spent in 2017.

The global production capacity for PV cells is estimated to increase to nearly 150GW in 2018. The global production capacity for PV modules is also estimated to increase to about the same amount in 2018. On the whole, the oversupply problem has become more acute. Additionally, there have been geographical shifts in the global supply and demand. India officially imposed its 25% safeguard duty on PV cells in 3Q18, just as the EU lifted the minimum import price and the anti-dumping and countervailing duty on Chinese PV imports. As a result, China-made PV modules are again flowing into regional markets that they were previously barred from.

Lions Shih, research manager of EnergyTrend, expects consolidation to occur among product manufacturers and among power plant developers. Smaller solar companies will face serious challenges as they are being squeezed out of the market by larger and growing competitors. In the case of Taiwan’s solar industry, three domestic solar enterprises – Gintech, Neo Solar Power, and Solartech – have merged in order to increase in scale and create vertical integration. Several PV manufacturers in Taiwan have also downsized their workforces and cut their production capacity. These are the necessary steps that have to be taken because of the market situation. Manufacturers in China, too, are expected to adopt similar measures, including merger deals, capacity reduction, and even factory closure.

Shih points out that demand drives growth and advances of the solar industry as a whole since it influences the mood of the market and price trends. Demand growth, however, continues to be mainly driven by government policies. Going forward, manufacturers across the supply chain will assess trajectories of prices based on various country-specific (or region-specific) indicators. The rates of a country’s feed-in tariff scheme and electricity prices set under tenders for PV power plants, for example, are important policy-related indicators. Another significant indicator is the grid parity targets that are being seriously discussed within the industry during the recent period.

Quarterly observations of module prices in China during 2018 find that prices of conventional mono-Si products and conventional multi-Si products dropped by 19.8% and 25.5% on average, respectively, from 1Q18 to 3Q18. If solar PV generation is to come very close to grid parity in China at the start of 3Q19, then prices of conventional mono-Si and conventional multi-Si modules will have to drop by another 2.8% and 9.8%, respectively, during the nine-month period from the start of 4Q18 to the end of 2Q19. To the meet expectation that the price PV electricity has to reach the grid parity level, manufacturers in different sections of the supply chain will be under pressure to keep pushing down their costs.

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