Chinese panels dominate the winners’ podium

The U.S. business magazine Forbes again this year named the richest people in the world, with China rapidly climbing the list: in 2010 the country had 69 billionaires (in dollars), in 2011 it is now at 115, an increase of 66 percent in one year. Incidentally, the world’s top solar billionaire was, and is, Chinese: Shi Zhengrong, the founder of Suntech, the world’s largest module manufacturer.
The economy is humming. China’s economic performance grew 9.6 percent just in the second quarter of 2011. In contrast, Suntech increased its module production six-fold from 2009 to 2010. Other Chinese module manufacturers are growing just as quickly. Four of them hold the top four positions of the top ten largest module manufacturers.
But it is one thing to produce and another thing to sell. “When I look at the development of production capacity, it quickly becomes clear that it far exceeds what we expect for growth in demand,” warns Christian Rath, an analyst from HSBC Trinkaus in Dusseldorf. “The warehouses are still full, and the inventory has to be sold.” Why not simply lower the prices? That is currently happening but it is not so easy to quickly crank up demand. Up until now manufacturers have continued to produce but only started reducing prices at the end of March.
“That is a situation that repeats itself from year to year,” says Dirk Morbitzer, Managing Director of Renewable Analytics in San Francisco. “If the unit constantly becomes cheaper, an investor earns more money by waiting a week. And if it gets even cheaper next week, then it is worth waiting yet another week. When the price reaches a point where the expected return is right and the price is stable over a number of weeks, only then do customers come back to the market and start buying again.” Morbitzer believes that this is the next imminent situation facing modules. “Right now I estimate that prices will drop about another five percent.” The downward spiral is limited by factors such as raw materials prices that are more attractive in the current economic cycle. Increasing transportation costs especially have a negative impact for Asian manufacturers, as the main module customers are still in Europe, which entails long delivery routes.
For this year, analyst Henning Wicht from IHS iSuppli in Munich forecasts a demand of 22 gigawatts of module production worldwide. But already in 2012, it might only be 18 to 19 gigawatts, and that in spite of the strongly developed production capacities. “And then there is the key question: who has enough sales volume to keep the factories at full capacity? Or who is meanwhile active enough downstream that they can compensate for the lack in demand for modules?” The Chinese manufacturers are price leaders. With their expanded capacity, they also have the right volume needed to maintain an economy of scale. None of the top three manufactures produce less than a gigawatt per year. That makes production cheaper and cheaper. “There is talk of production costs at one dollar per watt by the end of this year,” says Wicht. This could position companies from China to gain more market share.

Learned a lot

Suntech, the world’s largest module maker, has more expensive prices than the other Chinese manufacturers because it can rely on its brand name. The module manufacturer did try to implement region-specific prices for its customers, such as through a high price level in Italy. “But especially the larger customers made it clear that they will not accept region-specific prices in 2011,” says Morbitzer. When distributors who are active in a number of countries sign contracts with their suppliers, they often don’t know yet where they will be delivering the modules. And if they know, they don’t want to disclose this to their suppliers, explains Morbitzer. “I think that Suntech has learned a lot in the last three months, what is feasible with customers and what is not.” With the strategy to focus not just on downstream processes but also on upstream activities, Suntech has stepped out of line from the Chinese mainstream manufacturers and can be more independent from market fluctuations of its suppliers through its own wafer production.
Suntech also tried thin film production last year, but has meanwhile abandoned the new technology. “These were relatively specialized products for building-integrated photovoltaics, and that is a niche business,” says Wicht. It wasn’t worthwhile, given that the goal was to be the number one in crystalline modules: “Then you’ve got to invest all your money in module production.” That’s what Suntech is doing going forward, as can be seen in the planned capacity expansion for 2011. Only LDK’s even more ambitious plans could pose a threat to the first-place company by the end of this year.
Yingli Green Energy, in second place if outsourced manufacturing is included, has made a giant leap and is very strong in Italy. The fully integrated manufacturer produces both wafers as well as cells and modules in equal volumes. Moreover, Yingli also has its own silicon production that is slowly developing. At the Intersolar last year, the Chinese manufacturer introduced the new Panda module. “They are somewhat more efficient at only a slightly higher price,” says Morbitzer.
Yingli has increased its name recognition through perimeter advertising during the last World Cup and as a sponsor of the German soccer team Bayern Munich. Company founder Miao Lianshen, a pioneer in the Chinese solar industry, is meanwhile a billionaire and allegedly would like to retire in Bavaria.
“The quality and price are right,” says Dirk Morbitzer about Trina Solar. Trina also produces wafers and cells, and all that at one location in the Chinese city of Changzhou. This lowers costs and enables the company to fully focus on growth. Meanwhile, Trina has slid up in ranking to become one of the top three companies. A closer look shows that the module manufacturer is outsourcing less of its module production than Yingli, and its own production is already larger than the number two. It has ambitious plans for expanding capacity.

Beyond Suntech, Yingli and Trina

In a ranking solely based on in-house production, Canadian Solar would already be in second place. This Chinese company was one of the fast rising stars last year. Henning Wicht assesses the earnings picture: “With the seven percent margin that we estimate, Canadian Solar is doing pretty well and only a little below the number one Suntech.” Through the proportionately even greater expansion of capacity, their full production capacity is somewhat smaller than that of Suntech. What is important now, says Wicht, is to develop corresponding sales to keep pace with the expanded production potential. And that doesn’t happen very quickly. “In that regard, Suntech, Yingli and Trina definitely have a headstart.” Canadian Solar is currently building a new production line in Ontario with a capacity of 200 megawatts for the end of 2011, thus taking advantage of government funding policies and using its local production facility to supply the local market. “They could even further strengthen their position if they can win additional market shares there,” says Wicht.
Sharp is currently the only Japanese company listed in the top ten of the crystalline module manufacturers. Rath expects that the technology company will especially benefit from the rethinking of energy policy prompted by the Fukushima nuclear reactor catastrophe. Sharp has a good sales and marketing system in Europe and is currently further developing its networks in Eastern and Southern Europe. But compared to the major crystalline module manufacturers in China, the Japanese have lost their significant presence in the rankings. No wonder that the growth targets were and are cautious. Instead, Sharp is pushing its micromorph thin film production.
The Chinese manufacturer Hanwha Solar One, formerly Solarfun, nearly doubled its capacity from 2009 to 2010 and more than doubled it from 2010 to 2011. “They are taking a lot of money and putting it into developing their production,” says Morbitzer. “But they do not have the big brand name.” Hanwha’s current strength is contract manufacturing for other major module manufacturers.
LDK, another Chinese manufacturer, has thus far also mustered up huge investments to expand its production, putting the company in first place this year in terms of capacity. But here also, the question is how can such a production level be secured through sales. “Building a module production line is ultimately not that expensive,” says Rath. “What you get sold is another question.” In the main customer region of Europe, LDK is not nearly so well known as those companies at the top of the list. But compared to number one Suntech, LDK has the advantage of having its own production for silicon and wafers, says Wicht. “This makes them independent from all the market fluctuations from the suppliers.”

New challenges

The U.S. manufacturer Sunpower was recently acquired by the French oil company Total. Sunpower and its modules stand for high quality but also high prices. Backing by Total gives it greater financial leeway, and the French now have good access to the American market.
Jabil Circuit is another company based in the U.S. This Californian company is hardly well-known, because like Hanwha, they have specialized in contract manufacturing. They inexpensively manufacture in countries such as Mexico and Poland. Finally, in tenth place is a German company, SolarWorld, which is meanwhile getting involved in the U.S. market and also in Italy. But in terms of brand recognition, Germany is still its base.
Compared to the Chinese manufacturers, other companies will hardly have a chance at the top positions in the future. But the Chinese also have to find new challenges.
“One problem is increasing wages, another one is the exchange rate,” says Dirk Morbitzer. China is letting its currency appreciate, but the module manufacturers primarily live off of exports. If exports collapse, the government would have to support solar power in China more strongly to avoid an industry crisis. Then the Chinese solar billionaires would have something else to be happy about.