A glut in the PV module market


PV module prices have declined rapidly since the market slowed in early 2011 and will continue to fall throughout 2012

Currently, there is a glut in the global PV module industry, caused by suppliers who are continuing to execute large capacity expansions that began in 2011, even though the growth in demand for PV modules has slowed down. This was pointed out by Sam Wilkinson, senior PV market analyst, IMS Research, at the Intersolar Europe 2012 conference in Munich, Germany.

Being highly sensitive to supply and demand, PV module prices have declined rapidly since the market slowed down in early 2011. Prices will continue to fall throughout 2012, although not as sharply as in 2011, and the US anti-dumping tariffs will also result in some price increases to help stem the price declines, he said.

The supply and demand of PV modules will remain unbalanced until 2014-15, when demand will ‘catch-up’ and utilisation will return to healthier levels. PV module prices will continue to decline in the long term, but this will slow down when supply and demand are in balance again from 2014-15.

Supply-demand scenario

Sam Wilkinson explained that in late 2008, the Spanish market had collapsed and there was a global financial crisis. Next, there was slow growth in 2009 and supply far exceeded demand. However, decline in prices initiated a strong demand from late 2009.

The demand rebounded and soared in Europe in 2010, and installations grew by 170 per cent. About 70 per cent of the demand came from Germany, Italy and the Czech Republic.

This demand became constrained by supply but utilisation was close to 100 per cent throughout the year. Although suppliers expanded their capacity as fast as possible, reduced incentives slowed demand growth to 35 per cent in 2011. As a result, growth in Germany was also stalled; Italy was frozen between feed-in tariffs (FiTs), and half of the global demand came from the UK and China.

Some capacity expansions are likely to continue in 2012 as well, but the supply and demand growth will be evenly matched: 13 per cent vs 12 per cent in 2012. Currently, the market is still in a state of oversupply.

How prices got affected

This oversupply situation has eventually affected prices of PV modules across the globe. The lowest prices are considerably lower than the average prices. There have been rapid price declines since Italy stalled in Q1 2011.

The costs of module production fell 35 per cent in 2011, while prices fell by 45 per cent. The margin/watt was squeezed to just 9 per cent by 2011 end, down from 25 per cent at the start of the year. Costs are likely to reduce by 14 per cent in 2012, while gross margins are expected to shrink further.

The question is: how can the suppliers reduce costs? According to Wilkinson, they can either renegotiate; cancel supply contracts; or improve technology and R&D in order to increase efficiency. They can also increase or decrease their level of vertical integration. This leads to another question—is vertical integration the right approach to cost reduction?

Outcome of US anti-dumping tariff

Some of the possible outcomes of the US anti-dumping tariff could be that the Chinese suppliers abandon the US market. This will be at least around 10 per cent of the global market. Also, the new Chinese high efficiency cells will not be available in the US.

Further trade action may also take place. For instance, China could retaliate. Trade action may also take place in the EU.

US anti-dumping tariff would add approximately US$ 0.04/W (4-5 per cent) to the cost (and price) of Chinese Tier 1 modules in the US market.

By Pradeep Chakraborty


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