Solar Market Still Shines, but Supply Chain Woes

Ash Sharma, Research Director, IMS Research



Yet again the solar PV market amazed me last year. My forecast at the start of the year of 17GW of new capacity being added was seen as bullish by most - hardly surprising considering that this would have been an increase of 125%. Amazingly, this turned out to be pessimistic! A massive surge in demand in both Germany and Italy, caused by speculation over future incentive cuts drove new installation to more than 18GW - a whopping 140% increase year-on-year. Despite some major cuts to incentive schemes in Europe in 2009 and 2010, the industry had already added massive extra panel manufacturing capacity. This caused panel and system prices to fall sharply, sparking life back into the market and driving investment returns up, which resulted in 18GW of new annual capacity and 40GW of total PV capacity in operation by the end of 2010. Despite being smaller than the wind power industry, PV took great strides in catching up last year. The power semiconductor industry sees PV deployment as a major driver of growth over the coming years, both from the viewpoint of inverter electronics and also panel-level voltage optimisation. Although still a relatively small opportunity now, the TAM could approach a billion dollars in the next five years. Semiconductor suppliers are well advised to keep these PV customers happy, especially considering the fall-out of last year's supply problems, when shortages of components (most notably IGBT modules) led to a massive bottleneck in inverter production. Inverters were the bane of the PV industry last year, delaying projects from being completed (and hence missing out on valuable feed-in tariffs) and inverter vendors in turn laid the blame firmly at the door of their semiconductor suppliers. Of course, being able to view the industry from outside of the PV bubble, it's not hard to see why these inverter companies felt ignored. It wasn't just their business that was growing, the whole global economy was recovering and power semiconductors were in hot demand. In fact our latest data shows the power semiconductor market grew 40% last year, more than reversing 2009's decline. And when demand is high and suppliers are on allocation, the biggest customers typically come first and the smaller customers have to wait. Now that the component shortage is (hopefully) behind us, I've heard that inverter suppliers are trying to ensure they don't suffer the same fate again and are actively seeking out second and third sources, trying new Chinese component vendors, moving away from customized, single-sourced parts, holding more stock and trying to provide better forecasts for demand to their suppliers. The latter will possibly prove the most difficult. Massive oversupply occurred last year (as the supply bottleneck unwound and double-orders got fulfilled) and currently demand is very weak. But a major surge in demand is anticipated due to further incentive changes in major markets, as well as the implications on energy policy of the Fukushima nuclear disaster. IMS Research is predicting another fine year for the PV industry, with new capacity reaching 21GW in 2011 - a further 15% increase. The outlook changes somewhat for 2012, with PV demand forecast to fall to 20GW triggering a free-fall in prices amidst industry-wide over-capacity. Following a bad' 2012, industry growth is set to accelerate again to double-digit rates and by 2015 a projected 160GW of PV capacity will have been installed globally. That's quite an opportunity for power semiconductor companies!