Solar in the future Energy Mix NCCAVS May 14, 2012©2012 Navigant Consulting, Inc. 5 Solar Services...

DISPUTES & INVESTIGATIONS • ECONOMICS • FINANCIAL ADVISORY • MANAGEMENT CONSULTING

©2012 Navigant Consulting, Inc. Solar Services Program, Paula Mints

Paula Mints

Director | Energy | Navigant

Principal Analyst | Solar Services [email protected]

Navigant Consulting, Inc.3000 El Camino Real, Suite 225

Palo Alto, CA, 94306Paula Mints: (650) 849‐1142

Solar in the Future Energy MixNCCAVS

May 14, 2012

1©2012 Navigant Consulting, Inc. Solar Services Program, Paula Mints. ENERGY

Solar going forward

1 The Basics

4 The Future

3 PV Technology Prices

2 Supply and Demand


Part I

The Basics


But first … some common sense …

For the past four years, the PV industry has experienced extraordinarily strong growth –though, along with this growth has come low margins, losses and failures. Economist Kenneth Boulding said: Anyone who things that exponential growth can go on forever in a finite world is either a madman or an economist.

Regarding LCOE models … almost all of them have the same flaw – assuming a constant increase in the cost of conventional energy over time, along with a constant decrease in the cost of solar.

This ignores the true value of solar … it is long running, reliable and clean.


What is Market Research?

Is a specific discipline where something is counted from point a to point b, thenpoint b to point c, and so on. The point is to eliminate double counting and arriveat specific metrics to define a market

In solar, when following the module it is from manufacturer to first point of sale, then first point of sale to the next point and so on, until the module is installed.

Market research is the objective study of a subject using data gathered through primary research to characterize, analyze and forecast demand and supply for, in this case, the photovoltaic industry.

Market research makes use of data to identify trends and customers, and analyze competitors.

In the case of this practice, the data go back >30 years. In market research, you get the data, get the data, get the data and theninterpret the data.

Primary research is direct contact with the person buying and selling the product, technology, widget, etc.

The purpose is to provide an objective analysis that managers and executives can use for business planning purposes.


Current state of the Industry

Globally, but, particularly in Europe (the largest market for solar products) incentives are decreasing, changing or disappearing

Bidding on power purchase agreement (PPA) prices and tenders (a PPA by another name) are two low and will have to be renegotiated. The alternative to renegotiation is bankrupt systems or, systems that will not be built

PV technology prices are stuck at artificially low levels, and are held down by high levels of inventory and the reselling of that inventory, high levels of capacity, decreasing incentive rates and the expectation that prices will continue to decrease

Manufacturers are idling capacity and cancelling plans to add capacity

Investors have lost or are losing confidence in solar leading to negative articles that lead the general public to question the technology

The current correction could have been avoided had manufacturers, demand side participants and investors paid attention to the one salient fact about incentives:

INCENTIVES ARE DESIGNED TO DECREASE OVER TIME UNTIL DEMAND IS STIMULATED AT WHICH POINT THEY END

However, the industry will emerge leaner from this correction with the business and financial models necessary to move it to a low incentive environment.


In the futureGlobally, we are at the beginning of a change in the way we source our energy

Conventional energy (fossil fuel based) is not infinite and, though there is currently a high supply of natural gas in the US, the means to extract this commodity are not benign.

Nuclear is also not benign, and, unfortunately, it takes a significant accident every few years to remind us of this.

Solar is a reliable, clean, long running, low O&M energy source – once the means of production (system) are installed, it can be relied upon to produce energy for 25 years or more. ROI is not the point, as it separates solar from its primary attributes.

During the last four years the industry has been promising to be the cheapest source when it should have been promising to be the highest value source of electricity. Time to change the story.

All technological (industrial) revolutions from the railroad to the telegraph, telephone, automobile and even the indoor toilet were initially expensive to execute and met with resistance. Progress may be painful but it is necessary and worth the effort.

Solar will pay a major role in the portfolio of energy solutions needed to power our future.


Industry Metrics

2010 Inventory into 2011: The megawatts of inventory, primarily on the demand side, at the beginning of 2011.

2011 Announced Capacity: All capacity, nameplate, run rate (commercial) or simply intended, that was announced for 2011.

2011 Announced Production: Manufacturer announced production does not necessarily correspond to what the manufacturer shipped, and, may or may not include outsourced technology. Module assemblers that do not develop the semiconductor technology (the cell) are often included in this number. Announced production is where double and triple counting is found, and is the primary culprit for oversizing PV industry shipments.

2011 Commercial Capacity: Run rate PV manufacturing capacity, that is, what is capable in a calendar year of producing commercial technology, factoring out equipment taken out of service, etc.

2011 Production: Technology produced, but not necessarily shipped, by the original technology manufacturer in the calendar year that is being studied.

2011 Shipments: Technology shipped from the original manufacturer to the first point of sale (first buyer) in the market. First buyers include installers, system integrators, retailers, distributors, module assemblers, end users and other technology manufacturers

2011 Installations: Technology that was installed in a calendar year. Installations include inventory lag, that is, the inventory represented by the first bar in the chart.

2011 Inventory into 2012: Megawatts of inventory, typically held on the demand side, at the beginning of 2012.


2011 into 2012 Global Statistics

High levels of inventory and manufacturing capacity will continue to be a problem throughout 2012 The difference between production and shipments is supply side inventory

The last bar is demand side inventory

0.0

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2010Inventory into

2011

2011AnnouncedCapacity

2011AnnouncedProduction

2011CommercialCapacity

2011Production

2011Shipment

2011Installations

DefectiveModule andModule Theft

2011

2011Inventory into

2012

MWp


From 2006 through 2011 the PV industry had a 60% compound annualgrowth rate. From 1996 to 2011 the industry had a 46% CAGR

The high growth experienced by the PV industry is one hallmark of an immature industryFrom 2004 through 2010 the PV industry behaved like a teenage boy that had just gotten his driver’s license

82.6 114.1 134.8 175.5 252.0 352.9 504.9 675.3 1049.8 1407.71984.6

3073.0

5491.8

7913.3

17402.3

23579.3

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

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Annual Shipments/Demand Compound annual growth over 15 years 46%


Part 2

Supply and Demand


2011 Supply and Demand shares

US3% Europe

7%

Japan12%

ROW15%

Taiwan17%

China46%

2011 Supply 23.6‐GWp

North America12%

Europe62%

China10%

Japan5%

ROW11%

2011 Demand 23.6‐GWp, Installation Est 21‐GWp


PV Technology Share, 2009, 2010, 2011

Challenging times for thin film manufacturers who must compete with artificially low prices for c-Si.

Price is the ONLY competitive factor currently.

Poly c‐Si48%

Mono c‐Si

37%

Ribbon Silicon2%

a‐Si3%

CdTe8%

CIS/CIGS2%

2010 17.4‐GWp

Poly c‐Si46%

Mono c‐Si35%

Ribbon Silicon2%

a‐Si3%

CdTe13%

CIS/CIGS1%

2009 7.9‐GWp

Poly c‐Si48%

Mono c‐Si38%

Ribbon <1%

a‐Si3%

CdTe8%

CIS/CIGS3%

2011 23.6‐GWp


Regional PV Technology Share 2011

0%

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30%

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70%

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100%

Cz Px Si Ribbon a-Si CdTe CIGS/CIS

% C

ontr

ibut

ion

Total Shipments 2011 23.6-GWp

Japan Europe ROW U.S. China/Taiwan


PV Industry Capacity

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Est

Total Shipments 352.9 504.9 675.3 1049.8 1407.7 1984.6 3073.0 5491.8 7913.3 17402.3 23579.3 25915.3Total Capacity 503.7 728.4 1002.3 1459.8 2303.3 3210.7 5442.6 9863.2 13588.9 22509.5 35165.7 39033.9

70% 69% 67% 72% 61%62%

56%

56%

58%

77%67%

66%

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MWp


Part 3

Average Module Prices over time


Average module prices: Price is currently the most important competitive factor though, without bankability this loses meaning

The range for modules to first buyer s $0.50/Wp to $3.35/Wp* large quantity buyer average $1.28/Wp in 2011Reselling of inventory is currently averaging 85 cents

$2.65$2.75

$2.65

$2.90$3.03

$3.39$3.50

$3.25

$2.18

$1.48$1.37 $1.31

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

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ASP

$/Wp

MWP

MWp Average Selling Prices


Natural Gas prices per million BTU to the Hub (annual averages)Offered for comparison, competition with inexpensive NG high for all Solar Technologies

$5.50$5.91

$8.82

$6.74 $6.98

$8.86

$3.95$4.39

$4.00

$2.33

$0.00

$1.00

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$/Million

BTUS

NG Average Price/Million BTU to the Hub


Part 4

The Future


Global Forecast: 2012 is a correction year for solar, with shipments at the conservative forecast or lower

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

History/Reduced Incentives 2.0 3.1 5.5 7.9 17.4 23.6 13.7 11.7 10.9 9.9 9.9Conservative 19.2 19.7 20.5 21.6 22.7Accelerated 25.9 28.8 36.8 46.3 57.8

0.0

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70.0

GWp


Global Revenue forecast for reduced incentives, conservative and accelerated forecasts, in 2011, revenues flat despite a 34% increase in shipments (sales)

Revenues for Japan decreased by 13% in 2011 over 2010, decreased by 48% for Europe& the US, and increased by 26% for the ROW and by 16% for China/Taiwan

$0

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Millions

Reduced Incentives & History Conservative Accelerated


Paula Mints, Principal Analyst, Navigant’s Solar Services ProgramDirector in the Energy Division

[email protected] 650-849-1142

Thank You!


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partner prioritization• Business model development

and analysis• Key relationship introductions• M&A support

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Solar in the future Energy Mix NCCAVS May 14, 2012©2012 Navigant Consulting, Inc. 5 Solar Services...

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Transcript of Solar in the future Energy Mix NCCAVS May 14, 2012©2012 Navigant Consulting, Inc. 5 Solar Services...