Severe Turbulence Rocks Solar Industry
SHANGHAI, CHINA 鈥 Clear air turbulence is usually impossible to detect with the naked eye and with conventional radar, making it difficult to avoid with much warning time. Many who have been in an aircraft and have experienced this kind of jostling have likely given some thought to perhaps taking the train the next time. In the solar electric manufacturing business, a form of this severe up-and-down turbulence began to hit the industry in 2010-2011 as worldwide production capacity skyrocketed and the sky indeed seemed to be the limit as far as sales opportunities. But what seemed to be a global arena of practically limitless possibilities for photovoltaic manufacturers has turned into a wreckage field for many, a turnaround so vast and dramatic that few saw coming just a few years ago.
In 2012, more than 25 gigawatts (25,000,000,000 watts) worth of photovoltaic cells and modules were produced worldwide, up from .5 GWs in 2002 and 5.5 GWs in 2008. Last year a record amount of PV was sold across the globe and a record amount of money was lost by PV manufacturers as prices dropped close to 50 percent in the past two years alone. How could this happen? As business foolish as it sounds, PV module companies, modcos for short, have been selling below cost in order to be competitive and move product. This self-destructive phenomenon has led to the grim state that the modcos find themselves in now where not a single one on the top ten producers list made a profit last year. In fact, one can probably expand that depressing list of red ink to the top 20. Record sales and record losses. No one saw that on their radar screens five years ago.
The top 10 PV module suppliers in 2012 and their respective losses for last year.
* Suntech has not reported financials since the first quarter of 2012 when a loss of $119 million was posted. In 2011 Suntech lost $633 million. Some analysts are estimating a loss in the $500 million range or more for 2012.
** Sharp鈥檚 fiscal year ends March 31.
*** Figure for Jinko Solar for first nine months of 2012 only.
The story of the rise and collapse Suntech Power is particularly striking on a personal level for me. In 2004 I was part of a U.S. Department of Energy-sponsored group to China that visited with local renewable energy representatives in and around Beijing, Shanghai and Inner Mongolia. One of the visits we had was with Dr. Shi Zhengrong, president of what was then a small three-year-old PV manufacturer in Wuxi, Jiangsu province, not far from Shanghai. Suntech Power (STP), which was to go public on the New York Stock Exchange the following year, was going to be hugely profitable Dr. Shi boldly told us with more than a hint of cockiness. And sure enough, after STP started trading on the NYSE in late 2005, Suntech did become just that for Dr. Shi as he became a multibillionaire and one of the richest men in China over night.
The author and Shi Zhengrong, Wuxi, 2004.
The author and Shi Zhengrong, Wuxi, 2004.
By 2010 and through 2011, Suntech became the largest PV manufacturer in the world with a presence in Asia, Europe, the Middle East and North and South America. Now, in the spring of 2013, Suntech sits at the edge of the bankruptcy abyss.
From the company website:
鈥淪untech Power Holdings Co., Ltd鈥.announced that on March 18, 2013, a group of eight Chinese banks filed a petition for insolvency and restructuring of its Chinese subsidiary Wuxi Suntech Power Co., Ltd in the Wuxi Municipal Intermediate People’s Court in Jiangsu Province, China. Wuxi Suntech today notified the Court that it will not file an objection against the petition.鈥
Saddled by huge debts, declining sales, an apparently fraudulent bond guarantee and inner turmoil in the top ranks, Suntech鈥檚 ultimate fate cannot be precisely determined at this time. But one thing seems certain: while Suntech Power may be the biggest modco to fail to-date, it definitely won鈥檛 be the last.
From the Macro to the Micro of the PV Market in Hawaii
Hawaii PV companies had a record year in 2012 with some impressively topping over $100 million in revenue. Yet as is demonstrated by the example of the performance of module manufacturers, record revenues do not equate to record profits. In fact, as anyone in business should know, there鈥檚 no direct causal relationship between revenue and profitability. While some in the state may focus on top 25 businesses lists, as far as self-reported, unvetted annual revenue numbers, to what extent Hawaii solar integrators are making a sustainable profit cannot be easily determined. Perhaps home and business owners who are considering going solar electric should also ask whether the company that they鈥檙e considering giving their business to is making enough of a profit to be there in the future. In the past year over 200 companies pulled PV permits on Oahu alone and there鈥檚 no way that all those companies are going to be around in the years to come to take care of service issues that will inevitably come up or to remove solar modules when roofs need to be repaired or replaced.
If a modco exits the market due to insolvency or bankruptcy, it鈥檚 likely that whatever warranty coverage鈥攚hich in the case of the power output of the modules can be as long as 25 years鈥攑rovided by the manufacturer evaporates. While it鈥檚 true that design and field failures and quality issues of PV modules from the top tier producers have typically been few and far between, when they do happen hundreds of thousands of modules can be affected. Bottom line: warranties do matter and the value of the manufacturer鈥檚 warranty is usually only valid and valuable as long as the company remains in business.
Beyond the dramatic Suntech story, another struggling modco, one that has had a high profile in Hawaii, is SolarWorld. On the world鈥檚 top 20 PV manufacturers list last year and based in Germany with a manufacturing facility in Oregon, SolarWorld has had a slew of bad news in recent months: in January they announced that about 30 percent of their staff would be cut at the Oregon plant; the company has $1.4 billion in debt and lost $322 million before taxes in the first nine months of last year; its investor bonds due in 2017 are worth less than 30 cents on the dollar; and the publication of fourth quarter and complete 2012 financials was postponed with no specific future date set for the release.
SolarWorld was the chief protagonist in the filing of charges of illegal trade practices against Chinese modcos in the U.S. in 2011 and with the European Union in 2012. (Full disclosure: my company was directly involved in this dispute. And while the final ruling in Washington, D.C. in November 2012 largely supported SolarWorld鈥檚 position by ratifying the imposition of substantial tariffs on the importation of Chinese solar cells and modules into the U.S., such protectionist measures have provided SolarWorld little demonstrable benefit at least in the short term.
SolarWorld has engaged restructuring specialists to deal with its debt and finances. But with global PV production and supply likely to remain significantly above demand at least this year and into 2014 and the beyond fierce price competition among the players in order to move product, it鈥檚 difficult to see how a struggling manufacturer like SolarWorld has brighter days ahead in the near term.
Not a small number of solar integrators across the state have been installing Suntech and SolarWorld modules over the years. One of the largest PV integrators in the state鈥擧awaii Energy Connection鈥攈as been a long-time installer of Suntech products and the state鈥檚 largest wholesaler of renewable energy equipment鈥擨nter-Island Solar Supply鈥攈as sold megawatts of SolarWorld modules through its substantial dealer network.
To what extent the news of the financial woes of these two modcos, and the PV manufacturing industry as a whole, filters down to the local buying public and shakes consumer confidence remains to be seen. Some seem to care only about pricing and getting it cheap, cheap, cheap. To that segment of the consumer market, getting the best, immediate bang for the buck is primary. If the product degrades or fails in year five, 10 or 15, who cares? To others, confidence in the PV integrator will be the most important factor in making a purchase, leaving and trusting the choices of the primary equipment鈥攕olar modules and inverters鈥攖o the integrator.
Being a participant in and witness to the real and painful difficulties being experienced by PV manufacturers, I am struck by the irony in the current unfolding drama. SolarWorld goes after Suntech, back in 2011 its number one Chinese modco nemesis, and other Chinese PV companies. The protagonist succeeds in getting what it wants and contributes to the downfall of the alleged antagonist only to find itself possibly being brought down by the same market forces and questionable business decisions that led to the downfall of its foe. Sounds almost Cain-and-Abel-like with such fratricidal overtones.
I am indebted to my friend Paula Mints, SPV Market Research for her top-quality research and analysis of the solar electric industry and for her global 2012 and historical PV production figures cited above.
About the author: Marco Mangelsdorf has been in the renewable energy field for 35 years and is president of ProVision Solar Inc., a Hilo-based solar electric integrator that鈥檚 been designing and installing PV projects across the islands since 2000. He also teaches energy politics at UH Hilo.
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