Energy
Executive Summary
Germany’s photovoltaic industry at the crossroads
Challenges and opportunities for German PV companies
along the value chain
By Dr. Peter Claudy, Michaela Gerdes and Janosch Ondraczek
Introduction and Executive Summary
Germany’s photovoltaic industry
at the crossroads
Introduction and Executive Summary
Rapid growth in
the photovoltaic sector
The last ten years have seen impressive growth in the photovoltaic (PV)
market around the world, and particularly in Germany. The market has
boomed in recent years, with average annual growth rates of around 36 %
from 2000 to 2009. Between 2003 and 2009, the German share of newly
installed worldwide capacity was around 50 % year after year (except in
2008). 2009 saw record growth of more than 100 % in the German market,
with 3.8 gigawatt peak (GWp) of new PV installations, according to official
figures from the German Federal Network Agency.
8,000
7,000
Installed capacity (MWp)
6,000
5,000
4,000
3,000
2,000
1,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Germany Rest of Europe Rest of world Japan USA Spain
Cf. EPIA, Global Market Outlook for Photovoltaics until 2014, 2010.
Annual newly installed capacity
Reductions in feed-in tariffs
mean the PV sector now has to
work even harder
2
In recent years, a very positive market environment for PV projects has led
to the creation of a high-performing, successful PV industry at every stage
of the value chain in Germany. The reductions in the feed-in tariffs stipulated
in the German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, or EEG), which came into force on July 1st 2010, will require extra
efforts from PV companies over the coming years at all stages of the value
chain. If they are to continue to operate profitably, they will need to cut
costs further and increase efficiency by exercising innovation potential and
maintaining already high levels of quality.
Introduction and Executive Summary
Germany’s photovoltaic industry
at the crossroads
Will the market become a mass
market in the short-to-medium term
or will it stagnate?
This could lead to the opening up of a mass market, particularly if efficiency
gains mean German companies gain more access to foreign markets. But
if the PV industry is unable to pare its cost structures down to the extent
required over a relatively short time period, it could start to stagnate or even,
given current overcapacity, lead to the collapse of the PV industry, at least
in the short to medium term. A further challenge facing German companies,
particularly manufacturers, is increasing foreign competition from China
and the USA, among other countries.
Expert survey as the basis
of our study
Given these circumstances PwC has analysed the long-term challenges
and opportunities that exist for Germany’s PV industry. The study is based
on multiple sources including almost 40 interviews conducted from midApril to mid-July 2010 with senior representatives of manufacturers, project
developers, financial investors and banks.
Overwhelmingly positive market
forecasts from companies in survey
The companies from the German PV industry we surveyed gave an overwhelmingly upbeat appraisal of the industry’s future. Following a very
successful year so far, the industry representatives are predicting that new
installations in Germany will amount to 4.7 GWp on average.1 The majority
of the companies surveyed expect the potential for German projects to
decline as a result of the impending cuts in the EEG feed-in tariffs in 2011.
At the same time the companies we surveyed expect the global market in
solar power to see significant growth over the next three years.
The interviewees’ current assessment is that the 2010 global market will
reach 8.0 to 15.5 GWp, forecast to grow to 10.0 to 27.5 GWp by 2012. Hence,
the overall expectation is that Germany’s market share of new installations
will fall below 50 % by 2011 at the latest and will continue to fall in each
successive year thereafter.
2009
2010e
2011e
2012e
Germany (GWp)
3.8
3.0 – 7.5
(4.7)1
3.0 – 8.0
(4.4)1
3.2 – 5.8
(4.1)1
World (GWp)
7.2
7.9 – 15.5
(10.5)1
7.0 – 19.0
(12.5)1
10.0 – 27.5
(17.2)1
53 %
44 %
35 %
24 %
Germany’s share of global market
1
mean value
PricewaterhouseCoopers
Expected market growth in Germany and worldwide based on company survey carried out by PwC
Focus on individual stages
in the value chain
The study focuses on the individual stages along the PV value chain,
as well as on the various market segments – crystalline modules (silicon
production, wafer manufacture, cell and module production), thin-film
modules, modules for concentrated photovoltaic, inverter production,
mounting systems, project development, wholesale trade and systems
integration, project financing and PV investments.
1
3
W
hen judging this finding, readers should bear in mind that our survey was carried out between
mid-April and mid-July 2010. The actual level for new installations for the whole of 2010 is likely
to be significantly higher.
Introduction and Executive Summary
Evaluation of challenges,
opportunities and
critical success factors
4
Germany’s photovoltaic industry
at the crossroads
The study begins with a profile of each market segment and the importance
of the German PV industry for that segment. We then provide an analysis
of the survey findings related to the segment, setting out the challenges,
opportunities and critical success factors as seen by the relevant decisionmakers from the companies surveyed. This also includes the companies’ own
assessment of the competition, what specific strategy they themselves are
pursuing, and their strategic direction. Finally we provide conclusions from
our study. The aim of the study is to gain a nuanced assessment of the
current state of the German PV industry.
Analysis of upstream value chain
Germany’s photovoltaic industry
at the crossroads
Analysis of upstream value chain
500
Spot market prices (USD/kg)
450
400
350
300
250
200
150
100
50
0
2007
2008
2009
2010
Cf. Cowen and Company Alternative Energy, 10/2009.
Polysilicon spot market price development
The collapse in the price of silicon
is making market entry difficult for
new entrants
5
At the end of 2009, three German companies were engaged in silicon
production: Wacker Chemie, PV Crystalox and Joint Solar. The collapse in
the price of polysilicon caused by massive capacity expansion means that
only companies that are well positioned in the market have potential for
development, and it is likely that a whole set of new entrants will not be
able to survive in this difficult market. The market is dominated by large
companies which have been established for years such as the German
manufacturer Wacker Chemie. These companies generate cost advantages
from economies of scale and tried and tested technological processes
which new entrants will find difficult to emulate. The regional distribution of
pipeline or current investments in expanded production capacities suggests
however that Asian companies are also banking on making profits from
silicon production in the future. In Germany, Wacker Chemie expanded its
annual polysilicon production output by 10,000 tonnes at its Burghausen
site in April 2010 at a cost of around 500 million euro. SolarWorld holds a
29 % stake in the newly founded Qatar-based Joint Venture Qatar Solar
Technologies (QST), where it will build a high grade polysilicon factory with
a planned annual capacity of 3,600 tonnes. SolarWorld says it chose this
location because of the excellent chemistry infrastructure and favourable
energy prices.
Analysis of upstream value chain
Germany’s photovoltaic industry
at the crossroads
Company
Country
Production method
2009 Planned production
production
by end 2010
(t)
(t)
Hemlock
Semiconductor
USA
Siemens process
20,290
27,400
Wacker
Germany
Siemens process /
fluidised-bed process
18,000
23,500
OCI Company
Korea
Siemens process
8,450
14,300
GCL Solar
China
Siemens process
7,270
12,600
REC Silicon
Norway
Siemens process /
fluidised-bed process
7,000
12,300
MEMC Electronic
Material
USA / Italy
Siemens process /
fluidised-bed process
6,510
8,000
Tokuyama
Japan
Siemens process /
vapour to liquid
deposition
6,160
7,200
Mitsubishi Material
Japan
Siemens process
3,000
3,700
M.Setek
Japan
Siemens process
2,000
3,900
Daqo New Energy
China
Siemens process
1,500
2,100
Cf. photovoltaik, 02/2010.
Leading global manufacturers of polysilicon
Cheaper, alternative production
methods may regain significance
Demand for silicon is likely to continue to grow in future, and in a consolidated market silicon could once again become scarce. Even if demand
grows, there will still be downward pressure on silicon prices since PV system
prices must be reduced further. This could mean that alternative, cheaper
manufacturing methods such as UMSi become more attractive again.
Current wafer production
in Germany mainly as part of
integrated companies
In wafer production, too, a collapse in prices last year put pressure on
companies at this stage of the value chain. It is therefore likely that expansion
in capacity over the coming years will be restricted mainly to established
wafer manufacturers, and only a small number of new entrants will be seen
on the market. Even today, wafer manufacture in Germany is predominantly
within integrated companies as a result of current relatively low margins.
Prices stabilised in the second half of 2010, but this was due to pre-emptive
actions in advance of the reductions in feed-in tariffs and should not be
seen as signalling the start of an upward trend in pricing over the long term.
Downward pressure on prices is set to continue over the mid to long term,
making cheaper production methods more important, as is the case for
silicon production.
6
Analysis of upstream value chain
Germany’s photovoltaic industry
at the crossroads
Company
Country
2009
production
(MWp)
Planned production
by end 2010
(MWp)
LDK Solar
China /
USA
1,800
1,800
(2,000)1
REC Wafer
Norway
850
1,500
MEMC Electronic
Materials
USA
1,200
1,200
SolarWorld
Germany
900
1,100
Jinglong Group
China
500
1,000
ReneSola
China /
USA /Singapur
825
825
Pillar
Ukraine
740
740
Trina Solar
China
500
700
Yingli Green Energy
China
600
600
Kyocera
Japan /
USA
290
400
1
Cf. LDK Solar, press release, April 19th 2010.
Cf. Photon, 01/2010.
Leading global manufacturers of wafers
Overcapacity and strong Asian
competition in cell manufacture
7
After a turbulent year last year, the situation has stabilised for some
German PV cell manufacturers. This followed a surge in German demand
for solar panels in the first half of 2010 caused mainly by the reduction in
tariffs on July 1st 2010. As demand slows, however, we could soon see
some cell manufacturers once again facing difficulties. The collapse in
solar cell prices caused by overcapacity and strong Asian competition is
likely to continue in the short to mid term. Recent significant improvements
in manufacturing quality from some Asian producers have taken the shine
off the ‘made in Germany’ brand, particularly since some German module
manufacturers have also started to source their cells from Asia. It remains
to be seen whether German manufacturers will be able to achieve the PV
cell production cost reductions they need if they are to continue to achieve
acceptable margins at the prices demanded by the market. Since the
advantage of locating regional production near PV installations is far less
important a consideration than, for example, in modules (see below), cell
manufacturers are more exposed to international competition – particularly
from Asia (which already accounts for 78% of production). This stage of the
value chain is defined in particular by short product cycles and increased
efficiency levels.
Analysis of upstream value chain
Germany’s photovoltaic industry
at the crossroads
Taiwan
12 %
USA
5 %
Rest of Asia
10 %
China
47 %
Japan
9 %
Europe
17 %
Cf. EPIA, Global Market Outlook for Photovoltaics until 2014, 2010.
c-Si cell production in 2009 by country
German integrated manufacturers
must remain competitive at all
stages of the value chain
A number of German companies are fully integrated manufacturers of PV
modules, including Bosch Solar Energy, Schott Solar, Conergy and SolarWorld. One advantage held by integrated manufacturers is that they only
need to achieve their margin once across the entire integrated value chain.
German cell and module manufacturers are also adopting system solutions
to distinguish themselves from their international competitors. Conergy is
providing a total service offering to its customers, acting as a system and
service provider at the same time. It would, however, be wrong in our opinion
to assume that integrated manufacturers can fully escape competition from
Asian manufacturers by in-house cell processing. Integrated companies
need to remain competitive at all stages of the value chain if they are to
withstand market pressure from non-integrated module manufacturers, who
are free to source their cells and other inputs from the most competitive
suppliers.
Despite significant price differences,
there are also arguments against
concentrating all production of
mono- and polycrystalline modules
in Asia
There is a significant disparity in prices for mono- and polycrystalline
modules quoted by German and Chinese companies. However, some of the
companies we surveyed argue against concentrating global production of
crystalline modules in a single region such as China. Avoidable transportation
costs and better market access for local producers are arguments for locating at least some production close to markets. Since the German sales
market continues to be by far the most significant, this would seem to
favour German manufacturers. It does, however, require companies to be
able to source the cells at competitive prices and remain technologically
innovative. Economies of scale in production are frequently seen as an
advantage here; a challenge many module manufacturers are currently
attempting to meet by investing in modern production plants. The relative
price increase of Chinese modules in the second quarter of 2010 due to the
strength of the US dollar against the euro also made clear the impact of
exchange rate movements on competitiveness. Other things being equal,
the continuing significant undervaluation of the Chinese yuan will continue
to have a negative impact on the competitiveness of European producers.
8
Analysis of upstream value chain
Germany’s photovoltaic industry
at the crossroads
3.1
2.9
2.7
2.5
Euro per Wp
2.3
2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
0.3
0
2009
Crystalline Europe 2010
Crystalline China
Cf. photovoltaik, 02/2010; Sonne, Wind & Wärme, Barometer der Modulpreise,
13/2009, 14/2009, 16/2009, 17/2009, 01/2010, 02/2010, 03/2010, 06/2010.
Development of prices for Chinese and German crystalline modules
Chinese manufacturers’ leading
position on costs and
structural overcapacity make
market consolidation likely
However, we believe it is likely that the highly productive German module
manufacturers will remain competitive in the long term even versus Chinese
manufacturers. However, we expect that Chinese companies will continue
to lead on component costs. On the other hand, likely future market turbulence marked by short-term ups and downs as well as structural overcapacity
make it unlikely that investments will be as successful as planned in all
instances. As can be seen from current levels of investment in new production capacities by companies both inside and outside Germany the market
could soon be facing cut-throat competition. For example, the Chinese
manufacturer Yingli recently announced that it is expanding its production
capacity to 3 GWp.2 The competitive process will most likely end either in
market consolidation, or – in a negative scenario – market exit with considerable sunk costs for some European and German manufacturers.
Size is not the only success factor
Then again, a number of small and medium-sized manufacturers in the
sector have a track record of profitability, and production capacity should
not be viewed as the only factor for German companies wishing to remain
successful in the market. High quality of modules is also important, allowing
the companies to differentiate themselves and to build up a reputation as
a premium or niche provider. Access to sales markets is likewise essential.
2
9
Cf. www.photovoltaik.eu, 02/07/2010.
Analysis of upstream value chain
Germany’s photovoltaic industry
at the crossroads
Company
Country
Technology
2009 production
capacity
(MWp)
2008 production
capacity
(MWp)
First Solar
USA
CdTe
United Solar Ovonic
USA
a-Si
1,100
504
123
113
Sharp
Japan
a-Si/µc-Si
94
38
Sunfilm
Germany
a-Si, a-Si/µc-Si
60
NA
Trony
China
a-Si
50
27
Solar Frontier KK
Japan
CIS/CIGS
43
15
Mitsubishi Heavy Ind. Japan
a-Si, a-Si/µc-Si
42
40
Kaneka Corporation
USA
a-Si, a-Si/µc-Si
40
57
Moser Baer
India
a-Si
40
NA
Bosch Solar Thin Film Germany
a-Si
30
20
EPV
Germany
a-Si
30
15
Solyndra
USA
CIGS
30
NA
Würth Solar
Germany
CIS
30
20
Cf. Photon, 04/2010.
Thin-film manufacturers with highest production levels in 2009
Certain expansion potential for
CdTe technology
Provided no new legislation is brought in to restrict it, the number of
CdTe-based (cadmium telluride) thin-film modules is likely to expand, even
if the scarcity of resources leads to restrictions being placed on total market
volumes. At present, however, there is still room for the market leader, First
Solar, as well as a limited number of new market actors to expand production
capacities. The German company Calyxo is also active in this market with
a current production capacity of 25 MWp, and the plant and technology
supplier Roth & Rau has included the CdTe technology in its product portfolio, suggesting that this company believes the sector has good prospects.
It is not yet possible to assess the role that Germany is likely to play as a
production location for CdTe in future. However, the announcement by First
Solar that it is doubling production capacity in Germany is a positive move
since it signals that a global market leader believes it will be possible to
produce competitively in Germany.
Producers of amorphous/
micromorphous silicon modules
facing difficulties
Production of amorphous/micromorphous silicon modules could be
disadvantaged by lower power efficiency of this technology not compensated by lower costs per KWp. Cost per KWp are in contrast considerably
higher than for CdTe modules, even though the higher efficiency of CdTe
means it requires less land and thus lower installation costs per Wp.
Although the amorphous/micromorphous technology has lower production
costs than mono- and polycrystalline modules, this does not yet seem
sufficient to offset its significant disadvantage in terms of module efficiency. The recent insolvencies of Sunfilm and Signet Solar are a sign that
this thin-film technology currently faces tough competition. In our view, the
crucial question, not just in Germany but globally, is whether a significant
reduction in production costs can be achieved and the efficiency of micromorphous modules can be increased.
10
Analysis of upstream value chain
Germany’s photovoltaic industry
at the crossroads
Among thin-film technologies
CIS/CIGS offers the best potential
for efficiency improvements,
but significant price reductions
are required
Prospects for copper-based technologies using CIS or CIGS compounds
are generally seen as very good, not least since production sites with CIS/
CIGS technology (such as that of the Berlin-based company Sulfurcell)
only recently went into mass production and thus still have considerable
potential for optimisation. CIS/CIGS is also universally recognised as
having the highest potential efficiencies of all thin-film technologies. German
companies such as Solibro (a subsidiary of Q-Cells) or Würth Solar seem
well-placed in this respect. However it remains to be seen over the coming
years whether CIS/CIGS can achieve the cost reductions we have seen
with the CdTe technology. In this context, it is striking that it is companies
from America and Asia, such as Solar Frontier KK (Japan) and Solyndra
Solar (USA), rather than German companies, that have the largest expansion
plans for CIS/CIGS in 2010. This means that German companies need to
exploit their technological pre-eminence and transfer it to mass production.
For concentrating photovoltaics,
mass production is not yet
happening
Our study includes concentrating photovoltaics, a technology that is still
only a niche application, but which is being pioneered by the German
company Concentrix Solar. This technology is characterised by particularly
high efficiency levels, but it is only suitable for regions with strong direct
solar irradiation. It is currently difficult to assess against other PV technologies and solar thermal power stations, since only rudimentary data on
investment and operating costs are as yet available. No genuine mass
production is as yet in place, however a first project pipeline does exist.
Although a German company, Concentrix appears to have positioned itself
well by gaining the French Soitec Group as a strategic investor with all its
expertise in innovation and production in the semiconductor industry.
Good positioning of German
inverter manufacturers
German manufactures are very well positioned in the inverter industry. In
the short term, given the supply backlog since the end of last year, the most
important task facing inverter manufacturers is to ensure the availability of
components required for inverter production in sufficient quantities and
quality. In the medium term, competition from new entrants – and in some
cases new designs – is likely to increase, triggering increased pressure on
prices for inverters. The market is currently led by specialist companies
who in the future will be facing tough competition from large electronics
companies with superior purchasing power over suppliers and international
sales networks seeking a foothold in this market. Siemens is one multinational electronics company already well-established as an inverter
manufacturer. However, it remains to be seen whether and when other new
entrants will meet the tough requirements relating to quality and continuous product improvement.
11
Analysis of upstream value chain
Germany’s photovoltaic industry
at the crossroads
Company
Country
2008
production
(MWp)
2009
production
(MWp)
2010 expected
production
(MWp)
SMA
Kaco new energy
Germany
2,200
3,400
6,000
Germany
480
600
1,000
Fronius
Austria
450
700
2,200
Ingeteam Energy
Spain
365
207
250
Siemens
Germany
> 300
400
750
Sputnik
Engineering
Switzerland
270
335
1,000
Power-One Italy
Italy
197
470
1,200
Elettronica
Santerno
Italy
180
187
187
Kostal Solar
Electric
Germany
120
180
375
Sunways
Germany
86.1
90
150
REFU Elektronik
Germany
63
200
500
MWp figures for 2009 and 2010 taken from Photon 05/2010.
Leading global manufacturers of inverters (selection)
Manufacturers of mounting systems
from Germany and neighbouring
countries are competing for the
German market
12
The large number of potential applications for PV systems – rooftop, open
field and building-integrated systems – means that mounting systems provide
huge potential for technological innovations. This currently represents an
opportunity for German manufacturers to position themselves irrespective
of their cost structures. However pressure on prices is also likely to increase
in this segment. The cost of mounting systems has not been an issue for
PV system integrators because of their comparatively low share in total
costs compared with module prices. However this will change as module
prices fall further, making cost reductions by manufacturers of mounting
systems increasingly important. For the foreseeable future and in contrast
to other solar power components, the market for these products in Germany
is likely to be contested by providers within Germany and neighbouring
countries alone, since Asian manufacturers will remain uncompetitive for
the foreseeable future due not least to high transportation costs.
Germany’s photovoltaic industry
at the crossroads
Analysis of downstream value chain
Analysis of downstream value chain
83 % of installed capacity in small
and medium sized PV installations
The majority of PV installations going up in 2009 in Germany were of small
and medium size and installed on rooftops. In this regard the German market
differs significantly e.g. from the Spanish market where 95 % of projects
were installed in large solar farms.
Over 1,000 kWp
17 %
Up to 30 kWp
43 %
100 – 1.000 kWp
17 %
30 – 100 kWp
23 %
Cf. Photon, 05/2010.
Newly installed capacity in 2009 by system category (Germany)
Despite enjoying a good
international reputation, German
project developers are facing
increasing pressure on margins
Our analysis of the client-end value creation stages includes a detailed
study of project development. German project developers, general
contractors, system integrators or installers enjoy an excellent reputation
internationally. These high-performing companies have contributed significantly to the rapid development of the PV sector in Germany. We are
expecting that project developers will face a drop in margins for projects
located in Germany in the future since the reduction in feed-in tariffs will
also have an impact on their business segment. Project developers will
need to become more professional and make cost savings, for example
in component procurement, through lean company structures and more
efficient project implementation. Project developers are also affected
negatively in a number of ways by the removal of arable land from the EEG
tariff, making their ability to identify suitable land for conversion and building
projects of crucial importance. And German project developers will increasingly have to rely on accessing projects abroad in the future in order to
achieve commercial success given the changing conditions within Germany.
Investments in PV projects
Over a third of all investments in German PV projects in 2008 were in
the residential sector, followed by commercial investors and farmers
and the public sector. Only around 14 % of all PV investments came from
professional investors, such as investment funds and energy utilities.
13
Analysis of downstream value chain
Germany’s photovoltaic industry
at the crossroads
Energy utilities and
investment funds
14 %
Public sector
3 %
Residential sector
35 %
Agricultural
sector
19 %
Commercial
sector
29 %
Cf. BSW-Solar, 2009.
Investor structure, 2008
While investment funds and financial
investors outside Germany tend
to realise higher rates of return, the
aim for private and commercial
investors is to meet minimum return
requirements
It is still too early to make a definitive judgement as to whether individual
groups of investors will be able to achieve acceptable rates of return
over the next few years following the recent changes to feed-in tariffs in
Germany. The investment funds and financial investors we surveyed had
differing views, but some are expecting Germany’s role as an investment
location for PV projects to decline in future with higher returns becoming
achievable from projects abroad, particularly in Southern Europe. The
market for private and commercial entities should, on the other hand, be
influenced to a lesser extent by alternative investment opportunities abroad.
These investors are more interested in meeting their own minimum return
requirements. This mainly determines the number of PV projects that are
implemented in the various market segments.
Investor group
Private
users
Commercial
clients
Expected ROI
6.32 %
7.57 %
Public sector Professional project Agricultural
clients
developers
sector
6.86 %
7.89 %
8.32 %
Cf. PV InstallationsMonitor, EuPD Research, 2009.
Expected return on investment by various investor groups in 2008
Increased liquidity costs from
banks make refinancing by KfW
Entwicklungsbank more important
14
Ultimately, financial loans require certain financial benchmarks to be met
even if tariff levels are dropping. The financial crisis has also led banks
to significantly increase risk margins and the liquidity costs for project
financing, making loan refinancings by the German KfW Entwicklungsbank
increasingly critical for the market.
Conclusions and potential solutions
Germany’s photovoltaic industry
at the crossroads
Conclusions and potential solutions
The target set by the Federal
Government of approximately
3.5 GWp of annual installations is
set to be achieved in spite of the
present boom
The German photovoltaics market is facing fundamental change. After
years of steady double-digit growth, the market is likely to decline in the
coming year and then stagnate for the foreseeable future. The German
government’s minimum annual target for new PV installations of around
3.5 GWp should be achieved following the changes to the EEG tariffs made
this year. While 2009 was a record year with an additional 3.8 GWp of
installed capacity, new installations in 2010 are set to be considerably more
than that. Given that the first half-year alone saw more than 3 GWp in new
installations on German rooftops and crop land, we are expecting the total
for this year to be in excess of 6 GWp.
Over the next few years the
German market is likely to contract
significantly
After the cut in the feed-in tariffs, which came into effect this year, had the
opposite effect to that intended by the Federal Government, we expect the
next few years to see demand for photovoltaic systems in Germany to tail
off significantly. It cannot be ruled out that the measures implemented this
year and those likely to be implemented in the coming years will overachieve
their stated aims of slowing down the market. This could mean that the
German PV market declines more rapidly than intended by policy-makers
or expected by the industry, especially in view of a further 13 % reduction in
feed-in tariffs by January 1st 2011, which was announced recently by the
Federal Network Agency. Our view is that there was an incontrovertibly
urgent need in 2010 to reduce EEG tariffs in view of the drop in system
prices and the rapid rise in installation numbers; what is debatable is the
scope of the changes.
Other countries are considerably
less ready for large investments in
PV but will benefit from Germany’s
experience and learning curves
While market prospects for the PV industry in Germany are likely to deteriorate considerably from the end of 2010, we expect to see continued growth
in PV markets in other countries. However, it is important to recognise that
few countries have expansion targets that come anywhere near those in
Germany. Although countries such as Italy, France, the USA and China
have set targets for expanding PV capacity, these markets are nowhere
near the size of the market in Germany. We can draw two conclusions from
this. Firstly, the expansion of the PV sector in Germany, supported by the
government and paid for by German energy consumers, was a pioneering
undertaking which will benefit all users of solar energy globally due to
falling prices (thanks to economies of scale and learning curves). Secondly,
there is reason to fear that no other governments will be prepared to increase
PV utilisation by the extent needed to maintain global market growth at the
levels of the past few years following the expected decline in the German
market, unless the PV industry manages in the short term to enter into a
true mass market.
Germany’s photovoltaic industry
at the crossroads – breakthrough
to a mass market?
The current expansion of production capacity in Germany and internationally
suggests that a mass market is indeed emerging. For a breakthrough of
this type and the corresponding increase in demand to be achieved, PV
would need to become significantly more competitive versus other sources
of energy. Strong demand in Germany has already started the process by
initiating cost reductions and efficiency improvements. Once PV can generate
electricity at competitive costs in both the commercial and public sector
(there are initial reports that this is about to be achieved at sites with particularly high solar irradiation), the necessity and scope of state incentive
15
Conclusions and potential solutions
Germany’s photovoltaic industry
at the crossroads
programmes will diminish. If the global PV market is to develop into a
genuine mass market, it will have to become less vulnerable to the vagaries
of politics.
Huge market potential in the USA
and Asia
At the same time, developments in the USA and Asia (particularly China
and India) have enormous potential. The PV industries emerging in these
countries have considerably larger domestic markets, so that they can more
rapidly achieve significant production numbers with the economies of scale
that this entails. This could reduce prices even further, helping PV to achieve
the breakthrough to a mass market more quickly. However, for the German
PV industry in particular, this raises the prospect of cut-throat competition,
from which many German companies might emerge as losers.
Cut-throat competition is a
challenge to the German PV sector
The German PV sector can only succeed in this increasingly cut-throat
environment if it positions itself at the forefront of technological development.
To meet the requirements of the ever-changing market, the industry will
have to take continuous action on reducing costs, on the one hand by
expanding production and entering into mass production, and on the other
hand by technological advances. It is already clear that a veritable ‘race to
the top’ is in progress where the only survivors will be those who are able
to match the prices and quality of the best global companies through
permanent innovation and investment.
A nuanced and differentiated view
required for any assessment of the
state of Germany’s PV industry
Our analysis of the total value chain across various technologies includes
a consideration of the challenges and opportunities existing in the different
market segments. It is clear from this exercise that a nuanced and differentiated approach is required when assessing the state of the German
photovoltaics industry. On the one hand, there are some stages in the value
chain, such as inverter production or general contractors/project developers,
where German companies are traditionally strong and where they are also
perceived as market leaders internationally. In these segments the key is to
maintain market leadership over the long term, which we see as being a
considerable challenge. Our view is that, over the long term, large electronics
companies will emerge in addition to Siemens as inverter producers, which
will have the advantage of strong purchasing power in particular in the
procurement of semiconductors and other sensitive primary products. At
the module-production stages of value creation, the situation of German
companies depends on the strategic direction and competitive position of
the specific company. This view was also shared by banks surveyed by us
in relation to the financing of PV companies. Our impression was that banks
are generally more favourable at the moment towards granting loans to
inverter manufacturers and general contractors/project developers. However,
finance is also available to manufacturers active in module manufacturing if
the company’s strategic direction appears plausible and viable.
Market consolidation over the next
few years
It is likely that not all companies will manage to find the right answers in
the face of increasing competition, and we are expecting that we will observe
market consolidation in Germany through company acquisitions and
bankruptcies in the next few years. At the same time many companies will
lose out as the market changes because their executives follow the wrong
strategies. In fact, not all companies will be able to succeed in the ‘race
to the top’ for increasingly large production capacity and more innovative
technologies.
16
Conclusions and potential solutions
Germany’s photovoltaic industry
at the crossroads
Product differentiation and high
quality with steady reductions in
costs are essential if German
companies are to survive
Companies that lack the financial strength to invest and expand their
production capacities will only be able to assert themselves in the market
by concentrating on project differentiation in those niches where price is
not the key factor. By and large, German companies, particularly those that
intend to continue production in Germany, will need to concentrate instead
on high quality, innovation and market proximity, rather than exposing
themselves to global price competition (although all companies will still
face continuous pressure to manufacture their products more cheaply).
Clear strategic direction,
professional organisation and
operational management are
required
If German solar power companies are to survive in a future mass market
for photovoltaics and if they are to be able to exploit the opportunities
available, they will require a clear strategic focus. This will need to adapt
flexibly to a continuously changing operating environment. This will require
professional organisation and operational management that can meet the
constantly changing challenges and exploit opportunities as they arise.
17
Contacts
Germany’s photovoltaic industry
at the crossroads
Contacts
Hansjörg Arnold
Partner
Marie-Curie-Straße 24–28
60439 Frankfurt am Main
Tel: +49 69 9585-5611
hansjoerg.arnold@de.pwc.com
Heiko Stohlmeyer
Team Leader Renewable Energies
New-York-Ring 13
22297 Hamburg
Tel: +49 40 6378-1532
heiko.stohlmeyer@de.pwc.com
Dr. Peter Claudy
New-York-Ring 13
22297 Hamburg
Tel: +49 40 6378-1455
peter.claudy@de.pwc.com
Janosch Ondraczek
New-York-Ring 13
22297 Hamburg
Tel: +49 40 6378-1506
janosch.ondraczek@de.pwc.com
PricewaterhouseCoopers.
With some 8,700 employees and a turnover of around €1.33 billion,
PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft is one
of the leading auditing and consultancy firms in Germany. Experts at
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services, and deals and consulting.
This Executive Summary presents the main results of the study “Die deutsche Photovoltaik –
Branche am Scheideweg – Herausforderungen und Chancen für Unternehmen entlang der
Wertschöpfungskette”, which appeared in German in October 2010.
© January 2011
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18
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