Oversupply increased in 2012 as global production capacity rose 10 GW while demand rose less than 3 GW as Chinese manufacturers, such as Yingli, which added 600 MW, and Trina, which added 500 MW of capacity in 2012, continue to increase capacity.
With capacity 113% higher than demand, 2012 was the hardest year yet for most manufacturers, with inventories building up, prices dropping, and profits only a memory.
Oversupply has led to module prices below cost, especially from Chinese manufacturers. Using Lux Research’s cost model and comparing results with prices, Chinese tier-1 module manufacturers sold $0.06/W below cost on average in 2012.
Company earnings calls verify this trend as gross margins for Chinese manufacturers dip close to or below 0%. In Q3 2012, Yingli’s gross margin was -22.7%, LDK’s was -11%, JA Solar’s was -5.9%, Trina’s was 0.8%, and Canadian Solar’s was 2.2%.
However, this trend is primed to turn around. The solar installation market grew 10%, a slowdown compared to years past, but still positive considering significant cuts to incentives in key markets. While 2012 growth might be modest, the higher-than-expected results paint a rosier future for solar demand than previously estimated, growing to 64 GW in 2018 in Lux Research’s ‘likely’ scenario.
Meanwhile, more tier-3 manufacturers will go under between 2014 and 2016, especially in China where Lux Research expects the central government to take measures to limit some tier-3 capacity and promote mergers and acquisitions. As a result, overcapacity shrinks from 113% in 2012 to under 10% in 2015, a sufficient level for upstream manufacturers to increase margins and return to profitability.
This is also a faster recovery for the solar industry than Lux Research previously anticipated, keeping the light on at the end of the tunnel, at least for those companies that survive the next three years.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Power. The author was not remunerated for this article.
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Edward Cahill is a Research Associate for the Solar service at Lux Research, which provides strategic advice and on-going intelligence for emerging technologies.