What's happening with PV module costs, pricing?

August 11, 2010 - After looking at PV module suppliers' 2Q10 results, IMS Research's Sam Wilkinson sees trends in module production costs (going down), raw material costs (going up), and factory-gate selling prices (declining).

Suppliers are not surprisingly focused on reducing costs, given that feed-in tariffs (FiTs) and other incentives in major markets (e.g. Germany) are being revisited and reduced. (First Solar notably has dropped its manufacturing cost/W to $0.76). That focus on significantly reducing costs (and keeping them low) has to happen, of course, if the industry is ever to live on its own without relying on subsidies.

With volumes and utilizations on the rise, Wilkinson sees another drop in module production costs in 3Q10 -- but that will shift the cost burden back up the chain to materials suppliers. As wafer supplies stay tight, look for higher materials prices, especially for crystalline silicon (c-Si) cell makers who don't already have a presence in that part of the chain, he says. That will give some advantage back to thin-film PV players (like First Solar) and slow the Si PV cost-reduction slide, at least temporarily.

Another trend Wilkinson sees, based on feedback from Asian and US suppliers: despite high demand and tight supply, factory-gate selling prices are declining. Exchange-rate differences, though, have muted this effect at the end of the supply chain -- "lower reported ASPs does not necessarily mean ASPs have gotten any lower," he notes. Europe accounted for 82% of PV installations in 2Q10, but "the vast majority" of modules came from companies who recognized revenues in non-Euro currencies, which changes the gap between how much modules cost to make and how much they get in sales. Chinese c-Si cell/module maker Solarfun, for example, saw its ASPs decline 6.8% in 2Q10, but when converted to Euros (to where >80% of its modules were shipped) its pricing would have increased 3.1%.

Solarfun PV module price/Watt. (Source: IMS Research)

So what happens through the end of 2010 and beyond? Total PV module shipments will increase by ~60% vs. 2009 to 15.6GW, IMS forecasts, with system integrators and project developers still rushing to get installations completed, particularly in Germany, partly due to further FiT cuts scheduled for October and January. Modules shipments in 3Q10 alone will increase more than 4GW, Wilkinson says, just to get those projects hooked into the grid in time. (c-Si projects won't be so affected by Germany's FiT reductions, he points out.)

Beyond 2010, though, the picture's murky. Consensus seems to believe there will be "another unhealthy drop in demand," similar to early 2009 after Spain's PV market dissolved (Wilkinson sees a -80% plunge in EMEA installations in 1Q11), which would usher in a new pattern of seasonal demand. With capacities still being ramped to meet demand that was strong in 2H10, the supply/demand gap will close, and PV module ASPs should start declining again. (First Solar, he notes, is more optimistic -- it's planning to build 500MW-700MW of systems in 2011 and a big "captive pipeline" of utility-scale business, including a 290MW plant to begin construction by year's end and move in modules throughout 2011.)

"One thing is for certain: most agree that 2011 demand cannot remain as strong as 2010," Wilkinson writes. "And if this is the case, not all suppliers can afford to be as optimistic as First Solar."

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