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Solar power is destined to be the power source of the future. However, the crystalline PV industry currently faces numerous challenges, including market oversupply, falling prices and tightening government budgets, resulting in dramatic market movements.

In this article, I do not aim to document or comment on the above trends, but rather, to take a big-picture look at the fundamental and technical changes that will also play an important role in the coming decade for crystalline PV. Namely, the political scenarios and technological changes to supporting technologies, such as smart grids and robotics, and their impact to solar power in the long term will also be covered.

Solar power, simply put, is a policy-driven market, and globally, feed-in tariffs (FITs) still constitute the lifeline that makes solar power viable, and government support for crystalline PV manufacturers is also vital to keep most of the key players in this industry operating.

FITs have fallen considerably in the last year or so in Europe, which has been the most important crystalline PV market to date. Unfortunately, we do not expect to see any quick-fix solutions to the current fiscal crisis in Europe due to the magnitude of the crisis. FITs are predicted to continue to fall considerably in the near term and mid term, greatly affecting growth for solar in these regions.

However, we have seen new opportunities for PV in the U.S. and Asia-Pacific regions; in particular, Japan has been a recent key player. Japan will still favor strong support for solar power in the near future, as they are facing a critical power shortage without nuclear power.

In the U.S., with President Obama re-elected for another four years, we can expect stronger and politically bolder steps to support deployment for green energy. However, the lack of support from Congress will be a major challenge.

Incentives and support for crystalline PV manufacturers via government loan guarantees and subsidiaries have also helped support the market. For example, China has financially supported various players’ operations to keep manufacturing, despite the market’s being heavily oversupplied.

This trend, however, has simply postponed the near inevitable consolidation that is badly required for the crystalline PV manufacturing market. Chinese banks have kept funding various solar players despite their amassing staggering losses - a practice that also historically has been common in the steel market, real estate market, power market and other sectors in the country.

The best measure for both the health of the Chinese financial system and crystalline PV manufacturing is to allow smaller, less efficient players to declare bankruptcy and close down. This consolidation will cause large defaulting and losses on the various financial grants and loans given by Chinese banks.

Therefore, it is safe to say that such a move will require political capital, which may not be given until after the once-in-a-decade power transition of the Chinese Congress is finalized and stable, which may not occur until the middle of the upcoming year.

We, therefore, can expect to see no sizable reduction in capacity produced until the end of 2013 and with the large inventories, no market impact until the middle of 2014, optimistically.

 

Technology and applications

Anti-dumping tariffs imposed by the U.S. Department of Commerce (and being considered by the European Commission, pending the results of an anti-dumping investigation) are also now pitting Chinese crystalline PV manufacturers against other countries, namely the U.S. and European countries.

The entire manufacturing strategy, at least from the Chinese government’s perspective, is to ensure that control of this key technology remains at home. Overall, the tariffs may give U.S. and European solar manufacturers some breathing room.

However, we do not expect these measures to address any of the fundamental or structural issues facing the crystalline PV market. Rather, they will serve as only a temporary patch for global competitiveness issues.

On the technology side, solar cells are still a technology undergoing a great deal of research and development. Although grid parity is drawing closer in many locations, we have yet to see a mature technology that can enable us to push the key dollar-per-watt figures toward grid parity.

Some solar companies are unable to spend much on research and development (R&D) activities due to the tight fiscal scenarios they currently face. University and public institutions, along with larger R&D establishments, are supplementing this research on solar technology. Most commercial research conducted today takes place in the U.S., Europe and Japan.

On the application side, we are seeing a growing demand in certain segments - especially for large-scale solar plants to power various data centers run by companies such as Google, Rackspace and Apple. This forms a large opportunity in terms of deployment capacity, as data centers today use approximately 2% of the total power produced in the U.S.

The U.S. military is also becoming a notable user of solar, utilizing crystalline PV technology. For instance, we are seeing applications in domestic base power needs, drone technology and military blimps, as well as new opportunities for powering remote base camps with solar power.

Of course, crystalline PV is not the only player in the solar market, and the dynamics of the neighboring thin-film PV segment can affect crystalline PV market dynamics. Currently, China has in place strong export limits on rare metals used in thin-film modules, but these measures are expected to have a limited effect on thin-film PV production.

One primary reason is that an increase in global production and innovation in substitutes of these materials is occurring and is expected to accelerate by the end of 2013. For instance, IBM has made substantial progress in this regard with zinc and tin replacing the indium and gallium in copper indium gallium selenide technology. The company has achieved 11% efficiency so far, but a commercial deployment will require 15% to 16% efficiency.

 

Supporting players

Smart grids are an important enabler for the crystalline PV market - and the solar market as a whole. As solar power is extremely dependent on the local weather conditions, the power output from distributed solar power is variable and unpredictable. Utilities also need to ensure that the differential of power between what they produce and that from solar power adds up to the local demand in a specific area.

Smart grids also enable high voltage direct current (HVDC), which is a form of a DC transmission system, over long distances. As solar usually delivers power in the form of DC, the power transfer capabilities of this system greatly enhance the cost/performance of renewable energy. HVDC will play a significant role in making utility-grade solar farms economically competitive, thus helping gain traction in this field.

Although smart grids are of vital importance to renewable energy, the lack of a coherent strategy to implement such systems, along with the cost and monopolistic nature of players (such as utilities and automation solution providers) involved will cause key implementation of these technologies to be painfully slow.

Utilities are not exactly supportive of seeing revenue fall due to these distributed power systems. Furthermore, automation players are also known to be rigid and develop closed proprietary systems. This is contradictory to the aim of developing a smart grid system, in which each participating element of the grid is aware and works together to dynamically change in order to efficiently deliver maximum power to end users.

A trend we are also witnessing is that crucial power efficiency figures are falling, along with the price of solar modules. We see this as a negative trend, and the short-term price reduction compromises the long-term viability of solar power.

This trend may be minor and temporary and may be caused by the relentless cost-cutting by crystalline PV module manufactures. On the flip side, however, it could be detrimental to the goal of ensuring that solar power reaches grid parity by 2015.

Finally, to return to long-standing controversy about the role (and threat) from the Chinese crystalline PV manufacturing industry, there is a massive opportunity for robotics, in both panel installation and maintenance in utility size solar farms, as well as in factories.

The latter opportunity will play a very important role in ensuring a cost competitive environment for various crystalline PV manufacturers, greatly reducing the labor cost advantage seen in China. This point is within a wider trend that we are seeing: We expect manufacturing, in general, to slowly move back to the U.S. and Europe.

By the end of the decade, with grid parity, stabilized pricing and technology, crystalline PV modules can be expected to hold the same price points as today while continuously delivering better efficiency. This translates to making economies of scale in the residential PV market and funding R&D ventures, while making greater profits in the high-end markets, such as large-scale solar farms.

We see many parallels to the semiconductor industry of the 1970s. The industry consolidated to a handful of players that are now excelling in their targeted segments. The difference between semiconductors and crystalline PV, however, is that while the semiconductor industry was independent, solar power continues to carry political implications. Considering that the energy and power industry is known for being a political theater, in the long run, this political baggage could be detrimental. S

 

Shahul Nath is a research associate in Frost & Sullivan’s semiconductor research practice. For more information, contact Jeannette Garcia at jeannette.garcia@frost.com.