The PV industry spends countless hours debating the merits, weaknesses, and prospects of the firms that occupy the competitive landscape. Aside from the ever-important yardsticks of cost-per-watt and conversion efficiency, however, the conversation to date has lacked definitive metrics with which to gauge the competitive positioning of companies in the space. We spend a lot of our time at GTM Research thinking about the metrics that matter and quantifying the relationships between them: the seven discussed below represent our best attempt thus far. To put it succinctly, if you’re not doing at least one of these things, chances are your days in the PV industry are numbered. Of course, none of this is rocket science, but this discussion should provide a useful framework for assessing the positioning of individual producers and charting the course of industry dynamics in the days ahead.
Low Manufacturing Cost per Watt: We all know this one. Now as much as ever, cost per watt remains the most important source of competitive advantage in PV manufacturing, as well as the easiest (though not necessarily easy) metric to discern and value. It’s a number, which means it can be compared, and many companies currently report it. The reason that it is important is also easily understood: electrons are a commodity, and consequently any grid-connected energy-generating technology will be valued primarily on the (levelized) cost of electricity it drives, questions of reliability and generation risk aside (which is where technology and balance-sheet bankability can distort the equation).
For markets and applications constrained by finance, however, upfront cost is more front-of-mind -- especially with a capital-intensive technology like PV -- meaning that the buyers of the technology (developers), despite attempts to shift the onus of the discussion, are still very much focused on the per-watt installed cost, of which the module remains a key part of the equation. This, of course, is why the Chinese crystalline silicon giants (JA Solar, Yingli, Trina) and First Solar have grown into the behemoths they are today -- their industry-leading manufacturing costs. Scale, technology, value chain participation, and location are the primary drivers of manufacturing cost at a high level.
Efficiency: After manufacturing cost, this is perhaps the most closely examined and easy available competitive metric. Module conversion efficiency is inversely proportional to area-related balance-of-system costs, such as land, substructure, racks, labor, and cables. Industry leaders in this regard are SunPower’s all-back contact cell (19.5% module efficiency) and Sanyo’s HIT technology (17.7%), and a number of established Chinese players have vying for the number three spot with their own high-efficiency technologies (Yingli’s PANDA, Suntech’s Pluto, and JA Solar’s SECIUM cells). A separate point on high-efficiency technology is that it provides a crucial advantage in markets and applications where space is severely constrained (the Japanese residential market, for example), and where buyers are willing to pay a premium for the higher power density of the technology in order to maximally exploit available area.
The importance of high efficiency can sometimes be overstated, though: only technologies that drive a substantial efficiency differential can really command a price premium. On the flip side, though, having lower-than-average efficiency in your technology bracket can be problematic, as it implies a lower power rating for a standard-area module than one’s competitors (currently, 230 watts is the norm for 1.6 m2 c-Si modules). For thin film technologies like amorphous silicon in the 7% to 9% range, the required module price discount can be substantial, which must be compensated for with either a lower manufacturing cost or the addition of value through other means (see below).
Bankability: The term ‘bankability’ when applied to module producers refers to the availability of financing for projects employing that firm’s modules. Capital today is both scarce and expensive, which has forced lenders to be much more risk-averse with respect to which projects they choose to finance. As such, the projects that receive capital are those with the lowest risk profiles. This has placed the module manufacturers under special scrutiny from banks, in two important respects: first, since module warranties last for 20- to 25-year periods, it is essential that the module manufacturer be around during that entire span of time in order to honor its warranty. The long-term financial health of the company and the strength of its balance sheet come under the microscope here, which lends a significant advantage to well-capitalized public companies (First Solar, SunPower) and firms with large, established corporate parents (Sharp, BP Solar).
Second is the aspect of technology and process risk. Combining questions of risk with scarce, expensive capital means that banks have begun to exert their desire to control the technology. The long-term durability and performance (i.e., energy output) of the module in the field and the robustness of process flow of the manufacturer (to ensure consistent module quality) are of greatest concern in this respect. This works very much in the favor of crystalline silicon, as CdTe, CIGS, and tandem-junction a-Si modules have not been deployed in the field for the full 20- to 25-year operating lifetime; in the case of CIGS, widespread operating data do not exist even for five- or ten- year periods. The situation is compounded further when considering flexible substrates, which is why Dow will face challenges deploying its CIGS solar shingles despite being eminently bankable from a balance sheet perspective.
Technology Differentiation (Performance-Related): At the first order, this risks being a redundant discussion. What else is technology differentiation good for, other than driving down the cost of solar electricity, either through cost-per-watt or by driving higher efficiencies? But aside from the installed system cost, technology differentiation can also play a role in influencing the numerator of the LCOE equation, i.e., in enabling higher energy yield relative to existing technologies. Simply put, you get more kilowatt-hours for the same number of kilowatts of rated capacity (in other words, the capacity factor is higher). This is another area where Solyndra claims to have an advantage over the competition: the company's cylindrical modules capture sunlight across a 360-degree surface and can employ direct, diffuse, and reflected light. If a technology was commercialized that had a substantially lower temperature coefficient (lower efficiency loss at high temperature) or ultra-low annual degradation rate, this is where it would fit in, as well. At the end of the day, though, it’s harder to sell LCOE over $/Wp, so remaining within an arm’s length of Chinese c-Si manufacturing costs is still key -- only then do other factors help to tilt the equation to give you a meaningful competitive advantage. This is the challenge that Solyndra faces today.
Tags: amorphous silicon, applied materials, areva, bankability, bp solar, china, cigs, cis, concentrated photovoltaic, cost per watt, cpv, downstream, first solar, heliovolt, high efficiency solar cells