Navigant Research Blog

Is Quality Over Quantity the New Game in Solar?

Roberto Rodriguez Labastida — November 21, 2016

Rooftop SolarThe solar module manufacturing industry is facing the second abrupt collapse of module prices in a decade. Prices fell by 12%-20% between January and October 2016 (depending on the technology and location) as the industry expanded manufacturing while the Chinese government decided to reduce its targets amid a deceleration in other markets, particularly in Europe.

Manufacturers have been in planning mode for the last few months thinking how best to ride out this dry spell. The last time the market saw a significant oversupply (between 2009 and 2012), prices fell 80% in a 3-year period. The survivors of the crisis managed to do so mostly by cutting costs, hence offering better value for the same product.

New Strategies Needed

But the same strategy is unlikely to work this time around, according to the US Solar Photovoltaic System Cost Benchmark: Q1 2016 report published by the National Renewable Energy Laboratory. The report states that for a residential installation in the United States in 2015, non-equipment-related costs were $1.91/W, or 65% of the total cost, while module costs were $0.64/W (21%) and inverter and other equipment costs were only $0.42/W (14%). Therefore, a 20% reduction in the cost of a module only reduces the total installation cost by about 4%.

The impact for utility-scale projects is more important. Installation costs for these projects vary significantly depending on the size, but non-hardware costs usually make up between 45% and 55% of the final cost of a project, while the module represents between 40% and 45%. Although cheaper modules could make a difference in this market, the current auction system used in different countries to give long-term agreements has made the segment ultra-competitive, leaving only a razor-thin margin (if any) for the whole value chain.

Manufacturers Adjusting Course

After months of planning, companies are now announcing new strategies to their investors. SolarCity/Tesla announced an alliance with Panasonic for its Gigafactory, as well as a new set of building integrated PV solar tiles and shingles aimed at carving out a luxury segment from the residential market, especially for new builds and re-roofers.

First Solar also chose quality over quantity. On November 16, it took the decision to scrap its Module 5 product, which had been expected to debut next year. The new plan is to instead accelerate the production schedule of its Module 6 and introduce it in 2018, a year earlier than previously planned.

On December 9, SunPower will be the last American module manufacturers  to make an announcement of its strategy. We will see if the company follows a similar pattern, but for the time being, it seems that quality is winning over quantity.

In Navigant Research’s Next Generation Solar PV report, published before the latest collapse of module prices, we forecasted that advanced solar modules would become mainstream by 2025. The plunge in prices could slow the adoption of new technologies, but it seems that American manufacturers are willing to sacrifice market share and are doubling their bets on higher quality (and higher price) products to keep positive margins.

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