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Solar Annual 2007

Authors

Michael Rogol | Hilary Flynn | Christopher Porter | Joshua Rogol | Joonki Song

Foreword

Big Things in a Small Package

By many measures, solar power is miniscule. The entire sector will produce only 4 gigawatts (GW) of cells/modules in 2007, compared to global installed electricity capacity of over 4,000 GW.Similarly, the installed base of solar power systems will be only 0.06% of global electricity consumption this year.

Yet packaging solar power in these terms is similar to jewelry in a tiny box – the size of the package reveals little about the true value of the contents. With a combined market capitalization of over $140bn today, annual production growing to 20+GW by 2011 and 8%-point profit margin expansion in the next four years, it is clear that there are big things in this small package.

While risks such as higher interest rates or falling grid prices could slow the solar sector’s growth and margin expansion, the current outlook is for the size, scale and impact of solar power to grow faster than almost anyone expects.This report provides a look inside the box by providing a five-year forecast for (a) supply, (b) demand, (c) price and profit and (d) leading solar power players.

Executive summary

Supply: 20GW by 2011. The solar power sector continues to grow very quickly. High purity silicon production is rapidly expanding from 50,000 tons in 2007 to 65,000 tons in 2008 and likely more than 150,000 tons in 2011. The expansion of silicon production combined with higher efficiency of silicon usage and rapid growth of non-silicon based technologies will enable cell/module production to rapidly increase from 4GW in 2007 to more than 20GW in 2011. This translates to a 51% CAGR, with significant upside. To put this in context, we expect solar power to remain well below 1% of global electricity consumption through 2011, but to become more than 10% of global electricity capacity additions by 2011.

Demand: Large-scale substitution has started. Based on looking at solar power from many angles, we are thoroughly convinced that mass migration to solar power has commenced. From a cost perspective, solar electricity is already below grid-based electricity prices for a very large volume of electricity, and this volume of »achievable« grid-based electricity is expanding exponentially with solar costs declining nearly 8% annually. From a price perspective, solar price without incentives is approaching grid based electricity prices in high price electricity markets, including the residential markets of Japan, California and Italy. From a net price perspective, the price of solar electricity including incentives generates very high IRRs for customers in more than a dozen markets. And from a scenario forecasting perspective, it appears likely that rising grid prices, low interest rates and expanding incentives will drive very strong demand growth through 2009 and likely 2011. One potential implication of substituting solar power for grid-based power is that existing Gencos, transmission & distribution players, fossil fuel suppliers and turbine manufacturers may face unexpected risk.

Price and profit: $6/W and 40% pre-tax margin. With solar supply growing quickly, many people fear that prices and profit margins will collapse. While this will certainly happen eventually, we are convinced 20GW of supply by 2011 will not cause fast deterioration of prices or profits. Based on careful review of both the price-setting mechanisms in dozens of markets and cost structures of hundreds of companies, we are convinced that (a) prices will decline only modestly (-5% CAGR) through 2011 despite aggressive growth of supply, (b) costs for the entire supply chain (-8% CAGR) will decline faster than prices and, as a result, (c) margins will expand 8-percentage points in the coming years. Specifically, through 2011 we expect global average system prices of roughly $6/W or higher, wholesale module prices of $3.3/W or higher and pre-tax margins for the entire sector to expand from 33% in 2006 to at least 41% by 2011. The “impossible” implication of this outlook is $50 billion in pre-tax profit and a market capitalization for the solar sector beyond $500bn by 2011.

Solar gems: The best positioned players. With the solar revenue pool growing from $30bn in 2007 to $120bn in 2011 (+43% CAGR) and the pre-tax profit pool expanding from $10.5bn in 2007 to $50bn in 2011 (+49% CAGR), organic growth alone is not enough to earn a leadership position. The strongest solar companies have realistic potential to achieve distinctive earnings growth, strong market share gains and defensible strategic positions. This report spotlights leading companies and evaluates their growth potential over the next 5 years, including:

  • China’s emerging solar players (JA, Trina, E-Ton)
  • Conergy
  • First Solar
  • Hemlock
  • LDK
  • M.Setek
  • Metallurgical silicon players
    (Dow Corning, Orkla, Timminco)
  • Motech
  • Q-Cells
  • REC
  • SolarWorld
  • SunEdison
  • SunPower
  • Suntech
  • Wacker

    • A profile of these solar gems and an evaluation of their growth potential over the next five years is provided in the new Solar Annual 2007, published in September 2007 by PHOTON Consulting.