Hot Photovoltaic Market Offers Growth but Could Also Undo Inept Companies

Rewards in store for the successful, exile ahead for those who bungle the job.

The sizzling photovoltaic industry in 2010 for renewable solar energy might be set to double in size this year, but volatile market issues could spell disaster for companies that drop the ball while trying to manage growth, and fi rms could end up permanently displaced in the industry, according to iSuppli Corp.

New PV installations worldwide are projected to rise to 14.2 gigawatts this year, up a sizable 97.2 percent from 7.2GW in 2009—with no signs of retrenchment in the next year.

Passing the 10GW threshold should be viewed as a real triumph, according to iSuppli, as the industry seeks to broadly deploy the technology for converting solar power into direct current electricity. Various factors support this year’s upbeat forecast, including greater visibility into project pipelines, a clearer picture of the feed-in-tariffs subsidizing the market and overflowing advanced orders being booked by suppliers.

The Need to Intelligently Manage Inventory—or Risk Being Marginalized for Good
Nonetheless, such rapid expansion could be derailed by potential pitfalls, including public budget problems of debt-ridden, PV-active countries like Greece and Spain; currency headaches linked to material costs incurred by a weakening euro against the strong yuan from China, home to many PV suppliers and the inventory management of modules—a slippery challenge that defies easy handling.

While inventory in the PV channel spent all of last year being whittled down from almost six months of supply to below 80 days, the forecast this year reveals a more troubling W-shaped pattern—a mode of economic recovery normally associated with a double-dip recession, in which the beginning of an upturn is followed by a relapse into decline.

True, the overall pattern for this year takes into account the seasonality of PV installations, marked by a slow winter and robust summer. More importantly, however, the pattern reflects the gold rush mentality prevalent in Germany—the world’s largest PV market—stirred up by feed-in-tariff cuts taking place in the middle of 2010 and the beginning of 2011. A similar movement happened in late 2009 when installations peaked in the fourth quarter, racing ahead to beat the reductions in feed-in-tariffs scheduled to occur this year.

As a result of such factors, PV channel inventory piled up during the end of the first quarter of 2010—a pattern that will occur again in the third quarter, although to a lesser extent, iSuppli data show. Inventory, meanwhile, has stabilized in light of the summer German feed-in-tariff cuts as well as price drops adopted by installers to preserve market volume during this time of the year.

Inventory figures for PV modules spanning the first quarter of 2009 to the fourth quarter of 2010.

All told, inventory management of the channel presents real challenges. Unlike the mature supply chain of the electronics space, in which the bulk of inventory is held by upstream suppliers such as semiconductor suppliers, most PV inventory piles up in the later stages of market flow, ending up among sites and installers, contributing to bloat and inefficient operations.

For PV companies throughout the supply chain, a gaffe at this point could be potentially fatal.

While sunny profits and growth await the successful entity, an opposite fate lies ahead for the inept company— or even one that simply botches up the job. Those unfortunate enough to make a misstep at this point can find themselves left behind, iSuppli believes, relegated to a permanently smaller market position from which recovery is unlikely.