by Paula Mints
Don Quixote by Honore Daumier via Wikimedia Commons
For decades the photovoltaic industry has been driven by its beliefs, hopes, the availability of incentives, and what it is willing to ignore in terms of market realities and technological barriers. The apparent achievement of grid parity, even at drastically low margins, was hailed a victory. Continued deployment of multi-megawatt installations in the face of low margins for developers and likely gigawatts of poor quality installations has been regarded as proof of the inevitability of the industry’s success.
Given the competitive landscape for energy technologies and the short attention spans of many, it is courageous to continue the slow, iterative process of technology development in the face of naïve and easily disappointed investors and well-meaning government investment in technologies that, in some cases, have defied the laws of physics. The solar industry (and all of its technologies) continues to push ahead on hope and this hope is a brave and necessary industry personality trait that must continue to be nurtured.
Don’t Tread on my Unwillingness to Face the Facts
Though there are many examples of companies/individuals/governments/investors persevering despite facts that indicate a change in direction might be a good idea, one of the best examples of unwillingness to fact facts is the prolonged period of negative margins during the late 2000s.
From 2009 through mid-2013 aggressive pricing for PV cells and modules pushed manufacturer margins to dangerously low levels while losses pushed many companies into bankruptcy. Low prices for PV technologies led to lower system prices, which were celebrated as proof that the industry had achieved grid parity. As PV manufacturers began failing these failures were accepted as normal casualties of consolidation. Figure 1 below depicts average module prices (ASPs) and costs, along with shipments and the delta between costs and prices from 2003 through 2014.
Figure 1: Module ASPs, Costs, Shipments and the Cost/Price Delta, 2003 through 2014
Ignoring Political Risk, Margin Risk, Incentive Risk and Economic Risk Just May be a Survival Technique
Strong markets in the solar industry continue to be incentive driven. Denying this fact does not make it any less of a fact. In the mid-to-late 2000s the FiT driven markets in Europe surged, giving the region an >80 percent share of global demand. During those days, incentive risk was largely ignored. Following the retroactive changes that drove system in some countries into bankruptcy, demand into Europe began decreasing (dramatically).
Currently, the incentive driven and government supported markets in Japan and China, at a combined >50 percent of global demand, are (essentially) providing a base on which the global solar industry can seek out its next dominant market.
Expectations for strong markets typically ignore incentive risk (the risk that an incentive will be reduced drastically or end abruptly), political risk (in extreme cases war, in less extreme cases tariff interference), margin risk (the risk that a sale will result in loss instead of gain) and economic risk (the risk that a change in the regional/country economy will trigger lower demand). Monetary risk (the risk of currency devaluation as is the case with countries in Latin America and India) can derail a project’s profitability. It is common to assume that unpleasant or unprofitable outcomes have a lower probability of happening than do positive or profitable outcomes. It is also normal to assume that today’s small regional or country market will be tomorrow’s booming market.
It is difficult to hedge bets and develop a diversified portfolio of markets to serve in an incentive driven industry. The learned behavior of solar participants is to serve (or over serve) the available market while assuming that another market will take its place when it finally slows. Historically the industry has been rewarded for this belief. No matter what, another incentivized or supported market seems to come along to replace a waning market.
Figure 2 presents an assessment of 2014 global supply (shipment) and demand shares for the PV industry.
Figure 2: Supply/Demand Expectations for 2014
Solar and the Don Quixote Principle
Figure 3 offers a picture of PV industry metrics from its demand/supply inventory at the end of 2013, through 2014 and into 2015. These metrics include demand/supply inventory, capacity, production, shipments, installations and defective modules.
Figure 3: Global PV Industry Metrics 2014 into 2015
In an industry surrounded by obstacles, well-funded competitors, ill-thought-out government intervention (including poorly designed incentive programs) and often irrational market behavior, it takes a profound and steadfast hopefulness and belief structure to continue developing and deploying solar technologies. The need to celebrate decades of often significant growth in a vacuum, that is, ignoring solar’s share in the overall energy mix is understandable given the bone shaking disappointment experienced by many participants. Amazing progress has been achieved by ignoring daunting realities.
Don Quixote tilted at windmills, performed brave acts, fought imagined and real enemies and saw his comrades as heroes acts of a demented mind or the courage of a man unwilling to be ordinary and saw a world filled with potential. The solar industry combines courage, willfulness, imagination and a determination to ignore or remain ignorant of market and sometimes technological realities.
The Don Quixote Principle is the willingness to persevere despite real or imagined obstacles and villains with the goal of heroic action and a more perfect world. Into this definition, the solar industry and all of its participants falls quite neatly.
Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry. You can find her on Twitter @PaulaMints1 and read her blog here.
This article was originally published on RenewableEnergyWorld.com, and is republished with permission.