Top manufacturers are adding almost 7 GW of factory capacity,
comparable to the energy produced by seven nuclear reactors, as they
anticipate global demand will continue to rise. As bullish as the
outlook is, the plans are also raising concerns: The last time the
industry poured billions into new factories and equipment, the result
was a massive oversupply that triggered two years of losses and dozens
of bankruptcies.
So, will the current expansion be met with surging demand, or is another big hangover on the horizon?
“We’re really confident because right now, our customers are
demanding more than our current capacity," Arturo Herrero, chief
marketing officer at JinkoSolar Holding Co., told investors on a
conference call last month. For 2016, “we don’t have enough production
to cover all our customers."
Jinko predicts global demand will grow as much as 20 percent next
year, to 65 GW.
Bloomberg New Energy Finance expects more, with demand
reaching as much as 77.8 GW in 2017 as costs continue to decline and
governments push for even more clean energy. U.S. lawmakers gave another boost to manufacturers this week, extending a key tax credit for solar projects. The climate-change accord reached by almost 200 nations in Paris last weekend is also fueling hopes for even longer-term growth.
In the near-term, manufacturers are betting that boosting production
will increase their profit margins, according to Jenny Chase, head solar
analyst for New Energy Finance. With many companies running factories at full speed, manufacturers
have handled rising demand by farming out production to dozens of
smaller suppliers, she said. Outsourced panels have higher costs, and
the practice has led to stalled margins at some suppliers. That, coupled
with a desire to crowd out some smaller companies, has the big
producers looking to expand in-house.
“Not all capacity is created equal,” Chase said in a telephone
interview. “What they are basically betting on is if they expand
massively, they can lower operating costs and squeeze the lower tail out
of the market.”
Solar panels have been getting cheaper for years, and while
technological innovation remains the main driver, increased output may
add to the momentum, Chase said. The risk is that the industry overbuilds, ending up with too much
capacity and driving down prices. Solar companies went through this
cycle in 2011 through 2013. The biggest manufacturer at the time,
Suntech Power Holdings Co., failed in 2013 after loading up on debt to
fund growth.
Its successor as top supplier, Yingli Green Energy Holding
Co., is now in a similar position after a building boom that blew ahead
of demand and left the company struggling with more than $2 billion in
debt. Its shares have plummeted 71 percent in the past year, much more than the Bloomberg Global Large Solar Energy index of 20 companies.
Manufacturers say they’re being cautious. Trina Solar Ltd., currently
the biggest supplier based on 2014 shipments, is pursuing an expansion
that balances new capacity with outside partners, Chief Financial
Officer Teresa Tan told analysts on a Nov. 23 conference call. “We will
be flexible enough to reduce in time when it’s also needed,” she said.
First Solar
First Solar Inc., the biggest U.S. panel maker,
is maintaining output of about 3 GW through 2017 and could rapidly ramp
up to 4 GW when demand picks up, CEO Jim Hughes said on a conference
call Dec. 9.
“The history in this industry of being aggressive on capacity has not
been a happy one for most of the people that have undertaken it,” he
said. “The majority of the companies that have taken the lead as the
largest producer in the industry in the last several years have all run
into significant and potentially fatal financial distress. Overbuilding
the market just has not paid.” While global demand is climbing, the industry may outpace it. “It’s definitely possible you could see serious oversupply again,”
said BNEF’s Chase. “This is what solar does: they expand and they crush
their own margins and they hope.”
©2015 Bloomberg News
http://www.renewableenergyworld.com/articles/2015/12/solar-goes-on-a-building-boom-despite-memories-of-past-bust.html
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