After years of oversupply, the supply and demand for solar devices is returning to a state of balance. Because of this, IMS Research is reiterating its forecast that global capital spending by producers of photovoltaic (PV) modules, cells, ingots, wafers and polysilicon is expected to rise by 30% in 2014 to reach about US$3 billion, the first time that expenditures will have risen since 2011.
"Some analysts have claimed that top China and Japan module makers are utilizing excess manufacturing resources from second- and third-tier manufacturers, expanding their available capacity and thus staving off any requirement for new capital spending," said Jon Campos, solar analyst at IHS. "Such a fabless or asset-lite strategy may have worked in other industries, where some companies with minimal or no manufacturing assets - such as Qualcomm of California - have achieved great success. However, in the PV market, where manufacturing expertise is more proprietary than in other areas, the fabless model is unlikely to be adopted on a large scale. This means that leading solar suppliers must make capital investments as demand rises in the coming years - even if extra capacity is available from other PV industry suppliers."
Proprietary PV
The solar cell business has undergone a transition during the past 24 months. First-tier China crystalline suppliers have poured efforts into improving their manufacturing processes. Income statements reflect the fact that these companies have diverted their investments away from long-term R&D efforts and toward incremental enhancements in manufacturing.
Furthermore, the China government has now made it mandatory for PV manufacturers to spend in excess of 3% of revenue on research and development and equipment upgrades.
These investments represent significant assets to the companies as they have progressed down the learning curve in the mass production of PV cells and modules. And unlike the semiconductor market, this kind of expertise cannot be purchased from equipment providers.
Therefore, these companies are very risk averse when it comes to sharing their proprietary process technologies with other manufacturers, Campos noted. They are particularly loath to provide information that could deliver a competitive advantage to companies that have lesser capabilities.
"The proposition that first-tier China manufacturers would come to rely on capacity from second-tier and third-tier suppliers is highly unlikely," said Mike Sheppard, senior PV analyst at IHS. "The top players wouldn't give away the fruits of their efforts during the past two years to improve their technology, quality and bankability with financiers or owners. This is especially true as these companies attempt to improve their positioning relative to Western players."
Furthermore, the more advanced the products, the less likely the first-tier suppliers would be to outsource. Instead, such companies are focusing on advanced products to maintain their leading positions.
What's next for capex?
Some first-tier manufacturers already are increasing their own production capacity - or are considering it. Although these increases initially will be small, they will result in improved efficiency for wafers, cells or modules.
"Jinko Solar of China has increased its integrated capacity, while Canadian Solar is looking to build a 60 megawatt (MW) module plant in Indonesia," Campos noted. "These developments support the IMS Research forecast for the resurgence of growth in capital spending."
