Photovoltaic Cells Panels AnalystpreNov12
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Photovoltaic cells and panels
October, 2012
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Overview
Value chain of crystalline module manufacturer
There are two types of solar PV technologies : crystalline and thin film
Thin film constitutes 60% of total installed capacity whereas crystalline accounts for the balance
97% of the manufacturing capacities in India are crystalline-based and rest are thin film-based
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No manufacturing base in India
Manufacturing
capacity of 1.7 GW
30-35 players
Manufacturing
capacity of 800 MW
8-10 players
Indosolar
Moser baer
Tata Power Solar
XL energy
Moser baer Tata Power Solar XL energy Solar semiconductor
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Global scenario
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Global demand review
Trend in global capacity additions
Source: EPIA
Almost 30 GW of solar PV capacity was added in 2011, an increase of 76% y-o-y, taking installed capacity to 69.7 GW
Europe retained its leadership in the global PV market with a share of 74% in the total capacity additions
Italy (9 GW) and Germany (7.5 GW) together accounted for 56% of the total capacity additions in 2011
Falling capital costs (due to drop in module prices) and favorable feed in tariffs has led to a surge in capacity additions
Installations increased to 13 GW in H1 2012, an increase of 35 per cent y-o-y
Germany remained the largest market with additions of 4.4 GW, with 1.1 GW added in March and 1.8 GW added in June
The US market added 1.2 GW, an increase of 93% y-o-y in a rush to avail investment tax credit, set to expire in 2012
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2007 2008 2009 2010 2011 H1 2012
Europe Asia pacific America China Rest of the World H1 2012
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Trend in polysilicon and wafer pricesTrend in crystalline module and cell prices
Source: Industry sources Source: Industry sources
Sharp fall in polysilicon prices was driven by capacityexpansions in polysilicon
Reduction in wafer processing costs has also supportedthe price decline
Pace of module price decline moderated in 2012 asmany players exited the market
Module prices would decline at a slower pace to reach$0.65-$0.70 per watt by end of 2012
Supply of PV modules will still far exceed demand
Top chinese companies still hold inventory of 5 GW
Polysilicon prices expected to decline to $18 per kg by end of 2012
Pace of fall in prices has moderated in 2012
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Trend in thin film and cadmium prices
Source: Industry sources
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Module prices in China vs other countriesOperating margins of global players
Source: Bloomberg Source: CRISIL Research
Profitability was severely impacted in 2011 due to:
Sharp fall in prices driven by significant over capacity in modules market
China alone had the capacity to produce 50 GW of modules in 2011, whereas global demand was
only 30 GW
Around 40 companies were forced to shut down in the US and Europe due to stiffcompetition from Chinese manufacturers
In May 2012, US imposed anti dumping duty ranging from 31% to 250% on Chinesemanufacturers to protect its PV industry
Profitability of global players severely impacted in 2011
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2007 2008 2009 2010 2011
Op Margin (%)
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1.7641.94
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China US India Japan Germany
($ per watt)
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Global solar PV industry witnesses bankruptcies, shut downs
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COMPANY COUNTRY PRIMARY BUSINESS DATE
SolyndraU.S. Solar panel maker Aug 2011
Evergreen SolarU.S. Solar panel maker Aug 2011
SpectrawattU.S. Solar panel maker (sold all of its equipment to Canadian Solar ) Sept 2011
Stirling Energy SystemsU.S. Equipment maker and project developer Sept 2011
PhotowattFrance Solar panel maker Nov 2011
SolonGermany Solar panel maker, project developer Dec 2011
Energy Conversion Devices U.S. Solar panel maker Feb 2012
Scheuten SolarNetherlands Solar panel maker (assets sold to Sunwaymaker) Feb 2012
OdersunGermany Solar panel maker Mar 2012
Q-CellsGermany Solar panel maker, project developer Apr 2012
KonarkaU.S. Thin film panels manufacturer June 2012
SchucoGermany Thin film panels manufacturer August 2012
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Japan, China to drive global demand; EU to decline
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Country Feed in tariff Remarks Outlook
Italy Rs.8.6 p.u. Conto Energia V became effective in August 2012, once the annual cumulative funding level reached6 bnConto Energia V had a subsidy budget of 700 million, of which limit of 300 million has alreadybeen reached This budget is expected to exhaust by end of 2012, after which no further incentives will be providedfor PV projects
Germany Rs.12.45 p.u. Although feed in tariffs were slashed for 2012, capacity additions increased by 35% in H1 2012 Feed in tariff incentive will stop once installed capacity reaches 52 GW, which is currently at 29 GW Degression of feed in tariff will apply from Nov 2012 depending on capacity expansions of that month
Spain Withdrawn A new Royal Decree Law stopped all incentives for renewable energy, including feed-in tariffs forsolar Unclear evolution of future support
Japan Rs. 25.2 p.u. Introduced feed in tariffs from July 2012, which is 3 times the rates charged to industrial consumer Government aims to reduce dependence on nuclear energy Target of installed capacity of 28 GW by 2020 Has a quarterly RPO compliance, offers carry forward of obligations and imposes penalties for noncompliance
China Rs. 9.43 p.u. Feed in tariff policy introduced in August 2011 Has approved 1.7 GW of Golden Sun projects, scheduled for completion by end of year Government is encouraging capacity additions to support over capacity in modules industry Target of installed capacity of 21 GW of solar PV by 2015 Government plans to introduce several new subsidy programmes, in addition to feed in tariff, Goldensun programme and solar PV building project
USA Each statehas aseparateincentive
mechanism
Has already installed 1.2 GW in H1 2012, almost double the installations in last year Introduction of feed in tariff mechanism in few states New laws to increase procurement of SREC to solve over supply issues Investment tax credit set to expire by end of 2012
Subsidies approaching exhaust limits in California
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Indian scenario
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Manufacturing capacity in a state of forced closureSharp drop in revenues and profitability
Note: Companies included Indosolar, Euromultivision, XL energy,Websol Energy, Surana ventures
Source: Prowess
Sharp drop in revenues as orders have been bagged by Chinese and US companies
Imports of modules have risen by 4.5 times during Apr- Dec 11 to Rs. 51 bn (China, Taiwan and US accounted for62% of imports)
Foreign players offer equipment link f inancing at low interest rates and long repayment schedule
Backward integration to wafer and polysilicon manufacturing gives significant cost advantage to foreign players
Scale of operation is almost 10 times to that of Indian manufacturers
Domestic industry currently operating at around 15% utilisation levels
Moserbaer, Indosolar, XL energy and Jupiter solar under corporate debt restructuring
Profitability would continue to remained strained due to continued threat of imports given their significant costdisadvantage
Indian solar equipment industry on the verge of a collapse
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-6.1 -5.2
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Net sales (LHS) OPM NPM Company Remarks
Moser Baer It has shut down its thin film manufacturing operations
Tata PowerSolar
Of the three production lines, only one is operational Retrenchment (200 employees) BP solar sold its stake to Tata Power Shift in focus from manufacturing to designing and executionof solar plants
Indosolar Bankers are reluctant to provide balance funding to thecompany which has stalled its expansion plan of 200 MW. Retrenchment (170 employees)Rating downgraded to D in Nov 2011
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Capacities under state policiesDomestic demand
Source: CRISIL Research
Gujarat is not expected to sign fresh PPAs as it has achieved its RPO targets ; instead has shifted focus to rooftop projects
States such as Gujarat, M.P, Karnataka have seen traction ; more than 15 states still do not have a state solar policy
Most of the projects bid out in Batch 2 (JNNSM) are expected to be commissioned in 2012-13
All projects have achieved financial closure
REC market and RPO obligations are expected to drive demand in the long term
Exports to reach zero in the next 3 years
Exports have already halved to 122 MW in 2011-12 from 284 MW in 2010-11
Indian players are at a cost disadvantage of around 20 per cent as compared to Chinese players
Capacities of 1.8-1.9 GW to be added over the next 3 years
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State Remarks
Gujarat Signed PPAs worth 968 MW, of which 707 MWcommissioned till date
Karnataka Bid out 60 MW in April 12
M.P. Bid out 200 MW in May 12
Orissa 25 MW allocated in April 12
Rajasthan Bidding for 100 MW PV projects delayed
Tamil Nadu Has deferred bidding for 50 MW tenders.
Bihar Proposals aggregating to 198 MW have been submitted
U.P. Policy is in final draft stage. Aggregate target of 1 GW byMarch 2017
229345
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JNNSM State policies REC Off-grid
(MW)
936
661
413
822
Of 150 MW bid out under batch I of
JNNSM, 125 MW were commissionedJNNSM phase 2 todrive capacityadditions
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JNNSM, state policies to benefit Chinese and US companies
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Although JNNSM stipulates domestic content clause but is dependent on the choice of
technologyTechnology choice has been skewed towards thin film ; around 75% of the projects are based on thin
film under batch 2 of phase 1
On the contrast, globally thin film accounts for only 14 % of the total installed capacity
JNNSM
Projects under state policies have relied on imports in absence of any domestic content clauseCharanka Solar Park in Gujarat, with 214 MW capacity, has equipment sourced from the US and
Chinese manufacturers like MEMC, Suntech Power and CSun.
Reliance Powers 40 MW PV project in Rajasthan uses modules from First Solar, a US company
Madhya Pradesh is the only state that stipulates domestic content clause similar to that of JNNSM
State policies
Only those Indian project developers who also make solar equipment buy equipment from theirown plants
Tata Powers 25 MW plant in Gujarat procured modules from Tata Power Solar
Lanco Solars 35 MW plant in Rajasthan installed self-manufactured modules
Indian suppliers
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No investments expected over the next 2 years
Although players have announced capacity expansion plans of 145 MW, we do notexpect it to materialise
Significant overcapacity Weak financial position of players
MNRE had introduced a soft loan scheme through IREDA for setting upmanufacturing facilities for polysilicon, wafers and cells. Presently the program is notactive due to lack of government budgetary support
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Porters Model
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Threat of new entrants
Low
Negative profitability and significant over
capacity in the market would deter
players from entering this business
Bargaining power of suppliers
Low
Suppliers have been forced to bring down
prices due to significant over supply in
domestic and international market
Chinese suppliers are at a cost advantage
of 20% to Indian players
Competition Intensity
High
Intense competition in the domestic and
international market especially China
Bargaining power of buyers
High
Buyers have the option to import from
abroad, which is cheaper
There are 30-35 module suppliers in Indian
market and more than 400 suppliers globally
Threat of substitutes
Moderate
Other sources of renewable energy
sources such as wind, hydro, bio-mass,
etc.
Solar CSP operate at higher efficiencies
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Working capital requirements
Working capital cycle
Working capital days have increased from 65 days to 77 days mainly due to buildingup of raw material inventory
Credit period has been extended in view of their weak financial position
Bigger challenge for the industry is not on the working capital management front but
on capacity utilization front
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2010 - 11 2011 - 12
Raw material days 24 64
Finished goods days 44 30
Debtor days 42 47
Creditor days 45 65
Cash Conversion cycle 65 77
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CIPI Matrix
Industry Performance (1 on 5)
Next 2 year revenue growth CAGR : -54 %
ROCE (last 5 years average) : - 6%
Last 2 years average net profit margin : -24%
Investment required (1 on 3)
No fresh investments expected over the next 3 years
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Inves
tmen
tRequ
ire
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Industry Performance Indicator
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Key conclusions
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Demand outlook
Capacities of 1.8-1.9 GW to be added over the next 3 years
Capacity additions in Gujarat to fall significantly as it has shifted its focus to rooftop projects
Most of the capacities under batch 2 of Phase I under JNNSM are expected to be commissioned in 2012-13
REC market and RPO obligations to drive demand in the long term
Exports to reach zero in the next three years
However, most of the demand to be met by imports from China and US as:
Developers get equipment linked funding from abroad
Cheaper than Indian manufacturers due to backward integration and higher scale of operations
Japan and China to drive global demand ; demand from Italy and Spain to decline
Profitability
Profitability of players would continue to remain strained due to:
Inability to overcome threat of imports
Low capacity utilisation levels due to significant over capacity
Investments
No fresh investments expected over the next 3 years due to significant over-capacity, low capacity utilizationlevels and weak financial position of the players
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Shift in polysilicon manufacturing base to China
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Share of top 10 polysilicon manufacturers (in capacity)
Source: Bloomberg
Aggregate capacity of top ten players has increased from 173,500 MT in 2010 to235,050 MT in 2011
Over the years, leadership in production has seen a shift to China, formerlydominated by the US and Germany
China has expanded capacities to reduce production costs
Backward integration in polysilicon has enabled Chinese players to be more costcompetitive
2011 2010 2009 2008 2007
China 38% 23% 23% 7% 4%
USA 19% 29% 29% 42% 39%
Japan 18% 16% 14% 10% 0%
Korea 14% 18% 17% 23% 27%
Norway 8% 10% 10% 10% 16%
Germany 3% 5% 7% 8% 14%
Total capacity (MT) 100% 100% 100% 100% 100%
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Methodology
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Domestic demand
JNNSM
TargetsStatus of bid out projects
Past achievement ratio
Interaction with MNRE
State policies
State targetsProjects allotted
Financial health of discom
Interaction with sources
Off grid/ Captive
MNRE targetsJNNSM targets
Achievement till date
Interaction with sources
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Equipment linked financing to Indian developers
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Project Financer Amount(Mn US$)
Company providing panels Year
Reliance 40 MW plant in Rajasthan US EXIM bank 84.3 First solar 2011
Punj Lloyd 5 MW plant in Rajasthan US EXIM bank 9.2 Abound Solar 2011
Universal Solar system 2 MW plant in
Gujarat
US EXIM bank 3.7 Abound Solar(modules) and SMA
Amer ica (inverters)
2011
Shivajinagar Sakri 125 MW solar plant inMaharashtra
Germany's KfW 250 N.A. 2011
Foreign funding
Projects backed up by foreign funding
Country Financer
US US EXIM bank Overseas Private InvestmentCorporation
China Export-Import Bank of China
Germany KfW
N.A.: not available
US Fast start fund ($30 bn) being usedto offer low interest rates loans to Indianproject developers
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CRISIL Limited
www.crisil.comwww.standardandpoors.com
CRISIL Limited
www.crisil.comwww.crisilresearch.com