Prospect of Secondary Equipment Market Offers Nightmare Scenario for PV Supply-Chain

The considerable volume of production equipment delivered to PV manufacturers now exiting the industry may prolong downturn in new order intake.

By Finlay Colville, Vice-President & Team Leader, NPD Solarbuzz

If the quantity of marketing press releases from PV equipment suppliers is any indication of confidence levels in new PV order intake, then the prognosis currently would be of caution, bordering on pessimism. On the other hand, when at the bottom of a downturn cycle, only positive growth can follow.

The question is not whether order intake will pick up (it can’t get any lower), but when, at what rate, and with whom? And what process flows / technologies will be selected for the new equipment required here?

When searching for leading indicators here, some obvious metrics emerge. Is there sufficient supply to meet 2013 market demand scenarios? Are the leading Tier 1 manufacturers running at high utilization rates today? Do they need more capacity for 2013? Do they want to gain market-share during any shake-out/consolidation phase?

Another option is to look at capacity available today. Not the headline nameplate figures at the 50‑70 GW level, but at the Effective/Annual Tier 1 Ramped Capacity figure. If Tier 1 manufacturers have confidence in 2013 demand being above 35 GW, then perhaps the industry leaders will be required to add extra capacity to maintain or grow market-share levels?

Each of these approaches can be followed through logically to generate the quantity and timing of new order intake for the next round of capacity expansions. And there is no shortage of equipment suppliers performing exactly this type of analysis

Unfortunately, the reality of the PV industry is not so simple, and there are a several issues that are creating a great deal of uncertainty in this regard.

The first is the prospect of (enforced or voluntary) industry consolidation – a phenomenon that is largely confined to the Chinese c-Si value-chain. If this happened, then nameplate capacity levels from the industry leaders could be inflated with (in many cases) minimal new capex required.

Short-term roadmap preferences also play a key role. If multi c-Si furnace upgrades to cast-mono (in-house enabled with minimal capex) become the industry-norm as the route to (near-term) efficiency enhancement, then this may simply act as a roadblock to some of the higher risk next-generation processes being advocated for wafer and cell production. Or indeed to any flight-to-quality for poly production at the 9N+ level that would be required for n-type or p-type/mono adoption.

But – by far – the most alarming scenario for PV equipment suppliers is the prospect of a secondary (or used) equipment market opening up that would cannibalize new order intake for the next round of capital equipment spending.

According to new research featured in the NPD Solarbuzz PV Equipment Quarterly report, gigawatts of capacity have been coming offline almost on a weekly basis for the past few months. The ‘quality’ of this capacity does vary of course. Many production lines installed by industry leaders 10 years ago are likely to end up being gifted to local research labs, or just scrapped altogether. Much of the thin-film capacity also is unlikely to be restarted based on current market efficiency and price requirements. In addition, a number of new c-Si industry entrants in China during 2010 and 2011 equipped production lines using a significant portion of domestic tooling – a considerable quantity of which was manufactured by new Chinese equipment makers grabbing an immediate cash-generation opening.

However, one final threat exists from the investment frenzy period of 2010 and 2011 – a secondary market of high-quality and (in many cases) crated/unused production tooling from the top equipment suppliers to the PV industry. It is impossible to get an exact figure on the exact amount and the location/availability of all this equipment, but it could easily be anywhere between 5 GW to 15 GW of market-competitive ingot-to-module production tooling.

The frantic rush by new PV entrants in 2010 and 2011 to acquire identical process tools (and process flows) as the industry pace-setters now makes this prospect a very real one. And this is not helped by the 2011 year-end revenue recognition drive by PV equipment suppliers. This resulted in tools being shipped to disgruntled PV manufacturers that - only 12 months prior - had been begging for fast delivery supported by hefty up-front payments.

Should a large portion of the 2010/2011 shipped tooling be recycled to form a secondary equipment market, it would certainly delay any meaningful upturn in new order intake booked by PV equipment suppliers. The net effect could be a prolonged downturn that may last into 2013, with revenues potentially not picking up until 2H’13. The impact this may have on equipment suppliers that had aligned their market strategies exclusively on the PV industry during the past few years could be particularly alarming.

Therefore, the rate at which market-demanded preferences for higher panel ratings/efficiencies has a direct impact on new process flows and new production tools may become the single most important factor in obsoleting much of the equipment delivered prior to 31 December 2011. However, production changes tend to be incremental and slow, not wholesale changes across entire production lines within the space of 12 months. Therefore, even if new process flows are required to meet new efficiency thresholds, there are likely to be winners and losers down through the equipment supply-chain. And with many different high efficiency schemes being considered today, it is just too early to say how this scenario will play out in reality.

Figure 1 Caption Text: While a finite quantity of cell/thin-film capacity additions are planned for 2H’12 and Q1’13, it remains to be seen if this capacity will be sourced as new supply-chain orders or from equipment via a secondary PV market.

About the Author

Finlay Colville is Vice-President at NPD Solarbuzz and leads a team of analysts dedicated to PV market research and strategic consulting activities. He is a frequent speaker at high-profile industry engagements and major industry events worldwide, and is a regular contributor to leading trade magazines and online newsletters. He previously served as Director of Strategic Marketing for Coherent, Inc.'s solar business unit, where he managed PV market intelligence and new product strategy. He holds a BSc in Physics from the University of Glasgow and a PhD in Nonlinear Photonics from the University of St. Andrews.