photovoltaic cells panels analystprenov12

7/28/2019 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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35

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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Polysilicon prices Silicon wafer prices

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Crystalline cell prices Crystalline module prices

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Thin film (CdTe) Cadmium


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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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15.4

11.8

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2007 2008 2009 2010 2011

Op Margin (%)

1.471.67

1.7641.94

2.03

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2.5

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

-78.9-43.1

-13.5

-146

-160

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-40

-200

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2,000

4,000

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2009-10 2010-11 2011-12

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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692283

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2009-10 2010-11 2011-12 2012-13 P 2013-14 P 2014-15

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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tRequ

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1 2 3 4 5

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

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