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As I had briefly mentioned in our solar manufacturing whitepaper, the solar PV panel manufacturing segment (to a large extent in China) is expected to consolidate over the coming years. China, which hosts a signifcant percent of the global manufacturers (over 500) is set to see the number of manufacturers reduce to less than 20 – with those companies that lack economies of scale and any other USP (such as higher module efficiency) being the likely victims. A representative from JinkoSolar stated in an interview given to Bloomberg that the Chinese module makers would address the supply glut that the market is currently experiencing by shutting factories or their entire businesses rather than merging. This move is expected to reduce the manufacturing capacity in the country by 75% to about 20 GW by 2013. This outcome ofcourse was invetiable considering the fact that the global production capacity was over double the annual installed capacity expected over the course of the next two years.

Implications

This is a bittersweet pill for the solar PV industry. While on the one hand manufacturers would not need to sweat over falling prices, on the other solar PV module prices (and hence system price) won’t see the same downtrend that it experienced in the past. It is very likely that if such a consolidation did happen in the near term, the module prices would start plateauing leading to insignifcant price drops for solar PV developers, who, over the past year were able to setup solar PV plants cheaply, due to the cratering of module prices. This could act as a slight speedbump on the way to achieving grid parity.

The scenario could also have a positive influence further upstream. Over the past month, polysilicon prices have increased by between 1% and 2%, while wafer prices have increased by up to 0.5%. This seems to be a positive sign for manufacturers currently engaged in the manufacture of the same or even to those who are looking to set up manufacturing facilities in the near future.

It is very likely that this would have very little effect on the thin film modules though since there aren’t any major players in the thin film business in China. This can be attributed to the fact that thin film is technology driven and not a commodity business. The only effect that I could forsee happening is that thin film manufacturers would, as a result of the plateauing of c-Si module prices, would not have to resort to cutthroat pricing to maintain their price advantage over c-Si.

The Domestic Scenario

The effect on the domestic manufacturing scene (in India) would not be too significant – atleast in regards to JNNSM. I do not see module dumping from China being as prominent a detractator to domestic manfuacturing as the availability of low interest multilateral financing from US, which has forced most developers to go for modules from the US. This has resulted in huge losses for domestic manufacturers who are faced with unspent inventory. Indian panel manufacturers are currently operating at 20-30% of their capacity due to lack of any significant orders. Prominent domestic manufacturers are imploring the government (MNRE) for policy interventions that would help them stay afloat. No one can blame them – though domestic content restrictions were well intended, they have been easily circumvented (not to mention preferred due to availability of low cost financing).

We could see some new names emerge in the global solar PV manufacturing segment in the future, while domestic manufacturing would definitely require some sort of policy support to fulfill the (manufacturing sector) ambitions of  the National Solar Mission.

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