Reported by Jeanny Lim  (swied@infothe.com)

Manufacturing Competitiveness

Among the many reasons behind the success of Asian companies in the PV market, the key factor is their manufacturing capability, said Sean Tzou, COO of Trina Solar. “Over the past few years, global manufacturing has moved to Asia, especially to China and Taiwan. China and Taiwan are two areas where economies are built on manufacturing. The manufacturing industries of China and Taiwan have a long history of producing better quality, lower-priced products. By learning to compete in the extremely cost-sensitive domestic environments, China and Taiwan have reached a level of superiority in designing and producing goods that sell at a low price. Their experience and competitiveness in manufacturing are applied to the PV sector.” Japan, too, he continued, has an extremely developed manufacturing industry, which has led it to the leadership position in the PV industry. “World’s leading Japanese solar companies such as Kyocera, Sharp and Sanyo all started off as a manufacturing company and have established a strong foothold in the manufacturing industry.”

Success or failure of PV products hinges on mass production because it allows lower prices. Therefore, companies who know about mass production, mostly from the manufacturing sector, are better-positioned to make gains in the PV market. Thanks to its strong capability in manufacturing, Asia has been able to push quality up while keeping prices low, thus gaining the upper hand in the PV industry.

Pushing Quality Up, Keeping Prices Low

European companies, in the meantime, can compete in quality but not in price, said Tzou. “Losing price competitiveness will limit their future growth. The high-quality European firms stake its profitability in maintaining separation in quality and service levels compared to low-cost peers. However, in an environment where firms have the resources, the know-how and the willingness to produce higher quality goods with low variable costs, customers are getting sensitive to the high-quality premiums they are asked to pay by perceived high-quality firms.” Asian companies typically have much lower costs than European/Western suppliers, said Ash Sharma, Research Director of Renewable Energy Research Group for IMS Research. “Being able to produce PV components on a lower price/Watt basis has contributed to their success.” Stefan de Haan, Senior Analyst of Photovoltaics for iSuppli Corporation, said that it’s mainly the Asian cell and module manufacturers that are doing extremely well and they already account for up to 60% of global production. “The reason is simple, but fundamental: They have a better cost structure than most of their competitors from other regions.” Some of the leading Asian brands, he added, are now well-respected among European installers and “not necessarily associated with lower quality” as it was the case until very recently. “In polysilicon, the situation is different: The Korean OCI and the Chinese GCL Poly are reaching the status of world-leading producers, but the overall market is still dominated by the incumbent non-Asian suppliers like Wacker, Hemlock, REC, and MEMC.?” Speaking of the quality of Asian products, Tzou agreed, “Traditionally, European brands have stood for quality. But an interesting thing is European companies buy cells and materials produced in Asia. Technologies and materials are exchanged between Europe and Asia. The world has already become flat when it comes to PV technology. It’s a matter of location: Where and who assembles the product. As a result, it’s inevitable that the battle has come down to who has control over manufacturing costs.” Japan and other Asian countries, observed Brooks Herring, Director of International Business for Solar Frontier, have a long heritage of innovation and technological leadership in producing affordable, quality products that are respected the world over.

Government Support

China

Asian governments, China most notably, have been forthcoming in providing incentives to manufacture and build solar in a way that the U.S. government has not yet done at the same level, said Rhone Resch, President and CEO of the Solar Energy Industries Association (SEIA). “This presents a huge opportunity for our elected officials at the federal and state level.” “China has grown into one of the, if not the, leading manufacturers of PV cells, surpassing the previous market leader, Japan,” said Larry Fisher, Research Director of NextGen, ABI Research’s emerging technologies research group. “Companies in both countries, along with companies in South Korea, where the government has set ambitious long-term goals for solar power generation, have been (and continue to be) developing their technical expertise in photovoltaic cell and system manufacturing at home, taking advantage of government programs to develop and grow.” These companies are always looking to take the expertise they have grown at home and use it to better penetrate global markets, he added.

“Favorable government incentives in Wuxi, China, were instrumental in getting our operations off the ground and facilitating growth,” said Holly Wu, Director of Marketing for Asia Pacific, Middle East, and Africa at Suntech. “Since then, Suntech and our international partners have grown together with the support of governments around the world, including those in Japan, Korea, the United States, Australia, China, and, of course, Europe. Of particular note is the feed-in tariff in Germany, which has been a major catalyst for bringing the global solar market to where it is today.” “Most recently,” she continued, “we have benefited from U.S. incentives for the establishment of a solar panel manufacturing facility in Phoenix, Arizona, as well as incentives in Australia to perform advanced solar research with leading Australian research organizations, such as the University of New South Wales and the Swinburne University of Technology.” Not all Chinese PV players believe their government policies were particularly helpful in their success. Contrary to what most people in the PV industry believe, said Tzou of Trina Solar, the central government of China has not set any substantial support plans for the PV industry except the recent Golden Sun program. “China doesn’t have a policy dedicated solely to PV. It’s just that China sees the PV industry as a high-growth sector just like the electronics industry. But it has no intention to provide major subsidies to PV manufacturers yet, like countries such as Japan and South Korea have done.”

South Korea

In Korea, strong government policy support for solar energy has continued, driving the growth of the local market. The government designated solar power as its strategic industry for next growth, expanding its support and revamping its policies for the solar photovoltaic industry. In 2008, South Korea ranked the fourth largest market in the world with installed PV systems of 274 MW, the largest in Asia.

Despite the recent slash in feed-in tariff, the Korean government continues its effort to develop its PV industry and to achieve its goals of increasing the use of solar energy and becoming a major solar player in the world capturing 10% of the global PV manufacturing market.

This is ‘low Carbon Green Growth’ policy the government offered on Independence Day in 2008, said Sangchul Lee, Chairman of Millinet Solar. “Korean government leads from the front of green energy technology and dissemination, for example, by expanding PV solar energy to 44 times and promoting the solar PV field as an export-oriented industry.”

Japan

In Japan, the residential-use solar market started to grow, and the government started subsidies for residential systems in 1994, explained Ichiro Ikeda, Marketing Manager of Kyocera. These measures helped the Japanese residential-use solar market grow. “In 1993, Kyocera was the first in the industry to start selling residential-use systems. At the same time, we have been able to experience growth by enhancing our sales network in Japan.”

Especially in Japan, said Shinichi Nomura, Manager of PV Strategic Planning Group for Mitsubichi Electric, subsidies for both residencial and commercial PV systems by the Japanese government, as well as the new solar power electricity buying program, have stimulated the domestic PV market, also contributing to the growth of the global market. “This increase in demand has helped Mitsubishi Electric? business to expand sales.” “There is a subsidy policy to help consumers who install PV panels on their homes, and a buyback program for electricity generation through PV that started last November, but there is no policy in Japan that gives subsidies to PV module manufacturers like Solar Frontier at this time,” said Herring of Solar Frontier. “We do receive various subsidies and tax reductions from the local governments in regions where we operate but this is not a reason why we entered the PV industry.”

Taiwan

The Taiwan government, said Becky Yu, IR Manager of Gintech, does not provide specific incentive policies for the PV industry. However, she continued, it has encouraged the growth of the PV industry by leasing land in Science Parks for factory setup at reasonable rental prices. “There are also R&D tax credits available under “statues of Industrial Innovation” “Commenting on the Science Parks, Herbert Lu, Senior Marketing Manager of Neo Solar Power, noted, “Neo Solar Power has benefited from Taiwan government’s industry-friendly policies such as ITC (Investment Tax Credit), infrastructure and administration support from Science Park where Taiwan semiconductor and electronics clusters are. Government-backed research institutes such as ITRI (Industrial Technology Research Institute) has helped Neo Solar Power gain PV know-how quickly in the early stage. Actually, many Neo Solar Power executives and managers are from ITRI.”

Culture Plays a Role

Another contributing factor to the growth of Asian players is the culture. “The culture in Asia often is one of letting things take their course, taking the time to consider all factors in a deal, and in relationships generally, which is why, when China first opened some of its markets to the West, the Japanese often were more successful in negotiations there than Westerners were; Americans, for example, were too focused on immediacy,” observed Fisher of ABI Research.

Asians, influenced by teachings of Confucius, explained Lu of Neo Solar Power, are hard-working and willing to contribute to the society. “Encouraged by economic incentive arising from this booming industry and backed by high saving rate necessary for investment, Asians, especially people in China and Taiwan, are set to play a key role.”

Other Success Factors

Well-developed infrastructure and skilled labor are also the strength of Asia. “Several countries in Asia, such as China, India and Japan, have developed strong infrastructures and are home to large, well-educated, and industrious populations, which is conducive to efficient production, manufacturing and logistics,” said Wu of Suntech. “Almost every global company in every industry sources at least part of its production processes to or components from some place in Asia. The global solar industry is no different, as it draws on resources, capabilities, and expertise from around the world.” “Taiwan has many trained skillful engineers, especially some of them are from the semiconductor industry, which helped the growth of the industry within a short period,” said Yu of Gintech. The labor cost in Asia, added Yu, is lower than that of Western countries, which contributed to lowering PV production costs.

Asian enterprises, said Lee of Millinet Solar, have rich experience and cutting-edge technical skills in semiconductor. “Coming from the semiconductor industry, some Asian enterprises will dominate the solar PV market with quick decision-making process and competitive technical advantages. They will demonstrate their ability to swiftly act in unstable domestic and foreign market situations.” Motech shares Lees’s view. “Speed and flexiblity to adapt to the changing requirements of customers and the markets are the driving forces behind the ascent of Asian PV players,” said Motech.

For Fancy Li, Senior Marketing Manager of Solarfun, Asian PV companies have found many customers abroad by focusing on what customers require in terms of quality reassurances/international certifications and delivering good prices to optimize customers needs.

In addition, said Paul Combs, VP of Strategic Planning for Solarfun, the top echelon of Asian solar companies have been, collectively, savvy in terms of promoting their viability in Western markets. “Increased exposure through listings on North American and European stock exchanges reinforces ties to the global market.?

The Rise of Asia and Its Effect

For such a variety of reasons, Asian PV players could rise in the global PV industry. Then, what are the impacts of their emergence on the global solar market?

One impact, said Li of Solarfun, is a shift in the manufacturing base of North American and European solar companies to China. “The reason for this might be obvious: To compete competitively on price and maintain margins. While many solar companies are quick to make the case that solar is not a commodity market, the reality is that top Chinese-based solar companies like Solarfun have been able to manufacture PV cells and modules cost-effectively without trade-offs in quality or reliability. While there are a number of factors that will ultimately drive grid parity, certainly the cost reductions achieved by Chinese manufacturers has contributed to this goal.”

Asian PV players have obviously helped to drive down PV costs, by cutting prices and not allowing high margins enjoyed by Western suppliers to continue, said Sharma of IMS Research. ?his has impacted Western suppliers heavily who have had to now try to not just compete on price but also differentiate themselves with value-add products.” Due to increased competition and pricing pressure, said de Haan of iSuppli, European cell and module manufacturers will have to adjust their business models, e.g., go for cutting-edge technology (world-class c-Si, CIGS thin film) and/or for contract manufacturing. “The American Sunpower is a good example of what companies do to maintain their share in a growing but highly competitive market.” One potential backlash that can be correlated to the popularity of Asian solar companies, observed Li, of Solarfun is the impact on government solar policy. “European and North American governments may increase efforts to incentivize domestic manufacture of PV modules and sourcing of PV materials to offset trade deficits and support local job growth, a particularly high-profile topic given the residual effects of the economic slowdown.” For example, noted Li, Ontario, one of the most rapidly developing North American markets, has a domestic PV content provision within its new (2009), potentially lucrative feed-in tariff legislation, called REFIT. “This provision currently requires 50% domestic production and is expected to rise to 60% for 2011 (for all 10 kW+ solar projects). The bottom line is that the import of completed PV modules for REFIT projects will be severely limited,” said Li. “This has led to a flurry of activity as global solar companies set up or expand regional operations to capitalize on current favorable market conditions. Other countries may adopt similar domestic content provisions over time to spur job growth within this high-profile “Green” industry. ”Some in the PV industry argue Asian manufacturers are hurting European companies. A few months ago, two European PV companies accused Chinese producers of price dumping and intend to call on local governments to protect the European industry. However, this claim is short-sighted and risky, said Tzou of Trina Solar. “Many Asian solar companies use German  or European equipment in key manufacturing processes. Trina Solar’s solar cell manufacturing equipment is 100% “Made in Germany or Europe” And Asians also import critical materials from Europe. Asia has become a big consumer of PV manufacturing equipment and materials to German and Western PV companies.”

“Asian PV players have provided greater competition, certainly, but their presence has also helped to open up markets with very robust growth potential, like China and India, to the solar industry,” said Resch of SEIA. “This will benefit all players in the industry no matter where they are located.” The entrance of Asia-based companies has the same impact as the entrance of companies to the industry everywhere in the world, said Wu of Suntech. “The more competition and the bigger the global industry becomes, the more we can improve efficiency and productivity, and ultimately drive down solar prices to power a global transition away from fossil-fuel energy generation. ”Asian players, predicted Lu of Neo Solar Power, no doubt will help the industry to arrive at grid parity earlier which is actually good for the entire human being and industry. “If you look at the jobs created in installation and maintenance, the benefit to local European people may outweigh the damage on local cell or module manufacturers by low-cost competition. ”Though Asian players are plenty, stressed Lu, all that glitters is not gold. “We think in the longer term only those Asian players with scale, healthy balance sheet and good reputation on quality and product reliability will survive and prosper.” In a nutshell, due to the competition from the East, de Haan of iSuppli concluded, “System prices decrease, PV gets cheaper, governmental subsidies can be cut earlier than expected, grid parity will be reached earlier than expected, which is from a general perspective very good news for the establishment of PV as a significant renewable energy source.”

Road Ahead for Asian Solar Players

The PV market landscape and dynamics are constantly changing and competition is cutthroat. Even though the future seems bright at this point of time for the Asian PV players who can offer quality products at reasonable prices, there are issues and challenges confronting them to remain competitive and grow further.

Sharma of IMS Research said, “In the short term, currency fluctuations will play a major part and will make it difficult for Asian companies to compete in Europe.” On the cell and module, de Haan of iSuppli expects the market share of the Asian producers to grow further, but at a slower speed than in the last two years. “The weakening Euro playing against Asian suppliers will contribute to this trend of slower growing market share.” In the longer term, predicted Sharma, maintaining quality and a strong brand while also reducing costs and being able to identify new markets and opportunities, particularly if the German market stagnates, will be the challenges facing Asian PV producers.

There is a clear trend towards vertical integration in the industry, stated de Haan. “The business models of Trina and Yingli, for instance (integration from wafer to module level), were very successful in the past years.” The challenge, he stressed, will be to find the right balance between specialization and integration. “A fully integrated company will not be able to maintain technological leadership and scale (“scale” referring to Top 5 globally) at the same time on all nodes--the investments would be too huge. Furthermore, we do not think that the market will allow for tens of companies that copy the business models of Yingli and Trina?that’s why we do expect consolidation in the coming years.” “Within their home markets, the greatest challenge will be encouraging government support through mechanisms like feed-in tariffs for the implementation of solar systems,” said Fisher of ABI Research. Globally, he added, Asian companies initially will ride the notion that their solar products must be good, since Asia manufactures so much of the world? electronics; the challenge will be proving that that belief is well-founded.

The challenges faced by Asian solar companies are the same faced by solar companies everywhere, pointed out Resch of SEIA. “Governments across the globe still give preferential treatment to fossil fuels, to the tune of about US$500 billion in subsidies a year.” But even with these challenges, Resch still projects strong growth in 2010 for the PV industry. “It is critical that all players in the solar industry continue to aggressively make the case for our products and to advocate for policies that help grow markets.”

Leadership Up for Grab

Experts view given the strong growth in the global market, the mantle of leadership is up for grabs. “Market leadership will simply come down to whoever can reduce their costs and hence prices most quickly while ramping up production--not an easy thing to do however! In the end, the lowest price/Watt will “win” as subsidies get cut more and more,” said Sharma of IMS Research.

For de Haan of iSuppli, those companies who find the best balance between integration and specialization will lead the market. "This will allow for both low cost and 1st tier quality." The U.S. has a tremendous opportunity to lead, but it is going to take the right policies, like an extension of the Treasury Grant Program, a manufacturing investment tax credit and effective incentives for solar in any climate legislation that may come before Congress for a vote, observed Resch of SEIA. “Solar provides domestic, well-paying jobs for professionals coming from industries hardest hit by the recession. We also need to make sure that we remain an open trading partner so that the solar products we produce can reach the world’s growing solar markets.” As to which country or region will show the biggest growth in PV installations in the coming years, Fisher of ABI Research predicted that Asia (China, Japan and South Korea, in particular) and some parts of Europe (notably Greece, Italy and France) will enjoy the greatest growth. The U.S. also will grow substantially in photovoltaic usage, he added. “The main driving force behind this growth will be increasing governmental emphasis on reducing dependence on fossil fuels for energy generation.”

Jeanny Lim is Editor-in-Chief of InterPV. Send your comments to swied@infothe.com.

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