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Foreward
The
2008 edition of Solar Annual is a complex snapshot of a sector
in transition. On one side of the picture, the sun is still
brightly shining: Solar power companies appear likely to continue
their relentless climb in volume (+68% CAGR), revenue (+60%
CAGR) and profit (+61% CAGR) from 2007 to 2012. With a strong
demand environment, only modest price declines (-7% CAGR)
and continuing cost reductions (-7% CAGR), it appears likely
that operating profit margins for the overall sector will
remain above 30% through 2012.
Yet
even as the sector continues to expand at an impressive pace,
there are clouds that have started to cause concerns about
the rapid pace of ascent. First, it appears likely that the
% YoY volume growth for the overall solar sector and for many
solar companies will decline in the coming years (i.e., circa-triple-digit
YoY growth in 2009-2010 declining to double-digit rates 2011-2012).
Second, the strong pricing environment of the last four years
(i.e., 2008 global weighted average module prices are TK%
above 2004 levels) is likely being replaced by price declines
(albeit at modest YoY rates of 6 to 11% from 2009-2012). Third,
cost reductions throughout the supply chain are being hampered
by the rising price of inputs such as electricity, metallurgical
silicon, glass, aluminum, construction and engineering. Fourth,
as the scale of solar grows, there is increasing risk of saturation
in key solar markets and/or of backlash from traditional electricity
players.
For
nearly all solar companies, vertical integration has been
the most important strategic direction for the last three
years. We believe that the increasingly complex outlook for
solar combined with potential saturation/backlash in key markets
will push this to a new level. In the coming years, the strategic
imperative for most solar companies will be to develop electron-
level strategies (i.e., at the far downstream of the sector)
in order to develop defensible market positions. Already,
the six largest pure play solar companies (measured by market
capitalization as of June 2008) are aggressively pursuing
electron-level strategies. We expect many others to follow.
This year’s report provides a closer look at "Four
Peaks" the sector will encounter in the coming few years,
and the six companies (First Solar, Q-Cells, REC, SolarWorld,
SunPower, Suntech) that are best positioned to continue ascending
despite the downside risks.
Photon Consulting
NOTE: Preliminary.
All data are rough estimates.
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