News Press
Commentary: One step closer to grid parity

 

Published Date: 9th March 2012
Publisher: DIGITIMES
Author: Nuying Huang ; Jackie Chang,

 

Germany has announced new feed-in-tariff (FIT) cuts that have larger magnitude than expected. The effects are likely to ripple across the supply chain. Digitimes met up with Davis Chen, chairman and general manager of solar PV system provider Win Win Precision Technology, to discuss the possible implications and outcomes of low FITs.

 

A transition to grid parity

 

As Germany cuts solar FIT in first-quarter 2012, the installations in Germany will shrink significantly. This will then lead to a wave of firms exiting the market, said Chen. "The Germany government is preparing for grid parity to arrive so having a period of low FIT will give the industry a smoother transition into a period of no FIT," added Chen. "Of course in the short run there will be large fluctuations, but in the medium and long run, the most competitive firms will thrive, especially when other countries are likely to revise their solar policies similar to that of Germany\\'s."

 

Tsunami to hit local firms first

 

Market analysts noted that Germany\\'s installations in 2012 are likely to reach only 2GW due to the steep incentive cuts, Chen indicated. Compared to the 7.5GW in 2011, the market demand will shrink drastically. Germany\\'s local system developer and installer will be hit the hardest first, and that is why solar firms have been protesting in Berlin after the announcements of the new incentive cuts, noted Chen.

 

"Large-size solar PV system firms may suffer more than small-size peers," Chen pointed out. "The industry\\'s structure will also change due to this incentive cut; the bigger the system firm, the harder the hits."

 

This means if a system firm has five projects with total installations up to 5MWp, it will suffer more from the incentive cuts due to shrinking returns than a system firm that has 50 projects with the same total installations, Chen explained.

 

Many small-size system firms in Germany also install household appliances such as water heating systems. This type of system firms has strong distribution channels and relationship with households. Hence, they will not be affected by the incentive cuts as much, according to Chen.

 

"It is obvious the new incentive cuts are leaning towards subsidizing households instead of investors, hence the demand structure will have to change to adapt," added Chen.

 

Say goodbye to free riders

 

Europe-based distributors who have been closely related to Taiwan\\'s solar supply chain will have to face growing challenges, Chen said. First, "free riders" of the industry will face survival tests because about 5GW of demand will be gone in 2012. The free riders are mostly riding the wave when demand was good. Hence their customer bases are not as solid, which will be a weakness once demand shrinks, Chen pointed out.

 

Added values

 

In addition, the distributors that have competitive advantages will now increase value-added attributes such as quality, financing services and brand to remain strong in the market. Previously, most customers only want cheap modules and rapid installations to obtain FITs. As FITs have been cut, the three value-added attributes will become more important for solar PV systems, acknowledged Chen.

 

Distributors have been providing financing services for customers. This service requires good relationship between distributors, banks, and insurance firms. After the new incentive cuts, it is likely that distributors will transfer the burden of financing services upstream. This is a problem for solar firms in Greater China as this trend is quite obvious in recent times when customers have been extending payment terms.

 

Frienemies

 

According to Chen, another trend worth noting is that some supply chain firms have been trying to enter the system industry due to oversupply in the market. These firms have become potential competitors to distributors. It is interesting to see how supply chain firms can manage to produce products and developing system projects, concluded Chen.

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