Germany s photovoltaic industry at the crossroads Challenges and opportunities for German PV companies along the value chain

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1 Energy Executive Summary Challenges and opportunities for German PV companies along the value chain By Dr. Peter Claudy, Michaela Gerdes and Janosch Ondraczek

2 Introduction and Executive Summary Introduction and Executive Summary Rapid growth in the photovoltaic sector The last ten years have seen impressive growth in the photovoltaic (PV) market around the world, and particularly in Germany. The market has boomed in recent years, with average annual growth rates of around 36 % from 2000 to Between 2003 and 2009, the German share of newly installed worldwide capacity was around 50 % year after year (except in 2008) saw record growth of more than 100 % in the German market, with 3.8 gigawatt peak (GWp) of new PV installations, according to official figures from the German Federal Network Agency. 8,000 7,000 6,000 Installed capacity (MWp) 5,000 4,000 3,000 2,000 1, Germany Rest of Europe Rest of world Japan USA Spain Cf. EPIA, Global Market Outlook for Photovoltaics until 2014, Annual newly installed capacity Reductions in feed-in tariffs mean the PV sector now has to work even harder In recent years, a very positive market environment for PV projects has led to the creation of a high-performing, successful PV industry at every stage of the value chain in Germany. The reductions in the feed-in tariffs stipulated in the German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, or EEG), which came into force on July 1st 2010, will require extra efforts from PV companies over the coming years at all stages of the value chain. If they are to continue to operate profitably, they will need to cut costs further and increase efficiency by exercising innovation potential and maintaining already high levels of quality. 2

3 Introduction and Executive Summary Will the market become a mass market in the short-to-medium term or will it stagnate? Expert survey as the basis of our study Overwhelmingly positive market forecasts from companies in survey This could lead to the opening up of a mass market, particularly if efficiency gains mean German companies gain more access to foreign markets. But if the PV industry is unable to pare its cost structures down to the extent required over a relatively short time period, it could start to stagnate or even, given current overcapacity, lead to the collapse of the PV industry, at least in the short to medium term. A further challenge facing German companies, particularly manufacturers, is increasing foreign competition from China and the USA, among other countries. Given these circumstances PwC has analysed the long-term challenges and opportunities that exist for Germany s PV industry. The study is based on multiple sources including almost 40 interviews conducted from mid- April to mid-july 2010 with senior representatives of manufacturers, project developers, financial investors and banks. The companies from the German PV industry we surveyed gave an overwhelmingly upbeat appraisal of the industry s future. Following a very successful year so far, the industry representatives are predicting that new installations in Germany will amount to 4.7 GWp on average. 1 The majority of the companies surveyed expect the potential for German projects to decline as a result of the impending cuts in the EEG feed-in tariffs in At the same time the companies we surveyed expect the global market in solar power to see significant growth over the next three years. The interviewees current assessment is that the 2010 global market will reach 8.0 to 15.5 GWp, forecast to grow to 10.0 to 27.5 GWp by Hence, the overall expectation is that Germany s market share of new installations will fall below 50 % by 2011 at the latest and will continue to fall in each successive year thereafter e 2011e 2012e Germany (GWp) (4.7) 1 (4.4) 1 (4.1) 1 World (GWp) (10.5) (12.5) (17.2) 1 Germany s share of global market 53 % 44 % 35 % 24 % 1 mean value PricewaterhouseCoopers Expected market growth in Germany and worldwide based on company survey carried out by PwC Focus on individual stages in the value chain The study focuses on the individual stages along the PV value chain, as well as on the various market segments crystalline modules (silicon production, wafer manufacture, cell and module production), thin-film modules, modules for concentrated photovoltaic, inverter production, mounting systems, project development, wholesale trade and systems integration, project financing and PV investments. 1 When judging this finding, readers should bear in mind that our survey was carried out between mid-april and mid-july The actual level for new installations for the whole of 2010 is likely to be significantly higher. 3

4 Introduction and Executive Summary Evaluation of challenges, opportunities and critical success factors The study begins with a profile of each market segment and the importance of the German PV industry for that segment. We then provide an analysis of the survey findings related to the segment, setting out the challenges, opportunities and critical success factors as seen by the relevant decisionmakers from the companies surveyed. This also includes the companies own assessment of the competition, what specific strategy they themselves are pursuing, and their strategic direction. Finally we provide conclusions from our study. The aim of the study is to gain a nuanced assessment of the current state of the German PV industry. 4

5 Analysis of upstream value chain Analysis of upstream value chain Spot market prices (USD/kg) Cf. Cowen and Company Alternative Energy, 10/2009. Polysilicon spot market price development The collapse in the price of silicon is making market entry difficult for new entrants At the end of 2009, three German companies were engaged in silicon production: Wacker Chemie, PV Crystalox and Joint Solar. The collapse in the price of polysilicon caused by massive capacity expansion means that only companies that are well positioned in the market have potential for development, and it is likely that a whole set of new entrants will not be able to survive in this difficult market. The market is dominated by large companies which have been established for years such as the German manufacturer Wacker Chemie. These companies generate cost advantages from economies of scale and tried and tested technological processes which new entrants will find difficult to emulate. The regional distribution of pipeline or current investments in expanded production capacities suggests however that Asian companies are also banking on making profits from silicon production in the future. In Germany, Wacker Chemie expanded its annual polysilicon production output by 10,000 tonnes at its Burghausen site in April 2010 at a cost of around 500 million euro. SolarWorld holds a 29 % stake in the newly founded Qatar-based Joint Venture Qatar Solar Technologies (QST), where it will build a high grade polysilicon factory with a planned annual capacity of 3,600 tonnes. SolarWorld says it chose this location because of the excellent chemistry infrastructure and favourable energy prices. 5

6 Analysis of upstream value chain Company Country Production method 2009 production (t) Planned production by end 2010 (t) Hemlock USA Siemens process 20,290 27,400 Semiconductor Wacker Germany Siemens process / 18,000 23,500 fluidised-bed process OCI Company Korea Siemens process 8,450 14,300 GCL Solar China Siemens process 7,270 12,600 REC Silicon Norway Siemens process / fluidised-bed process MEMC Electronic Material USA / Italy Siemens process / fluidised-bed process 7,000 12,300 6,510 8,000 Tokuyama Japan Siemens process / 6,160 7,200 vapour to liquid deposition Mitsubishi Material Japan Siemens process 3,000 3,700 M.Setek Japan Siemens process 2,000 3,900 Daqo New Energy China Siemens process 1,500 2,100 Cf. photovoltaik, 02/2010. Leading global manufacturers of polysilicon Cheaper, alternative production methods may regain significance Current wafer production in Germany mainly as part of integrated companies Demand for silicon is likely to continue to grow in future, and in a consolidated market silicon could once again become scarce. Even if demand grows, there will still be downward pressure on silicon prices since PV system prices must be reduced further. This could mean that alternative, cheaper manufacturing methods such as UMSi become more attractive again. In wafer production, too, a collapse in prices last year put pressure on companies at this stage of the value chain. It is therefore likely that expansion in capacity over the coming years will be restricted mainly to established wafer manufacturers, and only a small number of new entrants will be seen on the market. Even today, wafer manufacture in Germany is predominantly within integrated companies as a result of current relatively low margins. Prices stabilised in the second half of 2010, but this was due to pre-emptive actions in advance of the reductions in feed-in tariffs and should not be seen as signalling the start of an upward trend in pricing over the long term. Downward pressure on prices is set to continue over the mid to long term, making cheaper production methods more important, as is the case for silicon production. 6

7 Analysis of upstream value chain Company Country 2009 production (MWp) LDK Solar China / USA Planned production by end 2010 (MWp) 1,800 1,800 (2,000) 1 REC Wafer Norway 850 1,500 MEMC Electronic USA 1,200 1,200 Materials SolarWorld Germany 900 1,100 Jinglong Group China 500 1,000 ReneSola China / USA /Singapur Pillar Ukraine Trina Solar China Yingli Green Energy China Kyocera Japan / USA 1 Cf. LDK Solar, press release, April 19th Cf. Photon, 01/2010. Leading global manufacturers of wafers Overcapacity and strong Asian competition in cell manufacture After a turbulent year last year, the situation has stabilised for some German PV cell manufacturers. This followed a surge in German demand for solar panels in the first half of 2010 caused mainly by the reduction in tariffs on July 1st As demand slows, however, we could soon see some cell manufacturers once again facing difficulties. The collapse in solar cell prices caused by overcapacity and strong Asian competition is likely to continue in the short to mid term. Recent significant improvements in manufacturing quality from some Asian producers have taken the shine off the made in Germany brand, particularly since some German module manufacturers have also started to source their cells from Asia. It remains to be seen whether German manufacturers will be able to achieve the PV cell production cost reductions they need if they are to continue to achieve acceptable margins at the prices demanded by the market. Since the advantage of locating regional production near PV installations is far less important a consideration than, for example, in modules (see below), cell manufacturers are more exposed to international competition particularly from Asia (which already accounts for 78% of production). This stage of the value chain is defined in particular by short product cycles and increased efficiency levels. 7

8 Analysis of upstream value chain Taiwan 12 % USA 5 % Rest of Asia 10 % China 47 % Japan 9 % Europe 17 % Cf. EPIA, Global Market Outlook for Photovoltaics until 2014, c-si cell production in 2009 by country German integrated manufacturers must remain competitive at all stages of the value chain Despite significant price differences, there are also arguments against concentrating all production of mono- and polycrystalline modules in Asia A number of German companies are fully integrated manufacturers of PV modules, including Bosch Solar Energy, Schott Solar, Conergy and Solar- World. One advantage held by integrated manufacturers is that they only need to achieve their margin once across the entire integrated value chain. German cell and module manufacturers are also adopting system solutions to distinguish themselves from their international competitors. Conergy is providing a total service offering to its customers, acting as a system and service provider at the same time. It would, however, be wrong in our opinion to assume that integrated manufacturers can fully escape competition from Asian manufacturers by in-house cell processing. Integrated companies need to remain competitive at all stages of the value chain if they are to withstand market pressure from non-integrated module manufacturers, who are free to source their cells and other inputs from the most competitive suppliers. There is a significant disparity in prices for mono- and polycrystalline modules quoted by German and Chinese companies. However, some of the companies we surveyed argue against concentrating global production of crystalline modules in a single region such as China. Avoidable transportation costs and better market access for local producers are arguments for locating at least some production close to markets. Since the German sales market continues to be by far the most significant, this would seem to favour German manufacturers. It does, however, require companies to be able to source the cells at competitive prices and remain technologically innovative. Economies of scale in production are frequently seen as an advantage here; a challenge many module manufacturers are currently attempting to meet by investing in modern production plants. The relative price increase of Chinese modules in the second quarter of 2010 due to the strength of the US dollar against the euro also made clear the impact of exchange rate movements on competitiveness. Other things being equal, the continuing significant undervaluation of the Chinese yuan will continue to have a negative impact on the competitiveness of European producers. 8

9 Analysis of upstream value chain Euro per Wp Crystalline Europe Crystalline China Cf. photovoltaik, 02/2010; Sonne, Wind & Wärme, Barometer der Modulpreise, 13/2009, 14/2009, 16/2009, 17/2009, 01/2010, 02/2010, 03/2010, 06/2010. Development of prices for Chinese and German crystalline modules Chinese manufacturers leading position on costs and structural overcapacity make market consolidation likely Size is not the only success factor However, we believe it is likely that the highly productive German module manufacturers will remain competitive in the long term even versus Chinese manufacturers. However, we expect that Chinese companies will continue to lead on component costs. On the other hand, likely future market turbulence marked by short-term ups and downs as well as structural overcapacity make it unlikely that investments will be as successful as planned in all instances. As can be seen from current levels of investment in new production capacities by companies both inside and outside Germany the market could soon be facing cut-throat competition. For example, the Chinese manufacturer Yingli recently announced that it is expanding its production capacity to 3 GWp. 2 The competitive process will most likely end either in market consolidation, or in a negative scenario market exit with considerable sunk costs for some European and German manufacturers. Then again, a number of small and medium-sized manufacturers in the sector have a track record of profitability, and production capacity should not be viewed as the only factor for German companies wishing to remain successful in the market. High quality of modules is also important, allowing the companies to differentiate themselves and to build up a reputation as a premium or niche provider. Access to sales markets is likewise essential. 2 Cf. 02/07/

10 Analysis of upstream value chain Company Country Technology 2009 production capacity (MWp) 2008 production capacity (MWp) First Solar USA CdTe 1, United Solar Ovonic USA a-si Sharp Japan a-si/µc-si Sunfilm Germany a-si, a-si/µc-si 60 NA Trony China a-si Solar Frontier KK Japan CIS/CIGS Mitsubishi Heavy Ind. Japan a-si, a-si/µc-si Kaneka Corporation USA a-si, a-si/µc-si Moser Baer India a-si 40 NA Bosch Solar Thin Film Germany a-si EPV Germany a-si Solyndra USA CIGS 30 NA Würth Solar Germany CIS Cf. Photon, 04/2010. Thin-film manufacturers with highest production levels in 2009 Certain expansion potential for CdTe technology Producers of amorphous/ micromorphous silicon modules facing difficulties Provided no new legislation is brought in to restrict it, the number of CdTe-based (cadmium telluride) thin-film modules is likely to expand, even if the scarcity of resources leads to restrictions being placed on total market volumes. At present, however, there is still room for the market leader, First Solar, as well as a limited number of new market actors to expand production capacities. The German company Calyxo is also active in this market with a current production capacity of 25 MWp, and the plant and technology supplier Roth & Rau has included the CdTe technology in its product portfolio, suggesting that this company believes the sector has good prospects. It is not yet possible to assess the role that Germany is likely to play as a production location for CdTe in future. However, the announcement by First Solar that it is doubling production capacity in Germany is a positive move since it signals that a global market leader believes it will be possible to produce competitively in Germany. Production of amorphous/micromorphous silicon modules could be disadvantaged by lower power efficiency of this technology not compensated by lower costs per KWp. Cost per KWp are in contrast considerably higher than for CdTe modules, even though the higher efficiency of CdTe means it requires less land and thus lower installation costs per Wp. Although the amorphous/micromorphous technology has lower production costs than mono- and polycrystalline modules, this does not yet seem sufficient to offset its significant disadvantage in terms of module efficiency. The recent insolvencies of Sunfilm and Signet Solar are a sign that this thin-film technology currently faces tough competition. In our view, the crucial question, not just in Germany but globally, is whether a significant reduction in production costs can be achieved and the efficiency of micromorphous modules can be increased. 10

11 Analysis of upstream value chain Among thin-film technologies CIS/CIGS offers the best potential for efficiency improvements, but significant price reductions are required For concentrating photovoltaics, mass production is not yet happening Good positioning of German inverter manufacturers Prospects for copper-based technologies using CIS or CIGS compounds are generally seen as very good, not least since production sites with CIS/ CIGS technology (such as that of the Berlin-based company Sulfurcell) only recently went into mass production and thus still have considerable potential for optimisation. CIS/CIGS is also universally recognised as having the highest potential efficiencies of all thin-film technologies. German companies such as Solibro (a subsidiary of Q-Cells) or Würth Solar seem well-placed in this respect. However it remains to be seen over the coming years whether CIS/CIGS can achieve the cost reductions we have seen with the CdTe technology. In this context, it is striking that it is companies from America and Asia, such as Solar Frontier KK (Japan) and Solyndra Solar (USA), rather than German companies, that have the largest expansion plans for CIS/CIGS in This means that German companies need to exploit their technological pre-eminence and transfer it to mass production. Our study includes concentrating photovoltaics, a technology that is still only a niche application, but which is being pioneered by the German company Concentrix Solar. This technology is characterised by particularly high efficiency levels, but it is only suitable for regions with strong direct solar irradiation. It is currently difficult to assess against other PV technologies and solar thermal power stations, since only rudimentary data on investment and operating costs are as yet available. No genuine mass production is as yet in place, however a first project pipeline does exist. Although a German company, Concentrix appears to have positioned itself well by gaining the French Soitec Group as a strategic investor with all its expertise in innovation and production in the semiconductor industry. German manufactures are very well positioned in the inverter industry. In the short term, given the supply backlog since the end of last year, the most important task facing inverter manufacturers is to ensure the availability of components required for inverter production in sufficient quantities and quality. In the medium term, competition from new entrants and in some cases new designs is likely to increase, triggering increased pressure on prices for inverters. The market is currently led by specialist companies who in the future will be facing tough competition from large electronics companies with superior purchasing power over suppliers and international sales networks seeking a foothold in this market. Siemens is one multinational electronics company already well-established as an inverter manufacturer. However, it remains to be seen whether and when other new entrants will meet the tough requirements relating to quality and continuous product improvement. 11

12 Analysis of upstream value chain Company Country 2008 production (MWp) 2009 production (MWp) 2010 expected production (MWp) SMA Germany 2,200 3,400 6,000 Kaco new energy Germany ,000 Fronius Austria ,200 Ingeteam Energy Spain Siemens Germany > Sputnik Switzerland ,000 Engineering Power-One Italy Italy ,200 Elettronica Italy Santerno Kostal Solar Germany Electric Sunways Germany REFU Elektronik Germany MWp figures for 2009 and 2010 taken from Photon 05/2010. Leading global manufacturers of inverters (selection) Manufacturers of mounting systems from Germany and neighbouring countries are competing for the German market The large number of potential applications for PV systems rooftop, open field and building-integrated systems means that mounting systems provide huge potential for technological innovations. This currently represents an opportunity for German manufacturers to position themselves irrespective of their cost structures. However pressure on prices is also likely to increase in this segment. The cost of mounting systems has not been an issue for PV system integrators because of their comparatively low share in total costs compared with module prices. However this will change as module prices fall further, making cost reductions by manufacturers of mounting systems increasingly important. For the foreseeable future and in contrast to other solar power components, the market for these products in Germany is likely to be contested by providers within Germany and neighbouring countries alone, since Asian manufacturers will remain uncompetitive for the foreseeable future due not least to high transportation costs. 12

13 Analysis of downstream value chain Analysis of downstream value chain 83 % of installed capacity in small and medium sized PV installations The majority of PV installations going up in 2009 in Germany were of small and medium size and installed on rooftops. In this regard the German market differs significantly e.g. from the Spanish market where 95 % of projects were installed in large solar farms. Over 1,000 kwp 17 % kwp 17 % Up to 30 kwp 43 % kwp 23 % Cf. Photon, 05/2010. Newly installed capacity in 2009 by system category (Germany) Despite enjoying a good international reputation, German project developers are facing increasing pressure on margins Investments in PV projects Our analysis of the client-end value creation stages includes a detailed study of project development. German project developers, general contractors, system integrators or installers enjoy an excellent reputation internationally. These high-performing companies have contributed significantly to the rapid development of the PV sector in Germany. We are expecting that project developers will face a drop in margins for projects located in Germany in the future since the reduction in feed-in tariffs will also have an impact on their business segment. Project developers will need to become more professional and make cost savings, for example in component procurement, through lean company structures and more efficient project implementation. Project developers are also affected negatively in a number of ways by the removal of arable land from the EEG tariff, making their ability to identify suitable land for conversion and building projects of crucial importance. And German project developers will increasingly have to rely on accessing projects abroad in the future in order to achieve commercial success given the changing conditions within Germany. Over a third of all investments in German PV projects in 2008 were in the residential sector, followed by commercial investors and farmers and the public sector. Only around 14 % of all PV investments came from professional investors, such as investment funds and energy utilities. 13

14 Analysis of downstream value chain Energy utilities and investment funds 14 % Public sector 3 % Residential sector 35 % Agricultural sector 19 % Commercial sector 29 % Cf. BSW-Solar, Investor structure, 2008 While investment funds and financial investors outside Germany tend to realise higher rates of return, the aim for private and commercial investors is to meet minimum return requirements It is still too early to make a definitive judgement as to whether individual groups of investors will be able to achieve acceptable rates of return over the next few years following the recent changes to feed-in tariffs in Germany. The investment funds and financial investors we surveyed had differing views, but some are expecting Germany s role as an investment location for PV projects to decline in future with higher returns becoming achievable from projects abroad, particularly in Southern Europe. The market for private and commercial entities should, on the other hand, be influenced to a lesser extent by alternative investment opportunities abroad. These investors are more interested in meeting their own minimum return requirements. This mainly determines the number of PV projects that are implemented in the various market segments. Investor group Private users Commercial clients Public sector clients Professional project Agricultural developers sector Expected ROI 6.32 % 7.57 % 6.86 % 7.89 % 8.32 % Cf. PV InstallationsMonitor, EuPD Research, Expected return on investment by various investor groups in 2008 Increased liquidity costs from banks make refinancing by KfW Entwicklungsbank more important Ultimately, financial loans require certain financial benchmarks to be met even if tariff levels are dropping. The financial crisis has also led banks to significantly increase risk margins and the liquidity costs for project financing, making loan refinancings by the German KfW Entwicklungsbank increasingly critical for the market. 14

15 Conclusions and potential solutions Conclusions and potential solutions The target set by the Federal Government of approximately 3.5 GWp of annual installations is set to be achieved in spite of the present boom Over the next few years the German market is likely to contract significantly Other countries are considerably less ready for large investments in PV but will benefit from Germany s experience and learning curves breakthrough to a mass market? The German photovoltaics market is facing fundamental change. After years of steady double-digit growth, the market is likely to decline in the coming year and then stagnate for the foreseeable future. The German government s minimum annual target for new PV installations of around 3.5 GWp should be achieved following the changes to the EEG tariffs made this year. While 2009 was a record year with an additional 3.8 GWp of installed capacity, new installations in 2010 are set to be considerably more than that. Given that the first half-year alone saw more than 3 GWp in new installations on German rooftops and crop land, we are expecting the total for this year to be in excess of 6 GWp. After the cut in the feed-in tariffs, which came into effect this year, had the opposite effect to that intended by the Federal Government, we expect the next few years to see demand for photovoltaic systems in Germany to tail off significantly. It cannot be ruled out that the measures implemented this year and those likely to be implemented in the coming years will overachieve their stated aims of slowing down the market. This could mean that the German PV market declines more rapidly than intended by policy-makers or expected by the industry, especially in view of a further 13 % reduction in feed-in tariffs by January 1st 2011, which was announced recently by the Federal Network Agency. Our view is that there was an incontrovertibly urgent need in 2010 to reduce EEG tariffs in view of the drop in system prices and the rapid rise in installation numbers; what is debatable is the scope of the changes. While market prospects for the PV industry in Germany are likely to deteriorate considerably from the end of 2010, we expect to see continued growth in PV markets in other countries. However, it is important to recognise that few countries have expansion targets that come anywhere near those in Germany. Although countries such as Italy, France, the USA and China have set targets for expanding PV capacity, these markets are nowhere near the size of the market in Germany. We can draw two conclusions from this. Firstly, the expansion of the PV sector in Germany, supported by the government and paid for by German energy consumers, was a pioneering undertaking which will benefit all users of solar energy globally due to falling prices (thanks to economies of scale and learning curves). Secondly, there is reason to fear that no other governments will be prepared to increase PV utilisation by the extent needed to maintain global market growth at the levels of the past few years following the expected decline in the German market, unless the PV industry manages in the short term to enter into a true mass market. The current expansion of production capacity in Germany and internationally suggests that a mass market is indeed emerging. For a breakthrough of this type and the corresponding increase in demand to be achieved, PV would need to become significantly more competitive versus other sources of energy. Strong demand in Germany has already started the process by initiating cost reductions and efficiency improvements. Once PV can generate electricity at competitive costs in both the commercial and public sector (there are initial reports that this is about to be achieved at sites with particularly high solar irradiation), the necessity and scope of state incentive 15

16 Conclusions and potential solutions programmes will diminish. If the global PV market is to develop into a genuine mass market, it will have to become less vulnerable to the vagaries of politics. Huge market potential in the USA and Asia Cut-throat competition is a challenge to the German PV sector A nuanced and differentiated view required for any assessment of the state of Germany s PV industry Market consolidation over the next few years At the same time, developments in the USA and Asia (particularly China and India) have enormous potential. The PV industries emerging in these countries have considerably larger domestic markets, so that they can more rapidly achieve significant production numbers with the economies of scale that this entails. This could reduce prices even further, helping PV to achieve the breakthrough to a mass market more quickly. However, for the German PV industry in particular, this raises the prospect of cut-throat competition, from which many German companies might emerge as losers. The German PV sector can only succeed in this increasingly cut-throat environment if it positions itself at the forefront of technological development. To meet the requirements of the ever-changing market, the industry will have to take continuous action on reducing costs, on the one hand by expanding production and entering into mass production, and on the other hand by technological advances. It is already clear that a veritable race to the top is in progress where the only survivors will be those who are able to match the prices and quality of the best global companies through permanent innovation and investment. Our analysis of the total value chain across various technologies includes a consideration of the challenges and opportunities existing in the different market segments. It is clear from this exercise that a nuanced and differentiated approach is required when assessing the state of the German photovoltaics industry. On the one hand, there are some stages in the value chain, such as inverter production or general contractors/project developers, where German companies are traditionally strong and where they are also perceived as market leaders internationally. In these segments the key is to maintain market leadership over the long term, which we see as being a considerable challenge. Our view is that, over the long term, large electronics companies will emerge in addition to Siemens as inverter producers, which will have the advantage of strong purchasing power in particular in the procurement of semiconductors and other sensitive primary products. At the module-production stages of value creation, the situation of German companies depends on the strategic direction and competitive position of the specific company. This view was also shared by banks surveyed by us in relation to the financing of PV companies. Our impression was that banks are generally more favourable at the moment towards granting loans to inverter manufacturers and general contractors/project developers. However, finance is also available to manufacturers active in module manufacturing if the company s strategic direction appears plausible and viable. It is likely that not all companies will manage to find the right answers in the face of increasing competition, and we are expecting that we will observe market consolidation in Germany through company acquisitions and bankruptcies in the next few years. At the same time many companies will lose out as the market changes because their executives follow the wrong strategies. In fact, not all companies will be able to succeed in the race to the top for increasingly large production capacity and more innovative technologies. 16

17 Conclusions and potential solutions Product differentiation and high quality with steady reductions in costs are essential if German companies are to survive Clear strategic direction, professional organisation and operational management are required Companies that lack the financial strength to invest and expand their production capacities will only be able to assert themselves in the market by concentrating on project differentiation in those niches where price is not the key factor. By and large, German companies, particularly those that intend to continue production in Germany, will need to concentrate instead on high quality, innovation and market proximity, rather than exposing themselves to global price competition (although all companies will still face continuous pressure to manufacture their products more cheaply). If German solar power companies are to survive in a future mass market for photovoltaics and if they are to be able to exploit the opportunities available, they will require a clear strategic focus. This will need to adapt flexibly to a continuously changing operating environment. This will require professional organisation and operational management that can meet the constantly changing challenges and exploit opportunities as they arise. 17

18 Contacts Contacts Hansjörg Arnold Partner Marie-Curie-Straße Frankfurt am Main Tel: Dr. Peter Claudy New-York-Ring Hamburg Tel: Heiko Stohlmeyer Team Leader Renewable Energies New-York-Ring Hamburg Tel: Janosch Ondraczek New-York-Ring Hamburg Tel: PricewaterhouseCoopers. With some 8,700 employees and a turnover of around 1.33 billion, PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft is one of the leading auditing and consultancy firms in Germany. Experts at 28 locations work on behalf of national and international clients of every size. The focus is on assurance and business advisory services, tax services, and deals and consulting. This Executive Summary presents the main results of the study Die deutsche Photovoltaik Branche am Scheideweg Herausforderungen und Chancen für Unternehmen entlang der Wertschöpfungskette, which appeared in German in October January 2011 PricewaterhouseCoopers bezeichnet die PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft und die anderen selbstständigen und rechtlich unabhängigen Mitgliedsfirmen der PricewaterhouseCoopers International Limited. 18

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