Why is the photovoltaic industry so vulnerable?

According to the photovoltaic industry sustainable growth index issued by PRTM Management Consulting in 2011, no PV company has been able to maintain its leading position for a period of time. What's worse is that, as the rankings of the 25 largest PV companies listed on the public market show, those companies that fall from the top can hardly be able to recapture the market again. In view of this ups and downs, senior managers in the photovoltaic industry must ask themselves, “Why is the company in this industry so vulnerable, and what can we do to maintain our leading position?”

Many companies simply cannot adjust their capabilities in time to keep pace with the evolving solar market. It takes time to formulate and implement business strategies. This year's feasible strategy should be abandoned by next year. In fact, many photovoltaic companies have always been in a state of desperation.

This fluctuation is caused by three unstable factors in the solar market. First, the annual growth is fluctuating drastically. Since 2000, the industry's growth rate has reached 130%, but it once shrank to 20%. This extremely unstable growth rate has made photovoltaic companies strategic planning very challenging. Faced with such unpredictable market demands, it is difficult for managers to make a correct decision on the allocation of funds and the expansion of production capacity.

Second, the market can experience both inflation and shrinkage in a single quarter. Because this industry is still relatively immature, huge growth needs may disappear without warning.

Third, the imbalance between supply and demand continues to impact the corporate value chain. The raw materials and production capacity of the photovoltaic industry are always in the cycle of shortages and surpluses. The successful supply strategy of the previous year turned into the cost burden of the next year. From 2005 to 2008, the main raw material of most solar panels, polysilicon, has been in short supply. As demand has risen, many companies have signed long-term polysilicon contracts, and they have locked prices at lower levels, thus winning the market. However, in 2009, the market demand for polysilicon declined, and those companies that purchased polysilicon in the spot market immediately fell into trouble.

All of the above three drivers have one thing in common, that is, they are largely generated by the government's incentive policies. The government encourages solar investment and reduces the difference in production costs between renewable energy and new energy. Such incentive plans include fixed, higher than market prices for solar energy tariffs (FIT) for energy producers, investment tax credits to reduce the cost of building solar power plants, and the requirement that countries provide a share of renewable energy. Renewable investment standard goals. These measures have successfully reduced the production costs of photovoltaic power plants. However, they have integrated this industrial chain into the financial market. This is not driven by energy demand, but is driven by investment in photovoltaic power plants. With the improvement of technology, government incentives will eventually be gradually reduced, but the volatility of this industry will not be reduced.

In this situation, PV companies cannot simply target pure production capacity if they want to succeed. They must develop a flexible business model and continually adjust their business strategies so that they can quickly determine the scale of production in different segments of the market and the PV value chain. This ability requires that they be able to strike a proper balance between organic growth and non-organic growth in the form of joint ventures, cooperation, mergers and acquisitions. This ability can provide tremendous advantages in terms of speed, market intelligence, and reduced capital investment.

In addition, PV companies must also realize that certain links and markets do not provide first-mover advantages. In fact, as demand swells and shrinks, forerunners face a great risk of over-investment. Therefore, companies should hedge their bets and reduce the impulse to invest large amounts of money, time, and management into hot markets. Equally important, companies must be good at managing cash so that they can remain flexible in a sustainable market and have a buffer in the downturn.

Before the market realizes grid parity and rising solar energy demand, solar electricity prices and other government incentives and capacity constraints will continue to trigger turmoil in the industry. For these reasons, extreme volatility is not a short-term phenomenon but a long-term characteristic of the photovoltaic market. PV companies eager for success have no choice but to adapt.