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Dr. Robert Castellano on how to make solar a ‘hot’ sector again – 1


Last week, I was very fortunate enough to be able to get into a conversation with Dr. Robert N. Castellano, president of  The Information Network, based in New Tripoli, USA. It all started with a column, which he writes regularly in “The Street.” One of the recent colums of Dr. Castellano touched upon –- What could make solar hot again?
This first part will touch upon issues such as six reasons for cloudy solar skies and how to rectify the current oversupply situation in solar cell manufacturing, status of a-Si solar cell makers, crystalline vs. thin film capacity, and impact of prices.
<span style=”font-weight:bold;”>How to rectify the solar cell oversupply?</span>
As I’d asked iSuppli too, in one of my recent posts, I also quizzed Dr. Castellano on whether the previously committed capacity expansions have caused solar cell manufacturing oversupply? Also, why had this happened and how could this be corrected?
He said: “The problem will rectify itself when demand catches up with supply, which will take several years.  Until then, suppliers are faced with lower prices and margins. I was the first to point out on March 5 2008, in my blog on Seeking Alpha in an article entitled “Contradictions in the Solar Industry” that “The solar industry is faced with a huge oversupply of solar panels planned for production in 2008, but no one seems to notice… or care. Shares in many solar companies such as Evergreen Solar), First Solar  SunPower, and Suntech Power have surged with the booming solar market.”
<span style=”font-weight:bold;”>Six reasons for cloudy solar skies</span>
He added: “On November 18, 2008, in another blog on Seeking Alpha entitled “Six Reasons for Cloudy Skies on the Solar Energy Industry”  that the problems in the solar industry were the result of the following:
1. With oil at $60 a barrel, who cares about alternative energy? It is a short sighted view, but with the credit market crunch, who can get a loan to build solar plants anyway?”
2. The high price of oil in the past year was a catalyst for the development in other alternative energy sources, and not just solar! Advances in wind, geothermal and hydropower energy are reducing the cost of wind power to a point at which it is becoming competitive with traditional energy sources. Nuclear power plants — smaller than a garden shed and able to power 20,000 homes — will be on sale within five years, say scientists at Los Alamos, the US government laboratory, which developed the first atomic bomb. Among these alternative energy sources, hydropower and nuclear have the lowest carbon footprints (carbon dioxide produced during operation).
3. Spain, a huge buyer of solar, reduced its incentive program to aid buyers in 2009. In California, a seemingly green state, Prop. 7 was defeated in the November election with a whopping 65 percent of the voters saying NO. One reason: electricity consumers would pay 10 percent above the market rates for renewable power forever.
4. The spot market price of six-inch solar-grade wafers have fallen to $9 from a high of $12.50 in September. This bodes poorly for thin film makers and equipment suppliers. The thin film solar panel market and hence, the equipment market grew strongly because of the shortage of polysilicon. Now that polysilicon is abundant and lower priced, why make thin film panels with 8 percent efficiency when you get 16+ percent efficiency with silicon wafers?
5. “Utilization is at only 56 percent. Our analysis of 103 solar manufacturers shows that panel production capacity in 2009 will be 15 GW whereas only 8.3 GW will be sold.
6. The dollar has appreciated strongly against the euro by nearly 25 percent. Germany is the world’s largest PV market. US solar companies have had to adjust selling prices to generate sales, reducing profit margins.”
<span style=”font-weight:bold;”>Have companies been overlooking inventory problems?</span>
In this context, weren’t the solar companies doing enough to check all of these during the downturn of Q4-08? Even the 71 days to 122 days excess supply or inventory is huge!
Dr. Castellano said: “The solar companies were benefiting from the low price of polysilicon as a result of excess inventory in that sector. They were renegotiating contract prices with the poly suppliers and dropping prices. With money in place, they continued to build capacity well into 2009.  All the factors discussed above took everyone by surprise (witness the stock market crash) and the recession has lasted much longer than initially forecast.
<span style=”font-weight:bold;”>Where does this place a-Si solar cell makers?</span>
How is all of this potentially setting the stage for the failure of multiple cell manufacturers, particularly those pursuing a-Si thin film solar cells?
He added that thin film cells are still less expensive to make and companies are working to improve their efficiency.  Also, they appear to work at stated efficiency under lower incident light conditions.
“The issue is the economics in a solar farm where they are installed. The installation price is the same as a polycrystalline panel. Since the efficiency is lower and it takes more panels to reach the same wattage as polycrystalline, it also takes more hook-ups and frames during installation.
“If the panels move, there is another factor in the motors to move them. However, the production cost is lower than the polycrystalline panels. Oerlikon, expects its lines will deliver a cost of 70 cents per watt by the end of 2010 and has achieved an initial conversion efficiency of 11 percent, which comes out to about 9.5 percent of stabilized efficiency.”
<span style=”font-weight:bold;”>Crystalline vs. thin film capacity</span>
There is still a huge amount of solar cell manufacturing capacity in crystalline silicon solar cell, rather than thin film. Are there any chances of that starting to change any time soon?
Dr. Castellano said: “Until last year, Germany had been the world’s largest solar market thanks to its feed-in tariffs, which require utilities to buy all the solar energy produced at premium, government-set prices. As a result, analysts now expect Germany, which doesn’t have an annual cap like the one in Spain, to become the biggest market again in 2009.Germany installed 1.35 gigawatts of solar energy systems in 2008, and it could add another 1.5 gigawatts in 2009.
“Spain took the lead last year, but the government has since reduced the subsidies and capped the amount of energy that could be sold under the subsidy program. The financial market crisis has made it difficult for developers to line up financing for solar power projects. Spain, which added a few gigawatts of solar in 2008 alone, now has a 500-megawatt cap for 2009. All of these forces have led to an oversupply of silicon panels.
“As governments — Germany and Spain were a driving force – in the solar industry’s run-up, they were a factor in the downturn. Once the recession is over and liquidity returns, they will mitigate the overcapacity, particularly as prices are so low and there is pent-up demand for new installations.”
<span style=”font-weight:bold;”>Impact of Q4 on overall prices and industry</span>
Another aspect worth examining is the overall impact of this (Q4) on overall prices and the industry.
Dr. Castellano said that silicon used to sell for more than $300 per kilogram on the spot market and $150 per kilogram for long-term contracts a few years ago. Silicon prices have since fallen significantly over the past year. In fact, the long-term contract price has dropped about 50 percent, close to the spot market price of $67 per kilogram, or about $0.50 per watt.
“Polysilicon panels are selling at $2.25 to $2.50 per watt from $4.17 in Q2 2008. We expect prices to decline further throughout the remainder of the year,” he noted.
In part 2 of this conversation, I will be discussing additional capacity in solar, new capacity in India, and of course, lessons to learn for the Indian solar industry. Watch this space, folks!
Dr. Robert N. Castellano, president, The Information Network

Dr. Robert N. Castellano, president, The Information Network

Last week, I was very fortunate enough to be able to get into a conversation with Dr. Robert N. Castellano, president of  The Information Network, based in New Tripoli, USA. It all started with a column, which he writes regularly in “The Street.” One of the recent colums of Dr. Castellano touched upon –- What could make solar hot again?

This first part of our conversation will touch upon industry issues such as — six reasons for cloudy solar skies and how to rectify the current oversupply situation in solar cell manufacturing, status of a-Si solar cell makers, crystalline vs. thin film capacity, and impact of prices.

How to rectify the solar cell oversupply?
Since I’d asked iSuppli too, in one of my recent posts, I also quizzed Dr. Castellano on whether the previously committed capacity expansions have caused solar cell manufacturing oversupply? Also, why had this happened and how could this be corrected?

He said: “The problem will rectify itself when demand catches up with supply, which will take several years.  Until then, suppliers are faced with lower prices and margins. I was the first to point out on March 5 2008, in my blog on Seeking Alpha in an article entitled “Contradictions in the Solar Industry” that “The solar industry is faced with a huge oversupply of solar panels planned for production in 2008, but no one seems to notice… or care. Shares in many solar companies such as Evergreen Solar), First Solar  SunPower, and Suntech Power have surged with the booming solar market.”

Six reasons for cloudy solar skies

He added: “On November 18, 2008, in another blog on Seeking Alpha entitled “Six Reasons for Cloudy Skies on the Solar Energy Industry”  that the problems in the solar industry were the result of the following:

1.
With oil at $60 a barrel, who cares about alternative energy? It is a short sighted view, but with the credit market crunch, who can get a loan to build solar plants anyway?”
2. The high price of oil in the past year was a catalyst for the development in other alternative energy sources, and not just solar! Advances in wind, geothermal and hydropower energy are reducing the cost of wind power to a point at which it is becoming competitive with traditional energy sources. Nuclear power plants — smaller than a garden shed and able to power 20,000 homes — will be on sale within five years, say scientists at Los Alamos, the US government laboratory, which developed the first atomic bomb. Among these alternative energy sources, hydropower and nuclear have the lowest carbon footprints (carbon dioxide produced during operation).
3. Spain, a huge buyer of solar, reduced its incentive program to aid buyers in 2009. In California, a seemingly green state, Prop. 7 was defeated in the November election with a whopping 65 percent of the voters saying NO. One reason: electricity consumers would pay 10 percent above the market rates for renewable power forever.
4. The spot market price of six-inch solar-grade wafers have fallen to $9 from a high of $12.50 in September. This bodes poorly for thin film makers and equipment suppliers. The thin film solar panel market and hence, the equipment market grew strongly because of the shortage of polysilicon. Now that polysilicon is abundant and lower priced, why make thin film panels with 8 percent efficiency when you get 16+ percent efficiency with silicon wafers?
5. “Utilization is at only 56 percent. Our analysis of 103 solar manufacturers shows that panel production capacity in 2009 will be 15 GW whereas only 8.3 GW will be sold.
6. The dollar has appreciated strongly against the euro by nearly 25 percent. Germany is the world’s largest PV market. US solar companies have had to adjust selling prices to generate sales, reducing profit margins.”

Have companies been overlooking inventory problems?
In this context, weren’t the solar companies doing enough to check all of these during the downturn of Q4-08? Even the 71 days to 122 days excess supply or inventory is huge!

Dr. Castellano said: “The solar companies were benefiting from the low price of polysilicon as a result of excess inventory in that sector. They were renegotiating contract prices with the poly suppliers and dropping prices. With money in place, they continued to build capacity well into 2009.  All the factors discussed above took everyone by surprise (witness the stock market crash) and the recession has lasted much longer than initially forecast.

Where does this place a-Si solar cell makers?

How is all of this potentially setting the stage for the failure of multiple cell manufacturers, particularly those pursuing a-Si thin film solar cells?
He added that thin film cells are still less expensive to make and companies are working to improve their efficiency.  Also, they appear to work at stated efficiency under lower incident light conditions.

“The issue is the economics in a solar farm where they are installed. The installation price is the same as a polycrystalline panel. Since the efficiency is lower and it takes more panels to reach the same wattage as polycrystalline, it also takes more hook-ups and frames during installation.

“If the panels move, there is another factor in the motors to move them. However, the production cost is lower than the polycrystalline panels. Oerlikon, expects its lines will deliver a cost of 70 cents per watt by the end of 2010 and has achieved an initial conversion efficiency of 11 percent, which comes out to about 9.5 percent of stabilized efficiency.”

Crystalline vs. thin film capacity

There is still a huge amount of solar cell manufacturing capacity in crystalline silicon solar cell, rather than thin film. Are there any chances of that starting to change any time soon?

Dr. Castellano said: “Until last year, Germany had been the world’s largest solar market thanks to its feed-in tariffs, which require utilities to buy all the solar energy produced at premium, government-set prices. As a result, analysts now expect Germany, which doesn’t have an annual cap like the one in Spain, to become the biggest market again in 2009.Germany installed 1.35 gigawatts of solar energy systems in 2008, and it could add another 1.5 gigawatts in 2009.

“Spain took the lead last year, but the government has since reduced the subsidies and capped the amount of energy that could be sold under the subsidy program. The financial market crisis has made it difficult for developers to line up financing for solar power projects. Spain, which added a few gigawatts of solar in 2008 alone, now has a 500-megawatt cap for 2009. All of these forces have led to an oversupply of silicon panels.

“As governments — Germany and Spain were a driving force – in the solar industry’s run-up, they were a factor in the downturn. Once the recession is over and liquidity returns, they will mitigate the overcapacity, particularly as prices are so low and there is pent-up demand for new installations.”

Impact of Q4 on overall prices and industry

Another aspect worth examining is the overall impact of this (Q4) on overall prices and the industry.

Dr. Castellano said that silicon used to sell for more than $300 per kilogram on the spot market and $150 per kilogram for long-term contracts a few years ago. Silicon prices have since fallen significantly over the past year. In fact, the long-term contract price has dropped about 50 percent, close to the spot market price of $67 per kilogram, or about $0.50 per watt.

“Polysilicon panels are selling at $2.25 to $2.50 per watt from $4.17 in Q2 2008. We expect prices to decline further throughout the remainder of the year,” he noted.

In part 2 of this conversation, I will be discussing additional capacity in solar, new capacity in India, and of course, lessons to learn for the Indian solar industry. Watch this space, folks!

Indian silicon wafer fab story seems dead and buried! Should we revive it?

February 12, 2009 1 comment

Now then, this will make a very interesting read! Back in October 2007, I had discussed the timing and the need for a silicon wafer fab in India, in-depth, with Anil Gupta, managing director, India Operations, ARM.

We have come a long way since then! There was all the hype last year about SemIndia’s fab, which never really did happen, and eventually, BV Naidu moved on! Then came the rush to solar fabs. Recently, when I blogged on how a Qimonda buy could be good for India, I am told that it is really outrageous. No problem, it is merely a suggestion.

At times, I have got the feeling whether the Indian semiconductor industry is losing its way! However, when I see all around, it is hale and hearty, and business as usual — fabs or no fabs!

It was interesting to meet up again with Anil Gupta of ARM, and to find out what he thought about what I thought!

Starting with an old question, whether India has the capability to sustain or even build a product development ecosystem? Gupta said: “We need the following for this:
* Entrepreneurs committed to product development and willing to take that risk.
* Investors willing to take risk on product development companies.
* Consumption (this will happen as the economy improves any way).
* Deep enough technical/technological knowledge/know-how to put reasonably competent end products together (It exists. Examples like Sukam, Tejas and other are there).

Indian fab story dead and buried
Turning focus on fabs, is the Indian silicon wafer fab story completely dead and buried now? Gupta notes: “When TSMC says they are running at only 38 percent capacity, one can imagine what the rest of the fabs must be going through. In any case, the Indian fab story was a longer term story and the current economic climate actually makes it further and further remote. So yes, it is dead and buried now!”

Wow! India probably flattered to deceive! However, I am an optimist, and hope that one day, India will have its own silicon wafer fabs!

Gupta adds: “What worries me now is the glut of the solar/PV fabs. By the industry estimates, solar/PV is a viable option only when the price of oil is >$100 per barrel (oil is at $40 per barrel now). This means, there would be challenges for the solar cell industry too! One can only hope that the economy picks up growth soon enough and sends the price of oil higher so that solar becomes a viable option.”

Again, this is a concern I have as well. The rush toward solar is good, but then, is this what the Indian semiconductor industry really needs? Where’s all that talk of developing silicon and product companies? You simply cannot equate the two — semicon and solar! You can’t have a policy, and then ignore the main crux either, and simply go for the ones that are easily attainable! It does not project a good impression, or maybe, I am somehow wrong in my assessment. Hence, my feeling that the industry could be losing its way somewhere!

However, Gupta feels that’s not really the case! What has been working until now, still continues to work!! “Our strengths are design and verification. We will continue to be in demand for that. The other pastures we explore, there are a lot of uncertainties,” he adds.

“The challenge is to pick the right pasture where the grass remains green even in the summer. This is not easy to find and does require that we bet on some of them and learn through the experience,” he advises.

How can India really buzz?
What now needs to be done to get the semiconductor industry in India really buzzing? Surely, local consumption is key. Local consumption would hopefully foster electronic product innovation just like products by two-wheeler manufacturers and the Tata Nano.

“The current initiatives in the industry for rural applications are also quite interesting. I am optimistic that some good offerings will come out of this. While these may not be specifically from a “semiconductor” perspective, at least at the “system” level these would make sense,” says Gupta.

What India NOW offers to semicon world?
What does India NOW offer to the semicon world, in these times of a global recession?

The Indian economy is still mostly internal consumption oriented, as opposed to exports oriented. This is very different from the economies of island nations like Taiwan, Korea, and Japan, which are very heavily export oriented.

In a recession like the current one, these predominantly export-oriented economies experience a far greater crunch than the others. Thus, as long as products are being sold in Indian markets at the right price points, there would be consumption.

Gupta says, “This time around, the world would come out of recession mainly driven by Asian countries, India being one. People in the industry that I talk to tell me that as the worst is over in this crisis, and as things begin to pick up, India will once again be the beneficiary of a lot of work moving here. However, my personal view is somewhat different.

“I believe that the last round did witness this phenomenon mainly because it was the honeymoon period. But by now, the honeymoon period is over and the India centres of these companies are working hard to reach a level where they become “mission critical” to the businesses of their companies.

“The journey hasn’t been very easy for multiple reasons. And by now, the cost differentials also do not look as attractive as they did before. Hence, what work comes here would come only after a careful assessment and very selectively (not by leap of faith).”

I did blog about how Qimonda could be a good buy for starting a memory fab in India. You have all the facts in front of you! My question to the Indian semiconductor industry is: should we revive the call for having a silicon wafer fab in India, post SemIndia and post recession?

Why solar/PV is good for India? An ISA perspective!

December 25, 2008 1 comment

Recently, the India Semiconductor Association (ISA) held an educative briefing session on the potential of the solar PV market in India, which was conducted by Rajiv Jain, Director, Government Relations, ISA.

This meeting was held well before iSuppli issued a warning that there could be global solar sunburn in 2009! I am sincerely hoping that most of the points mentioned by ISA’s Jain still hold good in the coming year, and that India really does well and takes off in solar photovoltaics.

The ISA’s vision: To help make India an attractive global destination for PV manufacturing and a world leader in solar energy.

Starting with the basics of photovoltaics, he said that it is a package of solar cells used to convert energy from sun to electricity. In simpler words, photons from sunlight knock electrons into higher state of energy, thus creating electricity. The electricity can be used to power equipment or recharge a battery. A typical PV system mainly consists of a PV module, battery, inverter, controller and junction box.

Focusing on the technological landscape, he touched upon the two key technologies for solar: crystalline and thin film.

Crystalline silicon is said to be the most mature Si wafer technology, with the largest market share. Though, high on cost, it has a typical efficieny of 14-18 percent. Crystalline silicon is said to suitable for rooftop applications.

Thin film is nothing but thin layers of photosensitive materials on glass. It is currently on high growth due to silicon shortage, and very low on cost due to low material consumption. The efficiency is about 6.5-8 percent.

A third technology, nanotechnology, is the future technology for cost reduction. It is more in the R&D space as of now.

Present scenario for solar
So what’s the present scenario? In 2007, of $71 billion invested in new renewable energy (RE) capacity globally, 30 percent was in solar PV. It is the fastest growing area in the energy sector, with a CAGR of 47 percent over the last five years.

Grid-connected solar PV has been high growth market segment in 2007 (50 percent increase). Also, 86 percent of the PV installations are largely in four countries, with Germany at 47 percent being the outright leader.

Market drivers are said to be attractive feed-in tariffs, national PV market development and acceptance, RE obligations through solar PV, access to cheaper mode of finance, manufacturing incentives as well as strong R&D.

Why solar for India
I have addressed this in an earlier blog post. Here’s what Jain had to say, and it is mostly in line with the earlier discussions.

First, India has among the highest solar irradiance globally. It also has the best quality reserves of silica in Orissa and Andhra Pradesh. India has also established itself low cost producer and assembler of solar PV cells and modules.

The major challenges include attaining scale and integration for cost reduction, and, R&D for development of the industry.

Solar insolation in India
To start with, the daily average solar energy incident varies from 4-7kWh per m2. Next, we have multiple sites with solar irradiation >2000 hours per year. In contrast, Germany has 900-1,200 hours per year. Further, most parts of India have 300-300 sunny days in a year translating into a potential of 600GW. Also, potential in some states like Rajasthan is 35-40 MW per m2.

It is well known that the Indian semiconductor policy of 2007 has triggered off the now well publicized efforts in solar initiatives. The government of India has received 16 applications with investments envisaged at app Rs. 1,55,000 crores.

The investments in solar PV manufacturing exceed Rs 1,25,000 crores. Generation based incentives (GBI) are going to be key.

Potential market segments in India
There are quite a few, actually. In rural electrification, the government of India’s target is to achieve ‘Electricity for all by 2012’. About 18,000 remote villages will likely be electrified through RE. About ~25 percent of the remote villages, i.e., 4,500 villages, form a very viable market.

Next comes telecom back-up power! PV is a cost effective alternative to diesel generators (DG) for back up power for shorter duration, as DG based systems suffer from several disadvantages.

Another key market could be grid connected solar PV based generation. Current tariffs do not provide attractive IRR to developers. Decreasing system prices are however, likely to improve the economics.

Finally, roof based BIPV is said to be an alternative to reduce the cost of power procured by commercial buildings.

ISA’s recommendations
The ISA has also made salient recommendations via its report on the industry. These include areas such as manufacturing: with an aim to encourage companies investing in ‘Scale and integration’, provision of capital subsidy to larger number of units, availability of funds at a cheaper rate, and an emphasis on R&D.

Also, the ISA has recommended that GBI be given for a tenure of 20 years, with the present period being 10 years. Further, it has suggested an accelerated depreciation along with the GBI scheme, and the availability of GBI for an unlimited capacity for a period of five years. The ISA has recommended an enactment of the RE Law requiring utilities to progressively increase power purchase from RE.

On its part, the ISA has been working with the government of India and various state governments as well. It has a sound rapport with concerned ministries – MNRE, DIT and NMCC.

The ISA has also assisted in the technical evaluation of solar PV proposals received in Fab City, Hyderabad. It has also drafted a semiconductor policy for the government of Karnataka, which should be out early next year, hopefully. The ISA is also working with several other state governments to promote the industry in their states.

The second ISA Solar PV Conclave is scheduled for November 2009 at Hyderabad.

Very good intentions, all of these! Now, for the Indian industry and the government to deliver, and walk hand in hand!!

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