The Solar Value Chain: Key Success Factors
The Solar Electricity industry displays all the hallmarks of a relatively young industry. This includes a notoriously fickle supply chain for the all-important polysilicon, a large number of different technologies and the distinct absence of companies that cover the whole value chain. As the industry becomes more mature, it will no doubt see significant consolidation and fewer technologies.
Though different segments of the value chain have different logistics (which are explored in the following pages), there are common drivers that are key to the success of individual businesses.
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Product Parameters
Technology Differentiation
To avoid having to compete just on price, firms must offer a product that is technologically differentiated. Whilst there are many distinguishing features, the one number to beat is "efficiency" as measured in "$/kWp" followed closely by the module efficiency measured in "kWp/m² ". This is so important because a 1% point efficiency increase in the cell, results in an additional energy yield of 6%. In addition, it brings down requirements for area and electrical components.
Technology Strategy
The technologies that are installed todady, may not be the technologies of tomorrow. For instance, with the sharp drop in polysilicon prices, some of the thin-film technologies no longer look as appealing as they did a year ago. As a mitigation strategy, we would expect alternative technologies to be present in any company's product portfolio.
Product Quality and Certification
The presence of module certification from independent bodies such as TÜV is no longer a distinguishing feature; it is in fact a quasi- license to operate.
Production Capability
It is essential that production can be scaled up to significant levels. For a new technologies (e.g. a new thin-film photovoltaic material), the capability of ramping up production very quickly is crucial; otherwise, the new product will not make a difference.
Cost Structure
How well a company can control costs is one of the most important factors, especially in an industry that sees an ever-growing number of new entrants. Silicon manufacturers with access to cheap energy, for instance, have a distinct competitve advantage, as 85% of the energy needed to build a module, is used in producing silicon. Other cost advantages come from economies of scale and supply contracts at low pricing level.
Vertical Integration
In order to be able to capture more value and to mitigate the inherent risks of the supply chain, it is crucial to either integrate vertically or build strong partnerships with others in the value chain.
Financial Strength
Whilst this is a fairly obvious, a strong balance sheet is required not only to weather a downturn, but also to finance growth.
Branding
Finally, success is determined by how well a company can communicate the value it creates for customers, its brand strength and access to distribution channels.
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