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IMS Research Analyst Blog
BP Exit Solar Market as Industry Margins Evaporate
Date: 22 December 2011
BP Solar announced that it will end its activities in the PV market today, citing it being “difficult to sustain long-term returns for the company”.
BP’s decision is a clear indicator of the challenges that PV module suppliers face in remaining profitable in the current industry conditions. PV module manufacturing capacity has hit 50 GW this year, despite demand reaching just 24 GW. The resulting oversupply has put huge pressure on prices, and average prices are now 44% lower than they were one year ago. Average gross margins are now in the single digits, and most suppliers are making net-losses on their operations.
Recent high-profile solar investment announcements from the likes of Google and Warren Buffet’s MidAmerican Energy may seem to contradict the move from one of the World’s largest Energy companies. However, these recent investments have all been further downstream in financing large utility-scale systems. These investment cases are very different to operating as a module supplier in today’s climate and so are not likely to be affected by BP, or other suppliers’ departures from the industry.
Recent years have seen huge swings in the balance between supply and demand in the solar industry. From mid-2009 through to the end of 2010, demand out-stripped supply and all suppliers were able to sell their products. This situation has changed dramatically in 2011, when rapid manufacturing expansions have coincided with a slowdown in the growth of global demand. The result has been intense competition and a fierce price war, and not enough demand to support all of the industry’s hundreds of suppliers. Clear winners in 2011 have been large pure-play Chinese suppliers, whose lower cost structure and highly aggressive pricing has allowed them gain market share throughout the year. Consequently, 4 of the world’s 5 largest suppliers of PV modules are now Chinese.
A BP spokesman in the US had commented today that "BP’s goal is to profitably grow in specific segments of the energy industry." BP has clearly abandoned hope of achieving growth or profitability in this space.
BP’s exit is not the only recent high-profile exit from the industry. With a fierce price war led by low-cost Chinese suppliers dragging most suppliers’ bottom lines into the negative, it is not likely to be the last either.
Written by Sam Wilkinson
Senior Market Analyst at IMS Research
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