Tuesday, June 9, 2015

PV Module Manufacturers: The working poor of renewable energy

If you don't work in the renewable energy industry, it would be normal to think that the companies making the meat and potatoes of solar, like PV modules, would be raking the cash at the moment.  Renewable energy, especially PV solar in rooftops / commercial industrial and utility, continues to grow at an impressive clip.  This is doubly true given the ITC expiration at the end of 2016, so developers and customers alike are rushing to get their solar projects in the ground to capture the ITC benefits.

But this simply is not the case.  In fact, the world's second largest module seller of 2014, Yingli, announced recently as part of their annual report that their ability to continue operations given their current financials is in serious jeopardy.  They lost over $200 million last year alone, the third straight year of losses for the firm.

For perspective, lets glance at the financials of the world's largest module seller, Trina.  The Q4 2014 net income at Trina on $700 million in revenue was $10 million dollars, a whopping 1.5%.  So basically a run-of-the-mill CD has a better return than owning a solar module company for a lot less work.  So while Trina is "profitable", it is barely profitable and a quick move in the market for modules could very easily destroy the business model and therefore the business.

Solar module companies are what I call the "working poor" of renewable energy.  They all make nearly the same identical product (except First Solar, and to a certain degree SunPower) and then they all race to the bottom on price.  Another way to think of it, they represent the guy who has a high paying job, a fancy car, but also the alimony, child support, home equity loan and all the other financial obligations which leave him virtually living paycheck to paycheck.  His cash flow is, well, less than ideal.

Its all part of the fundamental problem in making and selling products which ultimately generate a commodity, energy, is that the product itself is commoditized.  This has happened in solar modules, it just recently happen in solar electronics (DC optimizers, inverters, ect), and it will happen in energy storage.  For the consumer (and perhaps the planet) this is all good stuff.  It is driving the price of renewable energy down, which widens market opportunities and speeds adoption.  But for the lowly product company, it is tough tough business.

So do me a favor, next time you talk with you friendly neighborhood solar product company employee, give them a big hug, tell them its going to be OK and that the solar installer business is going great and will likely only get better between here at 2050.. so they'll always have a home ... on the roof at least!

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