Attractiveness in Wind Power Value Chain

Overview of the Investment Attractiveness of Selected Parts of
the Value Chain: Wind and Solar Power

M5BE-14
March 2010

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M5BE-14 2

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M5BE-14 3

Table of Contents

Executive Summary
Executive Summary 5-10
5-10
Scope 6
Methodology 7
Two-step Assessment Methodology 8
Wind Power Industry Hot Spot Segment Assessment: Summary 9
Solar Power Industry Hot Spot Segment Assessment: Summary 10
Overview of the Investment Attractiveness of the Wind Power Value Chain
Overview of the Investment Attractiveness of the Wind Power Value Chain 11-27
11-27
Wind Power Market Introduction 12
Hot Spot Segment Assessment, Two-Step Methodology 15
Blades 17
Bearings 19
Gearbox 21
Tower 23
Other Components 25
Summary 26

Overview of the Investment Attractiveness of the Solar Power Value Chain
Overview of the Investment Attractiveness of the Solar Power Value Chain 28-48
28-48
Solar Power Market Introduction 29
Hot Spot Segment Assessment, Two-Step Methodology 33
Polysilicon 35
Ingot/Wafer 37
Cell 39
Module 41
Other Components 43
Summary 45
Other Solar Technologies 47

About Frost & Sullivan
About Frost & Sullivan 49-53
49-53

M5BE-14 4

Executive Summary

M5BE-14 5

Executive Summary
Scope

• This study covers global wind and solar power markets’
value chains, focusing on the components, materials and
semi-finished goods outlined below.
• For the solar power industry, a detailed overview is
provided on the value chain for polysilicon based modules,
while other technology’s value chains are covered on a top
level.
• The base year is 2010.

Overview of Investment Attractiveness: Wind Turbine Overview of Investment Attractiveness: Solar Module
Components Included (World), 2010 Materials and Components Included (World), 2010

1 Bearings 1 Polysilicon

2 Blades 2 Ingot/Wafer

3 Gearbox 3 Cell

4 Tower 4 Module

5 Generator 5 PV Glass

6 Transformer 6 Backsheet

7 Control System 7 Junction Box & Frame

Detailed assessment
8 EVA Films

Top-level overview Detailed assessment
Source: Frost & Sullivan Top-level overview Source: Frost & Sullivan

M5BE-14 6

Executive Summary
Methodology

This market analysis is a strategic overview of the investment Market Engineering Research Methodology
attractiveness of selected parts of the wind and solar power industry
value chains. It follows the principle of Frost & Sullivan's Market
Engineering research methodology. This is a measurement-based
system of market analysis, forecasting, strategy development and
monitoring. The full research cycle is outlined in the chart alongside. Our
approach is designed to fully integrate market research, goal setting,
strategic marketing, market planning, implementation, and monitoring as
integral components of the marketing process.

This study is largely based on interviews with companies present in the
wind and solar energy sectors such as financial investors, component
manufacturers, wind turbine manufacturers, solar panels producers and
wind and solar project developers. Additionally, it is also based on in-
house knowledge and expertise, conferences that Frost & Sullivan have
attended, on-going conversations with clients and market participants
and regular tracking of the market.

Source: Frost & Sullivan

M5BE-14 7

Executive Summary
Two-Step Assessment Methodology

• Every component market is analysed according to a two-step assessment methodology, where step one gives a market
assessment according to six parameters that characterise the component market in terms of level of competition and threat
of new entrants, technological complexity, supply/demand gap, the importance of manufacturing facilities being close to
demand point and amount of investment required for setting up a new facility.
• Under step two the key location criteria for manufacturing facilities are considered and assessed and later on compared for
all components considered under the study’s scope.

Overview of Investment Attractiveness: Assessment Methodology (World), 2010

STEP I - Introduction to the Sector STEP II - Analysis of Location of Key Market Participants
and Major Highlights and Key Criteria Considered

1 Level of Competition 1 Proximity to Existing Facilities

2 Investment Required 2 Being Close to Demand

3 Technological Complexity 3 Favourable Investment Policies

4 Proximity to Demand 4 Access to Cheap Labour

5 Threat of New Entrants 5 Access to Cheap Manuf. Locations

6 Supply/Demand Gap
Strong Weak Source: Frost & Sullivan

M5BE-14 8

Executive Summary
Wind Power Industry Hot Spot Segment Assessment: Summary

Overview of Investment Attractiveness: Key Location Factors for Selected Wind Turbine Components (World), 2010

Blades Bearings Gearbox Tower

1 Expanding Existing Facilities

2 Being Close to Demand

3 Favourable Invest. Policies

4 Access to Cheap Labour
Strong
5 Access to Cheap Manuf.
Weak
• The most important factor for the bulkiest and most expensive parts of the turbine is to be close to customers.
• Although some of the wind turbine components are technologically very complex, the factor of expanding existing facilities
has not been a priority.
• Like most other production facilities, investment policies from governments such as tax credits and access to cheap labour,
cheap electricity and raw materials are important to produce components for wind turbines.
• The result of this is that manufacturing facilities are moving from Europe to China, India and the US. It certainly helps that
these regions are becoming more investor friendly like setting up of special economic zones and countries like China and
India have lower cost labour than traditional markets of Europe.

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Executive Summary
Solar Power Industry Hot Spot Segment Assessment: Summary

Overview of Investment Attractiveness: Key Location Factors for Selected Solar Module Materials (World), 2010
Poly- Ingot/
Cell Module
Silicon Wafer

1 Proximity to Existing Facilities



Strong
Weak

• Proximity to existing manufacturing facilities is important at the technology-intensive lower part of the solar value chain. As
production technology becomes less demanding, the factor reduces in its significance.
• Being close to the demand gets more important towards the top-side of the value chain as it may be cost-ineffective for a
manufacturer to transport large amounts of bulky modules around the globe.
• Favourable investment policies along with a general trend to outsource production to lower cost countries has changed the
solar cell and module industry, with larger quantities of equipment produced in Asian countries.
• Access to cheap labour and manufacturing locations are crucial for cell and module manufacturing. There is a stronger
trend to set up manufacturing facilities in Asian countries such as China, Malaysia, Taiwan and the Philippines.

M5BE-14 10

Overview of the Investment Attractiveness of the Wind
Power Value Chain

11

Wind Power Market Introduction
Key Wind Power Technologies

• In terms of technology used to harness wind to convert to Overview of Investment Attractiveness: Wind Turbine
Classification (World), 2010
electrical energy, there are only two types of mainstream
technologies. They are onshore wind energy technology,
which is used to harness wind on land, and offshore wind Wind Power
energy technology, which is used to derive electricity from
wind that blows on the sea.
• While the technology used on land is more or less Onshore Wind Power Offshore Wind Power
established, as the sector is quite mature, the technology
used in the offshore wind energy sector is still developing.
This is because the offshore sector is at a nascent stage Micro-wind Power Small Wind Power
0-100kW 2MW-4MW
at less than 1.5% of global installed capacity of wind
energy.
Small Wind Power Large Wind Power
• Onshore wind power can be further sub-divided into four 100kW-1MW More than 4MW
categories depending on the power rating or capacity of
the turbines used. Medium Wind Power
1MW-3MW
• Medium-scale and large-scale turbines are used for
commercial scale wind farms. This study will look at this
Large Wind Power
part of the sector. More than 3MW
• The offshore wind power sector uses bigger turbines as
they can take advantage of the higher wind speeds. This
study will not look into offshore wind. Source: Frost & Sullivan

M5BE-14 12

Wind Power Market Structure

Overview of Investment Attractiveness: Wind Power Market
• Component Suppliers manufacture the various Structure (World), 2010
components of a wind turbine such as towers,
blades etc. Extended Value Chain
• Production Equipment Suppliers produce and
supply the equipment used by turbine Service Providers
manufacturers to manufacture parts of the turbine
or assemble a wind turbine.
Planning and
• Equipment Manufacturers are wind turbine Construction
manufacturers.
• Project Developers/Owners are companies that Production Equipment
develop wind farms/projects. There are four types Suppliers
of project owners: Utilities, Independent Power
Producers (IPPs), independent project developers Traditional Approach to Value Chain
and financial investors.
• Planning and Construction firms are those that Project Developers/
plan and construct a wind farm and then sell it to Owners
interested parties. They can also be firms that
provide consulting and advisory services to wind Equipment
farm owners. Manufacturers

• Service Providers offer operation and
Component
maintenance services to wind farm owners once
Suppliers
the project has been commissioned.

M5BE-14 13

Wind Power Industry Value Chain

• Unlike the solar industry’s value chain that is very linear, in the wind industry many components are assembled together to
erect a wind turbine.
• There are approximately 16 major components in a wind turbine, that together contribute close to 90% of the cost of a
turbine.
• Towers contribute the most, in terms of cost, followed by rotor blades and then the gearbox.
• Gearboxes and bearings have been the components most affected by shortage of supply brought on by the tremendous
growth rates witnessed by the wind energy industry from 2005 to H1 2008.
• Traditionally, wind turbine manufacturers have been outsourcing the manufacturing of most components and then
assembling the turbines themselves. The industry has in the past 3 years been seeing a shift from outsourcing to in-housing
for a number of reasons, the most important of which was to take more control of the supply chain.

Overview of Investment Attractiveness: Major Components of a Wind Turbine (World), 2010

Tower (26.3%) Gearbox (12.9%)

Rotor Blades (22.2%) Generator (3.4%)

Rotor Hub (1.4%) WIND TURBINE Yaw and Pitch System (3.9%)

Bearings (1.2%) Power Converter and Transformer (8.6%)

Main Shaft and Frame (4.7%) Brake System and Nacelle Housing
(2.7%)
Source: EWEA; Based on a Repower MM92 turbine

M5BE-14 14

Hot Spot Segment Assessment
Two-Step Methodology

STEP I - Introduction to the Sector and Major Highlights
Introduction
and Major Selected Criteria We have selected seven criteria for the component segment’s ranking:
Highlights
1 Level of Competition 1. Level of Competition is an indicator of how many
• The rating companies exist in the marketplace.
will give a
2. Investment Required is an indicator of how much
snapshot of 2 Investment Required
investment is required in order to set up a new production
a segment
and will facility.
allow for 3 Technological Complexity 3. Technological Complexity indicates whether or not
comparison technological know-how and experience plays an
between
4 important role in the industry, setting up new facility or
various Proximity to Demand
expanding existing ones.
value chain
segments. 4. Proximity to Demand indicates the importance of how
5 Threat of New Entrants
• Visual close a component manufacturer needs to be to demand.
ranking will 5. Threat of New Entrants indicates how easy it is to enter
allow for the 6 Supply/Demand Gap the market and whether the likelihood of new entrants is
ease of
comparison high.
of various Visual Ranking
6. Supply/Demand Gap assesses the supply shortage of the
segments. component due to excess demand in the short to medium
Strong Weak term.

M5BE-14 15

Two-Step Methodology (Contd…)

STEP II - Analysis of Location of Key Market Participants and Key Criteria Considered
Hot Spot
Segment Selected Criteria We have selected seven criteria for segment ranking:
Assessment
1
1. Expanding Existing Facilities is important for
Proximity to Existing Facilities
• The rating will access to technology and experienced technical
give a top-level and engineering expertise, procurement reasons
assessment of 2 Being Close to Demand and reaching economies of scale.
the sector’s
2. Being Close to Demand is important if
most important
selection 3 Favourable Investment Policies transportation is challenging due to the nature of
criteria for a component (extremely heavy, bulky, etc.).
manufacturing 3. Favourable Investment Policies in the form of
locations. 4 Access to Cheap Labour
tax subsidies, long-term interest-free government
loans, etc. can become a decisive factor for
5 Access to Cheap Manuf. Locations choosing a manufacturing location.
4. Access to Cheap Labour may offer a
competitive advantage when a considerable
amount of manual operation is present during the
production process.
Visual Ranking
5. Access to Cheap Manufacturing Locations
may be important for energy/material intensive
Strong Weak production processes for European and US
players to compete with Asian manufacturers.

M5BE-14 16

Blades

Overview of Investment Attractiveness:
Introduction and Major Highlights Blades Industry Scorecard (World),
2010
• The majority of the wind turbine suppliers have begun to manufacture blades
in house to some level. About 40% of blade manufacturing is done in-house
1 Level of Competition
while the rest is still outsourced. Danish LM Glasfiber is the largest blade
manufacturer with an approximate market share of 30% at the global level.
• Blade manufacturers are following their clients, the wind turbine 2 Investment Required
manufacturers, who are moving to high growth areas like the US and China.
It is important for blade manufacturers to be close to their clients as blades
3 Technological Complexity
are difficult and expensive to transport because they are bulky and heavy.
• Although blades were in short supply a few years ago, with wind turbine
4 Proximity to Demand
manufacturers and blade manufacturers investing in production facilities, the
shortage has been reduced by 2010.
Overview of Investment Attractiveness: Examples of Blade Manufacturers
(World), 2010
6 Supply/Demand Gap


• The amount of capital required to
build a blade manufacturing facility
and the technological complexity adds
to the fact that competition is high,
Source: Frost & Sullivan keeping new entrants away.

M5BE-14 17

Blades (Contd…)

Overview of Investment Attractiveness: Analysis of Location of Key
Key Location Factors for Blade
Blade Market Participants (World), 2009-2012
Manufacturers (World), 2010

Number of Existing Trend for the Number of
Continent Facilities (2009) Planned Facilities (2010-2012) 1 Expanding Existing Facilities
Asia 14-20 Increasing rapidly
Europe 14-19 Increasing slightly 2 Being Close to Demand
North America 10-15 Increasing rapidly

• Production of blades will be concentrated in the high growth regions – the US
and Asia. Until a few years ago, most of the demand for wind turbines came 4 Access to Cheap Labour
from Europe and therefore most of the facilities were located in Europe. With
the growth in the demand for turbines in other regions, blade manufacturers
have moved to the high-growth areas. For blades, being close to demand is
most important.
• The trend is for blade manufacturing to move in-house so that wind turbine Source: Frost & Sullivan
manufacturers have more control over their supply-chain. In the past 3 years,
both OEMs as well as blade manufacturers have been expanding their
facilities, to keep up with the demand for turbines and therefore blades.
• All the other factors are of the same importance when it comes to the setting
up of a manufacturing facility, except proximity to existing facilities.

M5BE-14 18

Bearings

Introduction and Major Highlights
• The wind bearings market is consolidated with 2-3 suppliers holding a major Bearings Industry Scorecard (World),
share of the market. Bearing manufacturers who supply to other industries 2010
have begun to venture into the wind industry.
• Bearings are one of the most complex components of a turbine and one of
the most critical to the efficient working of the turbine. Therefore the
technology used to produce it is very complex. 2 Investment Required
• Although they are not are not heavy or bulky to transport and therefore not
necessary to be close to their customers, there are trends for facilities to be 3 Technological Complexity
situated close to demand.
• Bearings were one of the components in a major shortage from 2005 to mid-
2008. The fall in demand for wind turbines triggered by the financial crisis
has reduced the shortage problem temporarily. Frost & Sullivan expects the
supply shortage to resume when demand picks up again, unless producers 5 Threat of New Entrants
invest in more production facilities in the immediate future.

Overview of Investment Attractiveness: Examples of Bearings 6 Supply/Demand Gap

• As the technology is complex and
the competition is strong, the
barriers to entry are quite high.

M5BE-14 19

Bearings (Contd…)

Overview of Investment Attractiveness: Analysis of Location of Key Overview of Investment Attractiveness:
Bearings Market Participants (World), 2009-2012 Key Location Factors for Bearings
Number of Existing Trend for the Number of
Facilities for all Planned Facilities 1 Expanding Existing Facilities
Continent Applications (2009) (2010-2012)
Asia 20+ Increasing
Europe 50+ Stagnant
North America 50+ Increasing 3 Favourable Invest. Policies
• As with blades, expanding additional facilities is not a major factor for bearings
suppliers when deciding on investment in increasing production capabilities.
• The most important difference between bearings and blade manufacturers is
that being close to customers is not as important for bearings manufacturers as
it is not difficult to transport these products. Source: Frost & Sullivan

• However, there has been a trend for bearings manufacturers to move towards
the high-growth areas such as India and China, to be closer to their customers
and be able to provide better and quicker service.
• Also, as the same production lines can be used to produce bearings for different
industries, the choice of location also depends on the nature of other local
industries.

M5BE-14 20

Gearbox

Introduction and Major Highlights Overview of Investment Attractiveness:
Gearbox Industry Scorecard (World),
• Most wind turbine manufacturers outsource the production of gearboxes to 2010
third party providers. There are about 15 major players world-wide and the
competition is strong.
• The production of gearboxes is complex as it is the heart of the turbine and
has been the cause of failure of wind turbines on more than one occasion.
2 Investment Required
• The trend has been for customers to prefer to have their gearbox
manufacturer partners in close proximity.
3 Technological Complexity
• Just as bearings were, the gearbox manufacturing market was not able to
keep up with the demand for turbines from 2005 to mid 2008. This resulted in
a massive demand-supply gap. Frost & Sullivan does not believe that the 4 Proximity to Demand
supply will be able to keep up with demand, when the wind energy market
picks up, as the number of facilities and their capacities are still not sufficient.

Overview of Investment Attractiveness: Examples of Gearbox
Manufacturers (World), 2010 6 Supply/Demand Gap


• The technological complexity, the
established relationships between
wind turbine manufacturer and
gearbox manufacturer will make it
Source: Frost & Sullivan difficult for new entrants.

M5BE-14 21

Gearbox (Contd…)

Gearbox Market Participants (World), 2009-2012 Key Location Factors for Gearbox
Trend for the Number of
Number of Existing Planned Facilities
Continent Facilities (2009) (2010-2012) 1 Expanding Existing Facilities

Europe 10-15 Increasing slightly
North America 3 Increasing rapidly

• Due to the level of expertise involved in producing a gearbox, it is attractive if an 4 Access to Cheap Labour
existing facility can be expanded. It has been seen in the case of some of the big
manufacturers like Hansen Transmissions.
• Being close to demand is not the most important criteria as there are a number
of European manufacturers that export to the US. Examples include Winergy,
Moventas, Hansen Transmissions and Bosch Rexroth. At the same time,
investments have been made in high growth areas such as India. This factor
depends on the strategy of individual gearbox manufacturers.
• Government incentives, cheap labour and access to cheap raw materials
encourage gearbox manufacturers to set up in a particular location. This is due
to the fact that the facilities involve huge investment themselves. Cutting costs in
other ways helps increase profitability.

M5BE-14 22

Tower

• Like blades, towers used to be outsourced to local tower manufacturers but Tower Industry Scorecard (World), 2010
with the need to control the supply chain gaining more attention, wind turbine
manufacturers have begun building their own tower manufacturing facilities.
There is substantial investment going into building factories by top wind
turbine and tower manufacturers in the next few years. Even if the
manufacturing is outsourced, the design is provided by the turbine producer. 2 Investment Required
• Also, as they are heavy and bulky to transport, wind turbine manufacturers
tend to source towers that are close to their facilities. Therefore, the market 3 Technological Complexity
is relatively fragmented and local.
• There are more than 30 tower manufacturers globally that supply to the top
15 wind turbine manufacturers. So the competition is high.
• The investment required and the technological complexity, when compared
to other components, is low. 5 Threat of New Entrants

Overview of Investment Attractiveness: Selected Tower Manufacturers
6 Supply/Demand Gap
(World), 2010

• As there are a number of players,
investing in production facilities, there
has been and will be no supply
Source: Frost & Sullivan shortage in the future.

M5BE-14 23

Tower (Contd…)

Tower Market Participants (World), 2009-2012 Key Location Factors for Tower
Trend for the Number of
Number of Existing Planned Facilities
Continent Facilities (2010-2012) 1 Expanding Existing Facilities

Europe 19-25 Increasing slightly
North America 12-15 Increasing rapidly
• As the demand shifts from Europe to the US and China, local tower
manufacturers as well as some global turbine manufacturers are setting
up factories there.
• Being close to demand is the most important factor when setting up a
factory.
• It is not extremely important for tower factories to be expanded to take Source: Frost & Sullivan
advantage of economies of scale, but the trend in the US suggests that
once 2-3 suitable places have been chosen which is close to demand,
tower manufacturers like to expand them.
• Other factors such as favourable investment policies, access to cheap
labour and access to cheap manufacturing are important too.

M5BE-14 24

Other Components

• There are some other components of a wind turbine that are interesting either because they are gaining more importance or
form a substantial part of the cost of a turbine. They are detailed below.

Generator Transformer Control System

• Most of the wind turbine • The industry structure is unorganised • Most of the top global wind
manufacturers outsource their and fragmented. turbine manufacturers produce
manufacturing of generators. their own control systems as
• Also, the technology is not complex
• Some conglomerates such as GE its becoming a very important
and factories do not require heavy
Energy and Siemens produce some component for the efficient
investment.
of their demand in-house and plan to working of a wind turbine.
increase the percentage in the next • OEMs tend to outsource their
• Europe is the hub of
few years. manufacturing of transformers.
production for control
Proximity to demand or OEMs is not
• There is moderate competition which systems.
a very important factor when setting
is characterised by long-term up a production facility. • There are very few third party
contracts based on quality and brand. suppliers that can produce it.
• Due to all these factors, the threat of
• Also, the need to be close to demand Mita Teknik is the biggest.
new entrants is quite high.
is moderate. • If new entrants have the
• The industry does not anticipate any
• Based on this, the barriers to entry technology and the financial
future supply problems in the case of
are not very high. If new entrants can backing, they will be able to
transformers.
exhibit quality and undercut capture the outsourced
competition, they might be able to market.
break into the market.

M5BE-14 25

Summary

Overview of Investment Attractiveness: Key Location Factors for Selected Wind Turbine Components (World), 2010

Blades Bearings Gearbox Tower

1 Expanding Existing Facilities



Strong
Weak
• The most important factor for the bulkiest and most expensive parts of the turbine is to be close to customers.
• Although some of the wind turbine components are technologically very complex, the factor of expanding existing facilities
has not been a priority.
• Like most other production facilities, investment policies from governments such as tax credits and access to cheap labour,
cheap electricity and raw materials are important to produce components for wind turbines.
• The result of this is that manufacturing facilities are moving from Europe to China, India and the US. It certainly helps that
these regions are becoming more investor friendly like setting up of special economic zones and countries like China and
India have lower cost labour than traditional markets of Europe.

M5BE-14 26

Summary (Contd…)

Overview of Investment Attractiveness: Future Development of Installed and Manufacturing Wind Capacity
(World), 2010

Wind installed capacity development

Wind turbine production development

Arrow inclination denotes pace of
market development

• Europe has, until 2008, been the hub of wind turbine production and has been seeing the most growth in installed capacity.
• It will still remain a major region, globally, but the US and China are exhibiting great growth rates and therefore increased
activity in turbine and component production.

M5BE-14 27

Overview of the Investment Attractiveness of the Solar Power
Value Chain

28

Solar Power Market Introduction
Overview of Solar Technologies

Overview of Investment Attractiveness: Solar Power
• There are many competing solar technologies, including 14 Technologies Classification (World), 2010
types of photovoltaic cells such as mono-crystalline and
polycrystalline silicon cells, amorphous cells, thin films as
Solar Power
well as multiple types of concentrating solar power.
• At present solar PV generation I and II have reached full
commercialisation, the rest are still in test or early research Direct Conversion Indirect Conversion
phases.
• Concentrating solar technologies are broadly divided into two Concentrating
Photovoltaics
categories: Technologies (CSP)

• Concentrating photovoltaic (CPV) systems I Generation: Polysilicon-
CPV (Concentrating PV)
concentrate sunlight onto photovoltaic surfaces of based technologies
several varieties to produce power.
II Generation: Thin-films Examples: Fresnel
• Concentrating solar thermal power plants produce (CdTe, CIS/CIGS, a-Si, lens, Heliostat
power by first converting the sun’s energy into heat, etc.) Concentrator, etc.

next into mechanical power, and lastly, into III Generation: Multi-
CST (Concentrating Solar
electricity in a conventional generator. junction cells, Organic,
Thermal)
Nanotech based
• While direct conversion solar systems based on polysilicon
Examples: Parabolic
cells were the first ones to reach commercialisation and wide
trough, dish stirling,
acceptance, other technologies are gaining momentum and concentrating linear
are expected to expand in the future. fresnel reflector,
solar power tower,
etc.


M5BE-14 29

Key Solar Technologies

• At present the vast majority of installed solar systems for all applications are based on direct conversion. Solar PV reached
95% of worldwide solar market in 2007.This is expected to continue into the future as the residential segment will remain a
major application and solar PV is best-suited for it.
• CSP technologies could gain a higher market share; however, it is likely to stay below 10% of the entire solar power
market.
Overview of Investment Attractiveness: Markets and Applications for Solar Power (World), 2010
Category Small Medium Large

Installation Size <10kW 10 to 100kW 100kW to 1MW 1 MW to 10 MW 10 to 100MW >100MW

Technology Mix in Each Market 100% PV 99% PV, 1% CSP 20% PV, 80% CSP

Distributed Generation
Installation Type
Centralised Generation

Residential

Market Served Commercial

Utility
Overview of Investment Attractiveness: Solar Technology Penetration by Market Segment (World), 2010
Small Medium Large

<10kW 10 to 100kW 100kW to 1MW 1 to 10 MW 10 to 100MW >100MW

2500

… CPV CST
Insulation Level,

2000 PV
… Tracking PV
kWh/m2

1000


M5BE-14 30

Solar Power Market Structure

• Small Systems Owners are private households or small businesses. Overview of Investment Attractiveness: Solar
Small systems generating up to 20 kWp account for about 80% of all Power Market Structure (World), 2010
installations but their share is slightly decreasing due to development
of large scale solar parks. Operators/ Small Systems
Owners Owners
• Large Scale Solar Park Developers are often utilities or IPPs. They
are often responsible for operations and maintenance of the solar
parks as well. Large-Scale Residential &
Solar Park Small-Scale
• Residential and Small Scale System Installers (Integrators) are Developers System Installers
locally-based businesses that are engaged in final solar system
assembly and installation.
Wholesalers/
• Wholesalers/Distributors are engaged in solar module and Distributors
component sales. Sometimes they can also provide system
installation services.
Solar Module/System
• Solar Module/System Manufacturers are engaged in production of Manufacturers
modules or ready-to-install systems.
• Solar Cell Manufacturers produce solar cells. The assembly of
Solar Cell Component
crystalline solar cells into modules is often carried out in the cell
Manufacturers Producers
plant, but can be done in smaller plants closer to the end market.
• Component Producers manufacture inverters, mounting frames,
Silicon
batteries for off-grid systems, meters, as well as cables and switches.
Producers
• Silicon Producers are a handful of companies worldwide that
produce polysilicon, which is a major raw material. Source: Frost & Sullivan

M5BE-14 31

Solar Power Industry Value Chain: Polysilicon based Cells and Modules

• There are several major transformation steps through which silica takes shape of a solar module:
• Metallurgical grade silicon (MG-Si) is refined into ultra pure silicon, so-called polysilicon. This step is both capital
and energy intensive.
• Polysilicon is re-melted and re-deposited to form ingots, which are then sawn and polished into wafers. The first
part of the value chain has a lot in common with semiconductor manufacturing, only the purity requirements are less
stringent.
• Wafers are polished and prepared with a number of operations to form cells.
• Cells are then assembled, fitted with a frame and a junction box to form modules (also called panels).

Overview of Investment Attractiveness: Solar PV Industry Value Chain (World), 2010

MG- Poly-
Silica Ingot Wafer Cell Module System
Silicon Silicon


M5BE-14 32

Two-Step Methodology

STEP I - Introduction to the Sector and Major Highlights
Introduction
and Major Selected Criteria We have selected seven criteria for segment’s ranking:
Highlights
1
1. Level of Competition is an indicator of how many companies
Level of Competition
• The rating are exist in the marketplace.
will give the 2. Investment Required is an indicator of how much investment
snapshot of 2 Investment Required is required in order to set up a new production facility.
a segment
and will 3. Technology Complexity indicates whether or not
allow for 3 Technology Complexity technological know-how and experience plays an important
comparison role for the industry, setting up new facility or expanding
between existing ones.
various 4 Proximity to Demand
value chain 4. Proximity to Demand indicates the importance of how close a
segments component manufacturer needs to be to demand.
• Visual 5. Threat of New Entrants indicates how easy it is to enter the
ranking will market and whether the likelihood of new entrants is high. At
allow for the 6 Supply/Demand Gap present the solar industry is experiencing a temporary
ease of
slowdown accompanied by an oversupply at every step of the
comparison
Visual Ranking value chain. Going forward, however, increasing demand is
of various
segments expected to revive the industry and not only spur expansion
activities but also attract new entrants to the market.
Strong Weak
6. Supply/Demand Gap assesses the market saturation in the
short to medium term.

M5BE-14 33

Two-Step Methodology (Contd… )

STEP II - Analysis of Location of Key Market Participants and Key Location Factors
Hot Spot
Segment Selected Criteria
Assessment We have selected seven criteria for segment’s
ranking:
• The rating 1. Proximity to Existing Facilities is important for
will give a access to technology and experienced technical
top-level 2 Being Close to Demand Point and engineering expertise, procurement reasons
assessment and reaching economies of scale.
of the
sector’s 3 Favourable Investment Policies 2. Being Close to Demand Point is important if
most transportation is challenging due to a nature of a
important component (extremely heavy, bulky, etc.).
location 4 Access to Cheap Labour
selection 3. Favorable Investment Policies in the form of
criteria/ tax subsidies, long-term interest-free government
5 Access to Cheap Manuf. Locations loans, etc. can become a decisive factor for
choosing a manufacturing location.
4. Access to Cheap Labor may be a competitive
advantage when a lot of manual operations are
present during the production process.
Visual Ranking
5. Access to Cheap Manufacturing Locations
Strong Weak may be important at energy/material intensive
production steps in order to compete with Asian
manufacturers.

M5BE-14 34

Polysilicon

Polysilicon Industry Scorecard (World),
• Polysilicon production is highly concentrated, with a few large global 2010
chemical companies supplying the material worldwide.
• Polysilicon was in short supply during 2005-2008, driven by high demand
from the solar PV industry. This led to increased spot prices from US$25 in
2004 to more than ten-fold increase by the beginning of 2008. 2 Investment Required
• Extremely high margins and expectations of prolonged high solar industry
3 Technology Complexity
demand have attracted many new entrants in Europe, but especially in Asia.
• Even if successful, new entrants will face extremely tough competition from 4 Proximity of Suppliers
the incumbents as the latter have the lowest cost base due to long
production experience leading to technological know-how. Additionally, all 5 Threat of New Entrants
large incumbent producers are expanding their production facilities.

6 Supply/Demand Gap
Overview of Investment Attractiveness: Examples of Polysilicon

• The polysilicon industry is likely to
stay as concentrated as it is with new
plants built close to existing facilities.
• Supply/demand gap is non-existent at
present but will come into being
should demand become exceptionally
strong.

M5BE-14 35

Polysilicon (Contd…)

Market Participants (World), 2010 Key Location Factors for Polysilicon






Existing facilities* Source: Frost & Sullivan

Announced projects (2006-2008)
Key: *indicates a factory location in terms of continent rather than specific country • Proximity of existing facilities is by far
Source: Frost & Sullivan the most important location factor as
due to technology complexity it is
• While a lot of new projects were announced in 2006-2008 and some large cell
extremely important to have
and module producers were looking to set up their own polysilicon
experienced technical staff. Also it
manufacturing facilities, many small-scale projects will find it increasingly allows for scaling up of production
difficult to survive from 2009 onwards. leading to economies of scale.

M5BE-14 36

Hope Spot Segment Assessment
Ingot/Wafer

Ingot/Wafer Segment Scorecard (World),
• There are over 70 ingot manufacturers worldwide; most companies are 2010
integrated, i.e. they produce ingot and wafer; others are not.
• Some of the ingot/wafer manufacturers have been seen trying to back- 1 Level of Competition
integrate into polysilicon production to improve their competitiveness and
secure feedstock for aggressive expansion. 2 Investment Required
• There are two main type of ingot/wafers: monocrystalline and polycrystalline.
The production of monocrystalline ingot requires precise specifications and 3 Technology Complexity
careful monitoring to ensure uniform crystal growth and contaminant-free
ingots. 4 Proximity of Suppliers
• The Directional Solidification/Casting Method produces polycrystalline
ingots/blocks. It takes less time to make and is cheaper to produce. These 5 Threat of New Entrants
are the reasons for the casting method to be more widely accepted in recent
years. 6 Supply/Demand Gap
Overview of Investment Attractiveness: Examples of Ingot/Wafer
Manufacturers (World), 2010 Source: Frost & Sullivan

• Ingot/wafer manufacturing is back-
integrated by many large solar cell
producers. Only large independent
manufacturers will be able to survive
the recent crisis and a slowdown in
Source: Frost & Sullivan demand.

M5BE-14 37

Ingot/Wafer (Contd…)

Overview of Investment Attractiveness: Analysis of Location of Overview of Investment Attractiveness:
Key Market Participants (World), 2010 Key Location Factors for Ingot/Wafer






Existing facilities
• Ingot/wafer production require less
• Existing large manufacturers enjoy economies of scale leading to lower cost technological expertise than
of production. New facilities are likely to be vertically integrated with cell and polysilicon production; that’s why it is
a process that is easier to integrate
module manufacturing together as has been the case lately. Since solar
with cell and module production.
manufacturing is shifting to Asia, new independent ingot/wafer producers may
• Access to cheap electricity is a
spring into existence there after the current industry slow-down is over.
competitive advantage.

M5BE-14 38

Hope Spot Segment Assessment
Cell

• The solar cell industry landscape is even more fragmented than the other Cell Segment Scorecard (World), 2010
elements of the solar value chain. While in 2006 ten global producers
accounted for 75% of total output, in 2008 their combined share decreased 1 Level of Competition
to just 46%.
• The oversupply in the solar industry at the end of 2008-2009 drove a lot of 2 Investment Required
small manufacturers, especially Asian, out of business.
3 Technology Complexity
• Going forward the industry is likely to become increasingly concentrated as
economies of scale achieved at large production facilities will cement the
4 Proximity of Suppliers
cost advantage of large manufacturers.
• Very few companies (e.g. Q-Cells) are pure solar cell producers, most have 5 Threat of New Entrants
integrated facilities for solar cell and module manufacturing. We expect it to
be a preferred business model going forward as it eliminates third-party
6 Supply/Demand Gap
margins and reduces the cost of the final product – the solar module.

Overview of Investment Attractiveness: Examples of Cell Manufacturers Source: Frost & Sullivan
(World), 2010

• The current crisis has left only the
strongest players. Technological
know-how and research will
continue to be important, leading to
important cost reductions.

M5BE-14 39

Cell (Contd…)

Market Participants (World), 2010 Key Location Factors for Cell







Existing facilities
• Favourable investment polices as
• Solar cells manufacturing leadership has moved from Germany and Japan well as access to cheap
(the first solar markets to pick up) to other Asian countries, where production manufacturing locations and labour
costs are significantly lower. are of paramount importance to cell
manufacturers as cells as well as
• European and US-based manufacturers are setting new plants in China,
solar modules are becoming
Taiwan, Malaysia and other Asian countries.
commodities.

M5BE-14 40

Module

• Solar module assembly is the least technologically complex production step. Module Segment Scorecard (World), 2010
Thus, the solar module industry landscape is even more fragmented than
that of the solar cell industry.
• Originally, there were a lot of small module producers based close to where
demand was, spurred by government support. Nowadays as the solar
2 Investment Required
industry is turning into a truly global market, manufacturing tends to be
outsourced to cheaper locations, such as China and other Asian countries.
• The level of competition is high as module manufacturing does not require 3 Technology Complexity
significant capital investment and technological know-how.
• While some existing module manufacturers are expanding to be in a good 4 Proximity of Suppliers
shape for the next upsurge in demand, once the industry picks up from the
current slump, there could be new companies entering the market.
Overview of Investment Attractiveness: Examples of Module
Manufacturers (World), 2010 6 Supply/Demand Gap


• Threat of new entrants is low at
present, however, when growth
resumes, the sector may attract new
Source: Frost & Sullivan participants.

M5BE-14 41

Module (Contd…)

Market Participants (World), 2010 Key Location Factors for Module





Existing facilities
Source: Frost & Sullivan Source: Frost & Sullivan

• There are mixed trends in the solar module industry: some producers
outsource production entirely to Asia and ship modules around the globe to
• Favourable investment policies as
where the demand is. Others ship cells as they are more compact, and
well as access to cheap
assemble modules close to the point of final demand.
manufacturing locations and labour
• The business model depends on the amount of products shipped, and large have proved to be key location
producers may find it more economical to have an assembly plant close to a factors for module manufacturers
growing solar market. lately.

M5BE-14 42

Other Components

• There are other raw materials and components that are used during the solar module production process. The most
important ones are those used for module assembly and are presented on the next two slides:

PV Glass Backsheet Junction Boxes and
Frames
• PV glass is produced and • Backsheet films are produced by a few • Junction boxes and
sourced locally to module international manufacturers. So far, Tedlar® frames are produced and
production. (DuPont’s PVF product) is believed to be one of sourced local to module
• Production capacity the few products with proven quality in a variety production.
expansions require of climates to sustain stable solar module
• Junction boxes and
significant investment, performance for 25 years. Another well-known
frames have been in
with major investments supplier of backsheet is Mitsui.
sufficient supply.
undertaken during 2005- • Several new materials are being developed and
2007. More capacity has • No significant investment
tested for backsheet application: polyesters,
been coming on-line is required to expand the
PVDF (Polyvinylidene Fluoride), multi-layer
lately. production capacities;
backsheet etc.
expansions can be
• Also, several solar module producers have completed within a short
been reported to develop their own backsheet timeframe.
in partnership with specialised producers.

M5BE-14 43

Other Components (Contd…)

• There are other raw materials and components that are used during solar module production process. The most important
ones are those used for module assembly:

EVA films

• Major international suppliers include: DuPont, Mitsui, Bridgestone Corporation, STR (Specialized Technology Resources),
ETIMEX.
• In general, production capacity expansions require significant investment. Major international players have invested lately in
production capacity expansion (eg. Bridgestone in 2005), new capacities are expected to come on-stream during 2008-2010
(STR, Etimex, Bridgestone).
• Since the solar PV sector accounts for about 5% of total global demand for EVA, even with a rapid market growth severe
shortages are unlikely to happen.

M5BE-14 44

Summary

Overview of Investment Attractiveness: Key Location Factors for Selected Solar Module Materials (World), 2010
Poly- Ingot/
Cell Module
Silicon Wafer




Strong
Weak

• Proximity to existing manufacturing facilities is important at the technology-intensive lower part of the solar value chain. As
production technology becomes less demanding, the factor reduces in its significance.
• Being close to the demand gets more important towards the top-side of the value chain as it may be cost-ineffective for a
manufacturer to transport large amounts of bulky modules around the globe.
• Favourable investment policies along with a general trend to outsource production to lower cost countries has changed the
solar cell and module industry, with larger quantities of equipment produced in Asian countries.
• Access to cheap labour and manufacturing locations are crucial for cell and module manufacturing. There is a stronger
trend to set up manufacturing facilities in Asian countries such as China, Malaysia, Taiwan and the Philippines.

M5BE-14 45

Summary (Contd…)

Overview of Investment Attractiveness: Future Development of Installed and
Manufacturing Solar Capacity (World), 2010

China, India and
USA Europe rest of Asia Japan

Solar installed capacity development

Solar cell and module production development
Arrow inclination denotes pace of
market development
• Solar installed capacity development and solar equipment manufacturing will be taking place in different corners of the
world.
• Asia will become the major manufacturing hub, while the US and Europe will remain major end markets for solar installed
capacity development.
• Solar cells and modules are turning into commodities, meaning European production facilities are likely to have niche
markets to serve, e.g. BIPV products that require higher performance and in some cases need to be manufactured to order.

M5BE-14 46

Solar Power Industry Value Chain
Other Solar Technologies

Overview of Investment Attractiveness: Solar Power Segmentation (World), 2010
• The polysilicon–based solar module value chain is
established and manufacturing is shifting to low-cost Solar Power
countries from original solar hot-spots such as Japan and
Europe. Direct Conversion Indirect Conversion
• There are, however, emerging solar technologies whose
value chains are in the making. These include thin-films Concentrating
Photovoltaics
Technologies (CSP)
and concentrating solar power technologies.
• Thin films are still scaling up with a lot of manufacturers I Generation: Polysilicon-
CPV (Concentrating PV)
located in the US and Europe, mostly in Germany. based technologies
• 3rd generation solar cells are still in the research stage.
Examples: Fresnel
Production, if any, is in test stage and mostly takes place II Generation: Thin-films
lens, Heliostat
in R&D lab spin-offs. (CdTe, CIS/CIGS, a-Si, etc.)
Concentrator, etc.
• Concentrating technologies are shaping up to form their III Generation: Multi-junction
CST (Concentrating Solar
own supply chain that consists of mostly European and cells, Organic, Nanotech
Thermal)
based
US-based manufacturers.
Overview of Investment Attractiveness: Solar Technology Penetration by Market Segment (World), 2010
Small Medium Large

<10kW 10 to 100kW 100kW to 1MW 1 to 10 MW 10 to 100MW >100MW

2500

… CPV CST
Insolation Level,

2000 PV
Tracking PV
kWh/m2

…

1000

M5BE-14 47

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