The biggest problem facing the solar industry is the ability to reduce costs embedded in manufacturing components. According to IMS Research, up till the fourth quarter of 2010, more than 70% of all components manufactured globally for the solar industry came from Asia. IMS Research also pointed out that the trend shows no signs of slowing down. It is estimated that more than 75% of the solar related production will move to Asia by the end of 2011.
IMS Research said that 2010 was a good year for companies manufacturing components for the solar industry mainly due to increasing demand, increasing shipments, and capped price increases. In the meantime, however, the industry has turned their attention to how to reduce costs incurred in manufacturing components since German market has started to signal saturation in the domestic market.
As a result, suppliers in the value chain continually move their production lines to Asia to seek possibility of lowering costs. REC is a successful example under such market sentiment, its automated production lines of silicon chips, cells, and modules will come to materialize a cost per unit rate at €0.97/Wp in 2011. Another successful story is Evergreen Solar (NASDAQ:ESLR). The company plans to materialize a cost per unit rate at $0.9/Wp by the end of 2012 for all factories in China. Such reduction is perceived as a huge leap, as opposed to the reduction that occurred in the third quarter of 2010, to a rate at $1.88/Wp.
To make sure the sustainability of the PV industry and to lessen dependence on governmental subsidies, bringing down the costs of production is a critical threshold for the industry as a whole to overcome. Historically speaking, companies manufacturing electronics shifted their production facilities to Asia to lower their costs of production. Today, it is a proven path that can be followed again. It is an inevitable process, said Sam Wilkinson, an analyst of the PV market. Chinese manufacturers are leading the trend of bringing down costs through economies of scale while western suppliers are rushing to moving their production lines to Asia, joining the big circle of “cost reduction”.