From Hand to Mouth

Bottlenecks are slowing down the solar industry. Equipment suppliers and manufacturers are unable to carry out all orders on time. What comes in will be installed immediately.

By Claudius Semmann

Solar manufacturer Conergy has full order books. The Hamburg-based company's production is currently running at maximum capacity. "Demand exceeds supply", the company informs LOG.Kompass. And it really looks like this trend will continue in coming business quarters. With the assistance of external production partners, Conergy wants to be able to soon meet better the increased demand.

The solar sector is experiencing an exceptional year. The reduction of the feed-in compensation rate recently decided by the Federal government and the Bundesrat (Upper House of the German Parliament) fuelled demand even more. According to the Bundesverband Solarwirtschaft (BSW – Federal Association of the Solar Industry ), the number of systems connected in Germany was almost as high in the first half of the year than in the entire year 2009. An excellent situation, one should think. But that boom is burdening the supply chains. The economy is characterized by constant shortages.

This year, the delivery problems by upstream suppliers have taken on dramatic dimensions. Thus, Conergy expects sustained delivery bottlenecks until the end of 2010. Such bottlenecks might continue for inverters until 2011, it has been said. Without this component, a solar system cannot be connected to the power network. Other solar companies also complain about the shortage.

The high demand is only one of the reasons for the bottlenecks. The main reason, however, is a severe global shortage of semiconductors and electronic components. Some solar companies thus cannot meet their promised deliveries, as LOG.Kompass heard from trade circles.
The semiconductor industry throttled its capacities in the crisis. Now, many of the necessary components are in short supply. Moreover, the chips are also urgently needed in other industrial sectors, such as in the automotive industry or in entertainment electronics.

Company SMA Solar Technology in Niestetal near Kassel is the worldwide market leader for inverters. The company doubled its annual production capacities in the second quarter of 2010. "The situation on the semiconductor market slightly improved in recent weeks", their PR department advised. From a current point of view, this trend would seem to continue in the second half of the year. But a more comprehensive relaxation of the situation cannot be expected. Important components would still not be supplied in the required quantities. "Stepping up the capacities in the semiconductor industry progresses rather sluggishly", the inverter manufacturer complains. Accordingly, the affected sectors of the industry have to further expect long delivery periods. And SMA still cannot fully utilize its newly installed capacities.

The solar industry always had to struggle with severe fluctuations. The market is very politically driven, and the sector depends on the subsidy programs of the countries in which sales are made. The logistics staff must also manage growth – delivery ability and loyalty; and with all that, they must not forget flexibility. At the same time, while Germany is still leading with inverters and other components, the competition from North America and China has caught up in leaps with regard to cells and modules. This is also due to their efficiency. And a nosedive of prices is programmed due to the construction of new production facilities, especially by Chinese manufacturers. Experts are saying that we'll soon have a buyers' market with tough price competition.

Profit margins fell sharply during the crisis: From an average 15 to 20 percent to partly under 10 percent, says the solar expert Hans Kühn from the consultancy firm PRTM. "That's where it's no longer sufficient to only look at the unit cost." But Kühn said that he had seen how supply chain costs and logistics processes are more and more in the focus of attention of the still young industry. Conergy even talks about an "instrument for differentiation in competition".

In the industry, supply chains to the customer are sophisticated in structure. External service providers are already frequently used in this respect. Yet, deficiencies in supply logistics would impair growth, as Jens Hornstein confirms, the solar expert at Kerkhoff Consulting. Solar supply chains would often not yet be prepared for extreme situations. The reason for it: Many suppliers have been working only for a short while in the segment. They would first have to learn to adjust the processes to market conditions. "The manufacturers of solar cells and inverters are faced with the challenge to control the suppliers' development", Hornstein emphasizes. In his opinion, the situation will only ease up in 2011 when new capacities in the area of electronic components are coming on the market.

Meanwhile, the industry's globalization is making further progress. Many solar companies are already building factories in Asia and in North America. It will be important in this respect to efficiently coordinate these global production networks.

Kerkhoff Consulting GmbH – +49 211 6218061-0 – Elisabethstr. 5 – 40217 Dusseldorf - Germany
Kerkhoff Consulting GmbH – +43 153 2272941 – Wallnerstr. 3 – 1010 Vienna - Austria