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Bhavin Shah (852) 2800-8538 bhavin.a.shah@jpmorgan.com Japan takes a breather while Europe, China and Taiwan pick up steam 238 Asia Pacific Equity Research 20 April 2009 capacity of around 932MWp supported by this program. During the tenure of this program the average price for the 1kWp residential PV systems fell from around ¥2,000/Wp in 1994 to around ¥670 yen in 2004. However, since the program was stopped, annual solar installations in Japan have trended downwards. Japan announced that it aims to reintroduce the subsidies for solar equipment from next fiscal year to increase the demand for solar systems, which has slowed after the subsidies for residential systems were stopped in FY05. METI has proposed a budget of ¥23.8 billion for subsidy and tax breaks to encourage installation of solar and other alternative energy systems for the next fiscal year starting April 2009. Japan also recently announced plans to provide subsidy for solar systems installed in public spaces such as schools, hospitals and railway stations. Currently, public facilities run by companies receive subsidy of one-third of the solar installation costs. Japan now plans to offer subsidy of half the solar installations costs for public facilities run by the government bodies. Other markets Italy, France and Greece all have generous FIT programs to facilitate solar demand, though their approaches are slightly different. Italy hopes to become 10% of the global market by 2020 with 17GW of installed capacity. Its range of FITs between large and small installations suggests that both segments will see growth, in our opinion. However, its market has been hindered by bureaucratic procedures where it is not uncommon for a completed project to face a six-month delay before connecting to the grid. France has directed its subsidy program more toward the residential market. Greece remains a relatively small market despite its subsidy. India and China The Ministry of New and Renewable Energy in India has announced a demonstration program to support grid-interactive solar-power generation projects, up to a maximum capacity of 50MW. In China, we expect the government to start subsidizing individual households from April 2009. The government has already started subsidizing solar energy generation used by businesses or office buildings. While we do not think the subsidy is enough to grow the solar industry in China, it should support a modest increase in solar demand. Solar cell production: <strong>Supply</strong> Japan established itself as the early industry leader and it is still one of the largest producers of PV cells today. But there is possible saturation and slowing demand in the Japanese market after 10 years of rapid growth. Europe was the largest producer of PV cells in 2008, driven by continued demand for solar systems in the region, predominately in Germany and Spain. Production in Asia has risen with most of that growth occurring in Mainland China. The Chinese PV industry grew strongly in 2008 with increasing demand from Spain and Germany in particular. Declining global demand, which started at the end of 2008, suggests the Chinese PV industry will face hard times in 2009. Taiwanese manufacturers have been aggressively expanding capacity. Many other countries too have announced new plans to invest in solar energy; e.g., Abu Dhabi through its Masdar initiative set up thin film manufacturing plants in 2008.
Bhavin Shah (852) 2800-8538 bhavin.a.shah@jpmorgan.com Figure 140: Historical PV production by region 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 US Japan Europe ROW 2001 2002 2003 2004 2005 2006 2007 2008 Source: PVNews, iSuppli. Asia Pacific Equity Research 20 April 2009 Table 132: Top 15 companies by solar cell production volume Figure 141: PV production- regional ranking (2008) US 14% Taiwan 13% Japan 16% Others 4% Source: iSuppli, compiled by Digitimes, March 2009. Company 2001 2002 2003 2004 2005 2006 2007 2008 Growth (2007-08) Q-Cells (DE) 8 28 75 160 253 389 575 47.7% First Solar (US/DE) 3 6 20 60 200 504 152.0% Suntech( CH) 28 80 158 360 498 38.3% Sharp (JP) 75 123 198 324 428 434 363 493 35.8% Kyocera (JP) 54 60 72 105 142 180 207 290 40.1% Yingli Green Energy(CH) 10 35 143 281 96.8% Motech (TW) 4 8 17 35 60 102 196 280 42.9% Solar World 170 250 47.1% JA Solar (CH) 25 113 250 120.8% SunPower (PH) 63 150 237 58.0% Sanyo (JP) 19 35 35 65 125 155 165 200 21.2% Isofoton (ES) 18 27 35 53 53 61 85 180 111.8% Solarfun (CH) 25 88 175 98.9% Mitsubishi Electric (JP) 14 24 42 75 100 111 121 150 24.0% E-TON (TW) 5 28 33 72 100 38.9% World Total 373 539 744 1196 1771 2474 3733 7700 Y/Y % 29% 45% 38% 61% 48% 40% 51% 106% Thin Film % of Total Source: Company data, PVNews, iSuppli Corp. 4.8% 3.2% 5.1% 5.1% 5.4% 6.9% 10.2% 14.4% China 26% Europe 27% Polysilicon oversupply has arrived Polycrystalline silicon is currently used in the mainstream type of solar cells due to its lower production costs than mono-crystalline silicon. Polysilicon solar cells use wafers sliced from ingots cast using silicon melted in a crucible. These ingots are not formed from a single crystal, unlike mono-crystalline silicon which is slowly built up by revolving a seed crystal. The ingots can also be cast in a square shape, instead of the cylinders of mono-crystalline silicon. Polycrystalline silicon (polysilicon) is also used to make semiconductor wafers. <strong>Supply</strong>/demand conditions for polysilicon have remained tight since 2004, owing to rapid expansion in the solar cell market, combined with steady market growth in semiconductor applications, especially for 300mm wafers. Does this situation persist? Polysilicon oversupply has arrived earlier-than-expected due to: 1. Demand downside: Tightening inventory control in the channels due to subsidy cuts and challenging financing environment for installation. 239
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