An experienced and reliable solar module manufacturer is a key credit component having an impact on a project’s overall rating. Panel manufacturers often provide two types of warranties: a workmanship warranty for a limited period and a module performance guarantee for a longer term (up to twenty-five years). DBRS views the industry to be relatively early in its life cycle, with few, if any, investment grade-rated solar module manufacturers. As such, structural enhancements, such as insurance, are often used by panel manufacturers to bring them to a level equivalent to investment grade.
The upstream value-chain for solar modules begins with production of polysilicon, moves to ingot/wafer production, then manufacturing of cells, and finally modules. This commentary looks at solar module manufacturers specifically. Therefore, it does not consider companies across the upstream value-chain, unless they also produce the final module. Some manufacturers are partially vertically integrated, and others have become fully vertically integrated in the upstream part of the value chain, while some are developing downstream solar power projects.
The aim of this commentary is to look at trends, rather than providing comprehensive research into each and every manufacturer across the value chain. Companies that do not publish data have not been included; however, most of the top solar module manufacturers are included in this commentary.
The solar module industry remains early in its life cycle, somewhere between the growth and shakeout stages, with increasing rivalry and many exiting the industry. In DBRS’s view, the solar module industry does not currently fall into the investment-grade category mainly due to high business risk assessment factors. The primary risk factors for the solar industry are exposure to regulatory and government policy risks with respect to power generation, price risk from global competition and technology risk.
Over the past decade, many dozen manufacturers have shut down or consolidated, and DBRS expects this shakeout to continue as the industry remains in flux over the next three to five years. As these forces continue to shape the solar industry in the short to medium term, more solar module manufacturers are going out of business or being bought out, while others are exhibiting overall growth in production despite volatility in demand. In addition, the relative positions of manufacturers have changed significantly and continue to do so, as a result of various forces at play in the industry.
Bankruptcies or financial difficulties continue in the industry, even for larger players, largely driven by declining margins that squeezed margins. Consolidation will eventually help improve margins. Scale and technology can become barriers to entry. Developers of solar plants would prefer to work with manufacturers that are seen as stable, long-term players. DBRS expects that companies with larger and stronger balance sheets will have an advantage over weaker players, as customers want to ensure that supply agreements and warranties continue to be honoured. It is likely there will soon be another shake-up forcing weaker players to shut down or be bought out.
For additional information:
DBRS Ltd commentary “Still Chasing the Sun: Drivers of Consolidation in the Solar Module Industry”
