Globalization: The Next Phase of Industry Development
By Bettina Weiss, Vice President, SEMI PV Group
Sep 04, 2012
Reflecting on the past to chart the future: The solar industry is crudely but assuredly entering the next phase of its development: globalization. That's a good thing. Here's why.
The solar industry is entering a new era of globalization after many years of technical incubation and regional market development. This process will
radically change solar products, solar markets and the solar supply chain. Trade disputes and over capacity on the supply side and painful fluctuations in subsidized markets on the demand side are part of this agonizing transformation.
While much of the current market dynamics appear unique and singular to the solar industry, they are common to other microelectronics industries that also rapidly grew to global scale. The semiconductor and display industries are good examples – they, too, went through periods of development including debilitating trade conflict and public policy dependencies. They grew beyond the regionally-focused concerns related to economic development and became global industries that transformed modern life and fueled the growth of the world's middle-class. This article will describe what appears to be a common and natural part of industrial development in microelectronics from product formation, through regional development and ultimately to globalization. If the semiconductor and display industries are a useful model, this common development cycle points toward a bright future for the proliferation of solar power and a challenge for technology
Stage One: Industry Formation
In microelectronics, industries begin with a scientific discovery which then produces an invention. Inventions become products which forms the beginning of an industry. The first phase of industry development in microelectronics and many other industries is Formation. In 1876 William Grylls Adams and Richard Evans Day discovered that selenium produces electricity when exposed to light. Not until many years later was the discovery's application demonstrated with silicon by Bell Labs, and that solar PV could become a viable product. Bell Labs began licensing photovoltaic technology for a variety of products and by 1958 space satellites began using small PV arrays to power radios and electronics in space.
For the next 35 years, the solar industry grew into new markets, developed new technologies and was deployed in hundreds of applications around the world. But as recently as 10 years ago the total global output for all PV products was still less than one gigawatt. Manufacturers were small. Products were basic; efficiencies were poor. Semiconductors and early LCD displays showed a similar growth curve and reliance on niche applications and markets during their early years.
Stage Two: Regional Development
The next phase of PV industry growth occurred on a regional basis. Every microelectronics industry today has gone through a regional phase, including semiconductors, displays and certainly PV. And these regionally-dominated growth phases are not unique to microelectronics industries. The automotive, food, telecommunications, pharmaceutical, banking and many other industries began serving regional markets with regional supply chains and government support.
In semiconductors, displays and PV, government support on both the demand and supply side jump-started these industries. Regional economic development was among the primary motivations for government action in PV in Germany, China, US, and elsewhere. While fossil fuel reduction and energy security certainly motivated Germany in development of the first feed-in-tariffs, industrial and employment outcomes were also a primary consideration.
The feed-in tariff, pioneered by Germany, was by far the single biggest contributor to PV growth in this next phase of the industry's development. By 2008, Germany represented over half of worldwide PV demand and total global installed capacity rose to nearly 15 gigawatts– a fifteen-fold increase over a decade earlier. By this time over 45 countries had implemented some form of feed in tariff.
Regional government investments on the supply side were also occurring, and these were exclusively made on the grounds of economic development and regional competitiveness. In China, tens of billions in loans from the China Development Bank poured into Chinese polysilicon, cell and module manufacturing. These investments not only gave China the world's largest capacity, being the newest plants, Chinese PV fabs also became the most modern and efficient.
The outcomes from these intense regional strategies to accelerate PV supply and demand can be seen today: severe overcapacity, reduction in regional FITs leaving markets confused and investors paralyzed, and the emergence of global trade wars that threaten our entering the final, necessary stage of industrial development most commonly called globalization.
The outcomes of a primarily regional emphasis on PV industry development were not unlike the consequences felt in the 1980's and 90's in the semiconductor, flat panel display, and consumer electronics industries. Japan, Europe and the United States entered into intense global semiconductor competition that resulted in protective tariffs and other forms of restrictive and inefficient competition. These trade disputes were eventually resolved and the semiconductor industry entered into the highest growth and most profitable era in history. Without graduating to a more global phase of open markets and global supply chains, it is doubtful today's modern era or ubiquitous, affordable electronics could have emerged when it did.
Stage Three: Globalization
Economic globalization has been defined as the process by which markets in different countries are becoming increasingly interdependent due to the global trade in goods and services and the flows of capital and technology. In microelectronics, global markets and open trade among countries are fundamentally required to sustain healthy, profitable markets. The technology required to produce cost-effective products and factories require large global markets necessary to amortize large capital development and R&D expenses. Efforts to develop a regional industry through government investment and incentives can have positive short term impacts, but long term cost reduction in PV—like ICs and consumer electronics-- require global markets supported by a global supply chain. And, only through sustainable, market-driven cost reduction through scale and innovation can PV widely displace fossil fuels in the world's mix.
This is a difficult time for nearly all PV manufacturers and their suppliers. While PV installations will continue to grow, the path to profitability for most companies is still unclear. New plant construction and equipping will continue to be soft well into the next year. On the demand side, government support will grow in China, India and Japan, but globally will decline as FITs are reduced in Germany and other EU countries. I think most observers agree--we are entering a new post-subsidy world where PV power must compete with traditional electric power generation without government support.
As FITs recede and private investment replaces government subsidies, the PV industry will mature into a global industry with manufacturers and key suppliers residing around the globe serving local power markets with solutions that are competitive with fossil fuels. The drivers of the PV power industry will continue to be cost, but also energy security, optimization of the energy infrastructure, and getting power to the grid quickly. The power industry will look to PV cell and module manufacturers from around the world to help them achieve those goals. Power plant buyers will look to PV system manufacturers for new and better ways to get plants up quickly, operate more efficiently and generate power more predictably. Commercial and residential buyers will demand the highest quality, most cost effective system for their own needs. PV cell and module manufacturers will look to a global supply chain for Best of Breed technologies, equipment and materials to serve these needs.
Innovation will continue in this next phase of industry development. Engineering and scientific breakthroughs will occur in both public and private research organizations and spread throughout the world. Adopting innovation and transforming it into better products will be the primary source of competitive advantage. The next phase of industrial development will also see more research and other partnerships, among competitors, among research organizations, and among countries. Leveraging scarce R&D dollars for more efficient solar power remains an incredibly important global objective. The International Technology Roadmap for PV (ITRPV) and international standards (including SEMI Standards) will also become more important as a mechanism towards collaborative cost reduction to grow the total market in rational and profitable ways.
The Way Forward
The history of microelectronics shows us in the solar power industry how PV will expand and scale. It has shown how inventions and discoveries can be transformed into valuable products. It has shown how countries can help accelerate early development through R&D and capital formation. But it also demonstrates that ultimately scale and cost reduction in the supply chain comes from expanding opportunities in global markets - where competition and cooperation on a global scale is ultimately required to reduce costs and spur innovation to the point it can transform society and improve the world. There are brighter days ahead for solar!
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