Utilization Effects on Profitability for Solar Cell Manufacturers

In my first entry in this blog, I noted that the rapid buildup of solar capacity over the last several years has led to utilization levels of 50% for 2007 and 64% for 2008, with our forecast for 2009, 2010, 2011 and 2012 at 41%, 40%, 48% and 65%, respectively. Since that first entry, we have added additional companies to our database as well as making other updates based on newer information.

We currently cover 225 companies and 295 facilities in our Solar Watch Database versus 204 companies and 273 facilities at the time of the original entry. Our updated data is that utilization was 50% in 2007 and 62% in 2008, with our updated forecast for 2009, 2010, 2011 and 2012 now at 40%, 38%, 47% and 62%, respectively.

My background is primarily in the semiconductor and more recently MEMS industries. In semiconductors, utilization is closely tied to profitability because of the high fixed cost of state-of-the-art semiconductor fabs. Plots of operating income versus utilization for the semiconductor industry show operating income falling to zero when fab utilization falls to 50%. Selected foundries with large investments in state-of-the-art fabs lose money at even higher utilizations. All this begs the question of how sensitive solar cell producer profits are to utilization.

IC Knowledge is a world leader in cost modeling of semiconductor and MEMS production, but hasn’t to-date built similar expertise in the solar cell area. After spending some time searching for data on the solar cell production costs, we came across the article “Emancipation from subsidy programs: Centrotherm builds first grid parity factory.” In the article, a detailed model of production costs for polysilicon, ingot, wafers, cells and modules is presented. Assuming this is an accurate representation of achievable costs, we have used that data to perform some additional analysis.

Selecting China as the country where production is taking place, we get wafer production costs of $2.03 per 156mm multicrystalline wafer. Following additional processing to produce a solar cell wafer, we get total production costs for a 156mm solar cell of $3.01 per cell. We have tried to validate these numbers with some industry experts, and the feedback we get is they are low but not totally unreasonable. The resulting fixed cost of the solar cell production is only 15%! For comparison purposes, a state-of-the-art 45nm semiconductor factory operating in China would have fixed costs of approximately 74%. At such a low fixed cost level, lower utilization has much less impact on profitability, suggesting that the relatively low solar cell production line utilization may not affect profits nearly as much as might be expected based on other industries.