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Suntech Power Holdings is the world's largest manufacturer of crystalline silicon photovoltaic (PV) modules, which convert light energy into electricity. Suntech's competitive niche is in the middle of the PV supply chain. Based in China, the company has been rapidly expanding in a highly competitive market, taking advantage of low-cost production availability and a high-demand Asian market.
Global demand for renewable energy is one of the main drivers of Suntech's business. Many nations, including China and the U.S., have passed or are in the process of passing legislation that mandates greater use of renewable energy and subsidizes its development. Companies like Suntech are highly dependent on these government subsidies to make their expensive technologies economically viable. However, demand for photovoltaic products has declined as a result of the global economic crisis, and PV projects found it increasingly difficult to obtain cost-effective financing for large scale solar project installations in early 2009. Additionally, oil prices, which plummeted to below $50 per barrel in the first quarter of 2009, made solar power less economically viable.
The falling demand for photovoltaic products comes amid an over-supply of silicon, resulting in reductions in market prices of PV products. Overall, falling sales prices and increased competition have reduced Suntech's revenues in late 2008 and into 2009. In response, Suntech has pursued a differentiation strategy with its PV products through features such as high conversion efficiency, quality of manufacture, and warranty in order to secure a competitive advantage in the solar market. In terms of technology, Suntech is developing solar panels that are increasingly efficient. Its current line of products has an efficiency of 18%, which is significantly higher than its previous 14%.[1] Furthermore, sunlight is available in massive quantities for half the day, and is free, unlike oil. For these reasons, when oil and gas prices rise, solar power becomes a more viable alternative. As solar power's efficiency rises, it becomes more competitive with oil and gas.
[edit] Company Overview
Suntech Power Holdings is a Chinese solar power company specializing in the production of photovoltaic (PV) hardware used to convert sunlight into electricity. It generates revenue by selling PV equipment and services to countries and companies that use solar energy. Its role in the solar power value chain is in the manufacture, distribution, installation, and service of solar cells, panels, and modules. Suntech sells its products all over the world, but is especially well positioned to take advantage of the growing Chinese energy market.
The price of oil has fallen from nearly $150 a barrel in July 2008 to less than $50 a barrel in the first quarter of 2009.[2] Until late 2008 when the price of crude oil plummeted, rising oil and gas prices made consumers more willing to invest in alternative sources of power such as solar energy. Solar power is currently far less efficient than other energy sources, even wind. However, Suntech's R&D division is increasing this efficiency while lowering costs by outsourcing manufacturing to China.
Suntech is developing solar panels that are increasingly efficient. Its current line of products has an efficiency of 18%, which is significantly higher than its previous 14%.[1] Furthermore, sunlight is available in massive quantities for half the day, and is free, unlike oil. For these reasons, when oil and gas prices rise, solar power becomes a more viable alternative. As solar power's efficiency rises, it becomes more competitive with oil and gas. Suntech stands to benefit from rising oil and gas prices; however, if oil prices stabilize, Suntech will have to increase solar efficiency greatly in order to stay competitive.
[edit] Business and Financial Metrics
First Quarter 2009 Summary
Suntech's total revenue for the first quarter declined to $315.7 million, down 24% from revenue in the fourth quarter of 2008.[3] The decrease in revenue was primarily due to a decrease in the average selling price of PV products and a decline in orders.[3] Gross margin improved substantially to 17.8%, up from 0.6% in the fourth quarter of 2008.[3] Operating expenses declined by 24% to $35.1 million in the fourth quarter of 2008.[3] The decrease in operating expenses was primarily due to improved cost controls and enhanced operating efficiency.[3]
Europe continued to be the company's greatest source of revenue (80%) in the first quarter.[3]. Economic stimulus initiatives, especially in the U.S., Japan, and China, have allowed Suntech to begin several large-scale projects, such as a 30 MW utility scale solar project for Austin Energy in the U.S. and a 30 MW agreement to supply House Care with solar products in Japan.[3] Suntech has shipped more than 1,200 MW of products since its inception, and at the end of the first quarter, its PV cell production capacity reached 1 GW.[3]
| 2008 | 2007 | 2006 | |
|---|---|---|---|
| Revenue | 1,923.51 | 1,348.26 | 598.87 |
| Net Income | 111.03 | 171.28 | 106.00 |
| Total Debt | 1,625.56 | 1,786.01 | 1,640.68 |
| Total Equity | 1,097.18 | 1,134.65 | 1,077.01 |
| STP Operating Data[5] | 2005 | 2006 | 2007 | 2008 |
| PV Modules Sold (MW) | 49.8 | 121.1 | 358.8 | 459.4 |
| PV Cells Sold (MW) | 17.9 | 38.5 | 4.5 | 35.0 |
| Average Selling Price of PV Modules ($/watt) | 3.42 | 3.89 | 3.72 | 3.89 |
| Average Selling Price of PV Cells ($/watt) | 3.05 | 3.23 | 3.06 | 2.84 |
[edit] Expansion Strategy
Suntech is focused on expanding by taking advantage of government clean energy mandates all over the world, especially in China. The company has greatly expanded its output, in anticipation of greater future demand. Suntech's commitment to R&D has led to lower cost cells with higher efficiencies; Suntech also has a natural cost advantage being based in China, where production prices are already extremely low. The company went from being an unknown competitor in 2005 to the third-largest PV producer in the world - phenomenal growth in less than two years. Suntech has pursued an aggressive expansion strategy and has focused on growing its business internationally. Major projects as of the fourth quarter of 2009 include:
- China
- Suntech announced that it would begin a 1.5 MW rooftop solar project in HuaiAn City, Jiangsu Province, China, the first megawatt-plus rooftop solar system in Jiangsu Province.[3] Suntech is also implementing a 3 MW project for the Shanghai World Expo.
- Europe
- Suntech created the Global Solar Fund (GSF), a European based investment fund, to make investments in private companies that develop projects in the solar energy sector.[3] GSF has invested in companies that have 240 MW of projects and is targeting to finalize permits for another 360 MW by the end of 2009.[3]
- Suntech intends to double its sales and marketing team in Europe by the third quarter of 2009 to enhance localized service and support for existing and prospective European customers.[3]
- United States
- Gemini Solar, a Suntech joint venture with Renewable Ventures, is pursuing a pipeline of approximately 1.1 GW of projects in the U.S.[3] Gemini Solar was awarded a contract by Austin Energy, the municipal electric utility in Austin, Texas, to build a 30 MW PV power plant in 2010.[3]
- Suntech continued to expand its national dealer network in the U.S. Suntech's network in the first quarter of 2009 included over 200 dealers, up from 40 at the end of 2008.[3]
- Japan
[edit] Mergers and Acquisitions
The foundation of Suntech's aggressive expansion strategy is its acquisition of several manufacturers and photovoltaic technology companies. In March 2008, it acquired 11.7% interest in Hoku Scientific (HOKU) for $20.0 million.[6] In May 2008, Suntech acquired 5% equity interest in Xi’an Longi Silicon Material Limited for $7.3 million.[6] In June 2008, it committed to acquire 86.0% share equity of Global Solar Fund, S.C.A., SICAR as a limited partner for $364.6 million.[6] In September 2008, Suntech established two joint ventures, Gemini Solar Development Company LLC and Gemini Fund I Manager LLC for $0.3 million.[6] In October 2008, Suntech committed to an equity interest of 24.0% in Yunnan Diantou New Energy Development Co., Ltd. for $17.6 million, and $3.5 million has been paid as of December 31, 2008.[6] In the first quarter of 2009, Suntech Power announced that it is actively looking to build a new manufacturing facility in the U.S.[6] Suntech is looking to expand not only its manufacturing capacity by building new plants, but it is also intending to increase the efficiency of its solar panels by acquiring smaller solar technology companies with the potential to dramatically improve photovoltaic technology.
[edit] Products
Suntech produces PV cells and modules, and offers full systems integration services. In mid-2006, Suntech also acquired the Japanese solar power company MSK, which produces its own line of specialized PV equipment.
- PV Cells: PV cells are plates that absorb energy (light of any kind, usually from the sun), and turn it into electricity. Suntech produces a number of cell types, sizes, and materials, each with different power capacities; it should be noted that Suntech has recently focused on thin-film cells, which require less material. However, they face competition from First Solar, the current market leader in thin-film cells.
- PV Modules: Modules consist of a series of connected cells, designed to provide a higher level of energy output than a single cell. Suntech's modular capacities range from 32 watts (energy release per second) to 100 kilowatts, and can be applied to homes, apartments, military compounds, farms, and even different forms of transportation.
- PV System Integration: Suntech provides services to help integrate solar power systems into buildings and compounds, as well as keep the systems properly running. In May of 2008, the company was contracted by Hanau Energies SAS to build a 4.5 MW integrated roof system for a farm in France - the largest building integrated photovoltaic system ever built.
[edit] Pluto Technology
Pluto is Suntech's patented, low-cost, high-yield panel technology developed in conjunction with the University of New South Wales. With current conversion rates of 18%, the company has the potential to expand production without using expensive silicon wafers while keeping product utility competitive. Suntech is in the process of retrofitting its manufacturing equipment to shift the majority of its current capacity to Pluto-based panel production.
In early 2009, the Fraunhofer Institute tested a mono-crystalline Pluto PV cell with a conversion efficiency of 18.8% and a multi-crystalline Pluto PV cell with a conversion efficiency of 17.2%.[3] Both were produced using standard grade silicon solar wafers on Suntech's commercial scale production line.[3] Suntech is collaborating with the Swinburne University of Technology in Australia to develop nanoplasmonic solar cells that are twice as efficient and run at half the cost of those currently available.[3]
[edit] Trends and Forces
[edit] Demand for Renewable Energy and Clean Energy
Fossil fuels are limited in supply. As we approach the peak oil quantity, the quantity at which more than half of all oil reserves are depleted, the demand for renewable energy increases. Solar power is a fully renewable source, and power from solar energy does not release pollutants like smog, carbon dioxide gas, and other byproducts of fossil fuel use. As both environmental awareness and worldwide energy demand continue to rise, governments and citizens are concerned with finding more environmentally friendly sources of energy. However, demand for photovoltaic products has decreased as a result of the global economic crisis, and PV projects found it increasingly difficult to obtain cost-effective financing for large scale solar project installations in early 2009.[8] Many of Suntech's key markets, including Spain, Germany, the United States, China, South Korea, Italy, the Middle East, Australia and Japan have entered a period of economic contraction, which lowered the demand for Suntech's photovoltaic products.[8]
[edit] The economic viability of solar energy is determined by fossil fuel prices
The price of oil has fallen from nearly $150 a barrel in July 2008 to less than $50 a barrel in the first quarter of 2009.[9] Until late 2008 when the price of crude oil plummeted, rising oil and gas prices made consumers more willing to invest in alternative sources of power such as solar energy. Solar power is currently far less efficient than other energy sources, even wind. However, Suntech's R&D division is increasing this efficiency while lowering costs by outsourcing manufacturing to China.
Suntech is developing solar panels that are increasingly efficient. Its current line of products has an efficiency of 18%, which is significantly higher than its previous 14%.[1] Furthermore, sunlight is available in massive quantities for half the day, and is free, unlike oil. For these reasons, when oil and gas prices rise, solar power becomes a more viable alternative. As solar power's efficiency rises, it becomes more competitive with oil and gas. Suntech stands to benefit from rising oil and gas prices; however, if oil prices stabilize, Suntech will have to increase solar efficiency greatly in order to stay competitive.
[edit] Suntech faces commoditization of photovoltaic technology and intense competition in the solar industry
The rapid growth of the photovoltaic industry is a sign of the intense competition Suntech Power faces. The solar photovoltaic (PV) market doubled to 6 gigawatts in 2008, with PV installations increasing by 110%, compared to 19% in 2006 and 62% in 2007.[10] China and Taiwan were the leaders in PV production, accounting for 44% of global solar cell production in 2008 and 35% in 2007.[10]
Despite a challenging economic climate (solar project financing required around 4 weeks to obtain debt financing in 2008, while in 2009 it takes 8 to 10 weeks), there are many new entrants into the PV market.[10] For example, some start-up companies are beginning to compete with Suntech Power and other established competitors in the PV market. Over a dozen startups are working on ways to use mirrors and lenses to concentrate sunlight hundreds of times onto tiny, highly efficient solar cells.[11] These start-ups are working to provide solar systems at a lower cost per watt by producing as much or more power from the same amount of silicon.[11]
Also, some household names in the technology industry have become competitors in the PV market. IBM announced plans to make thin-film solar panels.[12] Intel spun off a new solar tech company called SpectraWatt, which was born with $50 million in investment capital from Intel, Cogentrix Energy LLC, PCG Clean Energy and Technology Fund and Solon AG (SOO1-FF).[12] Additionally, Hewlett-Packard Company (HPQ) began licensing technology to Xtreme Energetics, Inc. designed to help that start-up company deliver rooftop solar energy systems that produce twice as much energy as conventional solar panels at half the cost.[12]
As competition grows in the market to deliver solar cells, Suntech Power must relentlessly cut costs by improving manufacturing processes, investing in research and development, while its competitors are moving production to low-cost countries. IBM, Intel and HP are well-positioned in the solar market, and could foreseeably commoditize the solar market in the same way they commoditized the personal computer industry.[12] They also have extensive research and development budgets and operations in low-wage countries such as China and India.
[edit] Governments worldwide increasingly provide financial incentives to solar manufacturers
One of the most pressing issues associated with energy production is global climate change, caused by the warming of the earth's atmosphere. The vast majority of climate scientists agree that global warming is human-caused and can be stopped by drastically reducing the amount of greenhouse gas (carbon dioxide, ozone, water vapor, etc.) emissions.[13] Education on the issue is creating pressure for governments and energy companies to regulate greenhouse emissions. This movement is having a worldwide impact on energy regulation in the form of increased government subsidies for clean energy sources and global emissions caps. Even China has begun to implement similar standards. Suntech is well positioned to take advantage of this trend in the long run.
As the public pushes for better climate and energy independence policies, many governments are investing in alternative energy development in the private sector. Solar power companies could reap these rewards through the receipt of subsidies and tax breaks. For example, the election of Kevin Rudd to the post of Australian Prime Minister has the potential to greatly benefit Suntech. The company is already well-established in Australia, donating millions to and doing joint research with the University of New South Wales. The Prime Minister has pledged to achieve 20% renewables by the year 2020, and Suntech appears to have been waiting for such incentives to move forward in Australia.
Increasing fear of global warming and pollution damage has led to social support for clean energy sources. In response many governments have implemented legislation that could indirectly lead to increased revenues for Suntech. Examples include:
- California's mandate that 25% of electricity will come from clean sources by 2020 and 75% by 2050
- A bill passed through Congress in 2007 mandating that 20% of the United States' electricity come from clean sources by 2020
- The European Union passed a binding target of purchasing 20% of all energy from renewable sources by 2020[14]
- China's Renewable Energy Law is planning on raising the total percentage of renewable energy used in the country to 10% by 2020
[edit] Volatile silicon prices determine Suntech's profit margins and selling prices
The supply of photovoltaic (PV) products has increased significantly as many manufacturers have expanded PV cell production capacity. Beginning in the fourth quarter of 2008, this state of over-supply has resulted in reductions in the prevailing market prices of PV products as manufacturers have reduced their average selling prices in an attempt to obtain sales.[8] Overall, falling sales prices and increased competition have reduced Suntech's revenues in late 2008 and into 2009. In response, Suntech has pursued a differentiation strategy with its PV products through features such as high conversion efficiency, quality of manufacture, and warranty in order to secure a competitive advantage in the solar market.[8]
From 2003 through mid-2008, rapidly growing demand from the PV industry coupled with shortages in the supply of polysilicon and silicon wafers resulted in sharp increases in the prices of these raw materials.[8] As a result, Suntech's provisions for inventories increased from $1.3 million in 2007 to $50.1 million in 2008, which contributed to a decrease in its gross profit for 2008. Suntech's exposure to price volatility of polysilicon and silicon wafers and its inability to fully pass on to its customers its raw material costs has the potential to weaken Suntech's performance in the event of another silicon shortage.[8] Since the beginning of the fourth quarter of 2008, however, the prices of polysilicon and silicon wafers have fallen significantly as a result of the global economic crisis.[8]
Suntech is trying to mitigate the effects of silicon price fluctuations by making long-term contracts with polysilicon suppliers. In March 2008, for example, the company increased the quantities of polysilicon that Nitol Solar was to deliver to it between 2009 and 2015, as well as increased its stake in Nitol to around $100 million, nearly guaranteeing that the company will deliver (at least to Suntech, if not to other customers).[15] In May of 2008, Suntech also announced a silicon supply deal with Shunda Holdings Co for 7 GW worth of wafers through 2020.[16]
Suntech has also insulated itself against the silicon price fluctuations by acquiring Luoyong China Silicon, a local silicon manufacturer. By acquiring a silicon producer, Suntech can use all of Luoyong's production capacity to produce wafers for its solar panels exclusively, rather than spreading sales between solar and semiconductor producers In June 2008, the company also entered into a long-term supply agreement with Wacker SCHOTT Solar GmBh for the delivery of 220 MW between 2008 and 2015 - with fixed prices and quantities on a declining price curve.[17]
Suntech has publicly stated that it is willing to pay more for high-quality silicon from other manufacturers in order to keep the quality of its products above competitors'; to make up the cost difference, Suntech cuts spending on labor and manufacturing, something it can do because of its Chinese nationality.
[edit] Competition
Suntech recently claimed to be the world's third-largest solar manufacturer; ahead of it stands Sharp and Q-Cells. Suntech has stated that its goal is to control 10% of the global market by 2010. The market for solar equipment is highly competitive, with many companies across the world; some major competitors include Kyocera, BP Solar, Shell Solar, Mitsubishi Electric, and Sanyo. There are also a huge number of small competitors that have entered the market, contributing to increased price competition and lower profit margins for Suntech. These smaller competitors include SunPower, First Solar, and Evergreen Solar. In order to raise profit margins and increase revenue, Suntech will have to pursue a course of action that focuses on greater efficiency for their PV cells. It will also have to pursue acquisitions of smaller competitors in order to beef up its product line and competitive strength. Only by reducing the number of competitors and distinguishing its products in a definite and powerful way can Suntech compete effectively.
| Operating Metric | Suntech Power Holdings (STP) (2008)[18] | EMCORE (EMKR) (2008)[19] | Energy Conversion Devices (ENER) (2008) [20] | Evergreen Solar (ESLR) (2008)[21] | First Solar (FSLR) (2008)[22] | JA Solar Holdings, (JASO) (2007)[23] |
|---|---|---|---|---|---|---|
| Annual Manufacturing Capacity (MW) | 1,000 | N/A | 118 | 85 | 1,150 | 175 |
| Average Sales Price Per Watt | $2.84 | N/A | N/A | $3 | $2.49 | $3.08 |
| Number of Manufacturing Plants | 6 | 13 | 4 | 3 | 5 | 2 |
| Revenue (millions) | $434.51 | $43.28 | $66.01 | $55.81 | $418.21 | $160.02 |
| Net Income | $55.8 | -$23.74 | $1.33 | -$64.29 | $164.6 | $22.03 |
The most effective way to distinguish solar cells is by their conversion efficiency, though these distinctions are very small, leading to the increased commoditization of the industry. This is a measure of the electrical energy generated from the solar cell against the light energy input (a combination of light intensity and the area of the solar panel).
| Manufacturer | Conversion Efficiency |
|---|---|
| SunPower(Polysilicon) | 23.4%[24] |
| Suntech Power Holdings(Polysilicon) | 18%[25] |
| Sharp (Polysilicon) | 13%[26] |
| Kyocera (Polysilicon) | 18.5%[27] |
| Solarfun (Polysilicon) | 17.2%[28] |
| JA Solar Holdings (Monosilicon) | 17.7%[29] |
| Trina Solar(Mono & Polysilicon) | 16.6%[30] |
| Evergreen Solar (String Ribbon) | 15%[31] |
| EMCORE (GaAs Concentrated Solar System) | 37%[32] |
| Energy Conversion Devices (Amorphous Silicon Thin Film) | 8.5%[33] |
| First Solar (CdTe Thin Film) | 10.5%[24] |
| DayStar Technologies(CIGS Thin Film) | 14% [34] |
| Ascent Solar (CIGS Flexible Thin Film) | 9.5% [35] |
[edit] Notes
- ↑ 1.0 1.1 1.2 Solatron Technologies: Suntech
- ↑ Bloomberg
- ↑ 3.00 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 3.09 3.10 3.11 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 Suntech Power Holdings Earnings Release, Q1 2009
- ↑ 4.0 4.1 Google Finance: STP
- ↑ STP 20-F, Part 1, "Selected Operating Data" p. 4
- ↑ 6.0 6.1 6.2 6.3 6.4 6.5 Seeking Alpha: Expect More M&A Action from Suntech Power
- ↑ 7.0 7.1 ClimateProgress.org
- ↑ 8.0 8.1 8.2 8.3 8.4 8.5 8.6 Suntech Power 2008 Annual Report 20-F, "Risk Factors"
- ↑ Bloomberg Energy Prices
- ↑ 10.0 10.1 10.2 Energy Portal: European solar photovoltaic industry ready for further growth despite credit crunch
- ↑ 11.0 11.1 Earth2Tech
- ↑ 12.0 12.1 12.2 12.3 Companies that Mass Marketed PCs Turn to Photovoltaics
- ↑ Micronesian Seminar: Climate Change is Real
- ↑ [http://www.bbj.hu/main/news_21974_renewable-energy+mandate+could+save+%252496+bln+a+year.html BBJ: "Renewable-energy mandate could save $96 bln a year "]
- ↑ MarketWatch: "Nitol Solar and Suntech Expand Polysilicon Supply Agreement"
- ↑ MarketWatch: "Suntech Announces Strategic Investment in Shunda and 7GW Wafer Supply Agreement"
- ↑ Clusterstock: " SunTech Power (STP) Gets Its Polysilicon Source"
- ↑ Wikinvest Data: STP
- ↑ Wikinvest Data: EMKR
- ↑ Wikinvest Data: ENER
- ↑ Wikinvest Data: ESLR
- ↑ Wikinvest Data: FSLR
- ↑ Wikinvest Data: JASO
- ↑ 24.0 24.1 [http://www.renewableenergyaccess.com/rea/news/story?id=46286
- ↑ Forbes - Sun King; SunPower's New Solar Panel Is 22% Efficient
- ↑ SharpUSA Product Brochure
- ↑ Kyocera - Solar Timeline
- ↑ Solarfun Website
- ↑ http://jasolar.com/Web/products-en.asp
- ↑ TSL 20-F 2007 Pg. 7
- ↑ ESLR 2007 Earnings Call Transcript, Page 1
- ↑ EMCORE.com: Terrestrial Solar Cells and Receivers"
- ↑ ENER F1Q08 Earnings Call Transcript, Page 5
- ↑ DSTI 10-k 2007 Pg 1
- ↑ Ascent First Quarter 2008 10-Q Pg 23
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