By Makarand Gawade, Staff Writer
With consistently rising energy demand, solar energy will certainly be one of the cornerstones of the future energy mix. Approximately 1.4 billion people (20% of world’s population), have no access to electricity, and most of these people are in developing and underdeveloped countries. Although solar energy has the potential to alleviate the lack of energy, it has rarely been a cost-effective measure. However, some governments and some businesses have made substantial headway in decreasing the costs and increasing the competitiveness of solar energy.
Trends in the Solar Industry:
Political power to influence solar energy policies: Companies need to have the political power to lobby for legislature and influence political decisions regarding solar industry.
Future openings are in emerging countries: Countries such as Germany, France, and the US are planning to cut back their government incentives to invest in solar energy. But emerging countries such as China, India, Brazil, and countries from the Middle Eastern region are showing tremendous potential for solar projects.
Technological development and production innovation: Technological advancement is an important dimension for this industry. The major focus for R&D is to lower the cost of energy production per watt by bettering the efficiency and reducing the size of PV (photovoltaic) modules.
The boundaries of this industry extend from manufacturing of PV modules and systems – vertical integration – to managing green field solar projects – downstream solar project business. Thus, the competitors in this industry vary from PV module manufacturers to global multinational organizations. The industry comprises of companies such as Yingli Green Energy Holding Co., First Solar, GCL, Solar Energy Technology Holdings Inc., JinkoSolar Holding Co., and Canadian Solar Inc. specialized in PV module manufacturing, as well as multinational conglomerates such as Sharp Electronic Corporation and Mitsubishi Electric Corporation. Let’s look at the Porter’s five forces analysis to evaluate the attractiveness of this industry.
Porter’s Five Force Analysis
Threat of substitute products (High) – The market for alternative technologies such as fuel cell technologies is developing rapidly. Hydrogen fuel cells capable of producing high level of electricity are becoming an economically attractive option due to low upfront cost. Also, the cost of electricity generated using coal is still far lower than that of solar energy.
Bargaining power of buyers (High) – There are many established players in this industry from PV module manufacturers to multinational organizations, as the industry is maturing. Thus, buyers have plenty of options to choose a solar solution provider. Also, solar products are mainly differentiated based on cost/KW of efficiency, and thus, low product differentiation in this industry makes buyer more discriminant.
Threat of new entrants (High) – The barriers to entry are relatively low, given the premise that manufacturing PV modules is labor intensive, and requires limited technology. Also, government subsidies and cultural interest in renewable energy are making this industry lucrative, and lately this industry has seen many new entrants.
Bargaining power of suppliers (Medium) – Limited number of suppliers for crucial raw material such as Cadmium Telluride gives suppliers a medium to high power of bargain. Demand for such type of raw material is rapidly increasing, since many countries are adopting renewable energy solutions.
Rivalry among competitors (High) – The Solar PV market is competitive and rapidly evolving. Many new firms are entering this lucrative industry and existing established firms are diversifying in solar energy, given the premise of various subsidies provided by governments and increased customer awareness about clean energy. Thus, this industry is a fiercely competed industry, and does not show prospects of high profitability.
However, by adopting vertical integration strategy, and focusing on innovation through comprehensive R&D, few companies such as First Solar, Trina Solar, and Sharp are able to achieve economies of scale, and sustainable competitive advantage. To sum, today’s global solar industry is characterized by evolving technologies and standards that is leading to improved features, such as more efficient and higher power output, improved aesthetics, and smaller size panels.