Market Watch

PV Market Turns to Outsourcing

By 2014, contract manufacturing of solar panels will nearly quadruple

May 20, 2010

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April’s announced deal between SunPower Corp. and Flextronics International Ltd. represents the early stages of a boom in solar panel contract manufacturing driven by a rapid expansion in demand, according to iSuppli Corp.

SunPower said it has partnered with Flextronics to begin manufacturing solar panels in Milpitas, Calif., by the end of 2010. The company said the California location will allow it to quickly and cost effectively supply solar panels to solar installations at homes, power plants and commercial and public facilities throughout the Western United States. Flextronics is expected to produce 75 Megawatts (MW) worth of SunPower solar panels annually.

iSuppli believes the move by SunPower is part of an emerging trend in the solar market that closely parallels the situation in the electronics market in the early 1990s. Faced with rapidly exploding demand, the need to turn out products close to end markets and the requirement to obtain sufficient capital, electronic OEMs in the early 1990s turned to Electronics Manufacturing Services (EMS) companies like Flextronics for help. This led to a massive boom in electronics outsourcing and explosive growth in the EMS business. Now, 20 years later, in the early 2010s, a new EMS boom is starting up—this time in the solar panel business.

Contract manufacturers in 2010 will manufacture 1.1 Gigawatts (GW) worth of solar panels, up 200 percent from 369MW in 2009. The remainder of production will be accounted for by dedicated solar panel makers and other firms. By 2014, contract manufacturing of solar panels will nearly quadruple, rising to 4.1GW.

One major factor causing solar panel makers to turn to EMS providers is the rapid expansion of the market. iSuppli predicts solar installations will rise to 13.6GW in 2010, up 93.6 percent from 7.0GW in 2009.

At present, solar panel makers are running their factories at 90 percent of capacity, straining their capability to meet demand. Although additional production capacity is critically needed at this point, a couple of factors are helping to ease the situation—the outsourcing of manufacturing, providing access to essential capacity on the one hand; and the SunPower/Flextronics deal, along with other solar contract manufacturing work, that allows for localized production.

Just as suppliers can minimize logistic costs associated with shipping breakage and inventory by conducting solar panel production close to the end market, outsourcing can mitigate the challenges that suppliers face in obtaining capital for investment in production.

Read More, The Case of the Contract Manufacturing of Solar Panels >

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