According to GTM Research PVMAX report published last October, cheap input costs do not guarantee PV manufacturing attractiveness. Despite having traditionally being an important factor in location decisions, nowadays the most attractive countries for manufacturing are not necessarily the most competitive on all-in costs.
Low input costs are still important, but are no longer the primary driving factor in PV manufacturing. Indeed, firms need to adapt in a fast-changing environment, looking for other ways of achieving cost reductions, for instance manufacturing automation or leveraging scale.
Similarly, domestic PV demand should not be considered as the only criterion upon which decisions regarding locations for manufacturing are based. Indeed, among the Top10 countries in terms of attractiveness we see Singapore, Taiwan, Malaysia, which have little domestic demand.
This fact suggest two considerations:
- Domestic demand cannot fully explain location decisions
- We should not look at domestic demand per se, but instead to a geographically broader concept of demand: the small countries in the top ten might be attractive location for PV manufacturing because of the countries’ access to demand at a regional level, and to some extent, at a global level.
Demand still plays a role, but minor respect to what we thought in the past: the solar industry is international and modules can be produced anywhere and sold (almost) anywhere else in the globe.
So, what other factors influence manufacturing decision?
Some countries are highly competitive in manufacturing because of the ecosystem they offer. In addition, in order to attract foreign investment and increase local employment many countries are proactive and offer direct manufacturing incentives. Firms are more and more interested in understanding the kind of support they can get from a country. Here some examples of manufacturing support:
- Direct incentives to reduce their overhead;
- Strong and expandable supply chain to support large-volume sourcing;
- Access to human capital in order to achieve innovation;
- Excellent logistics network.
Moreover, a healthy business environment, along with political security, facilitates new plant development. The availability of low-cost financing is a plus that is favourably considered in the choice.
In light of the above observations, GTM Research created an ad-hoc index of PV Manufacturing Attractiveness:
- Access to demand 40%
- All-in costs 35%
- PV manufacturing support 15%
- Business environment 10%
This PV Manufacturing Attractiveness Index puts the pieces of the puzzle together: it does not deny the importance of all-in costs and access to demand, but includes them in a larger and more complex framework where other factors play a relevant role.