The Race to the Bottom — Accelerating PV Insolvency
June 7, 2017
“Competition is good for the PV industry” rings hollow based on today’s market. If that is true, then what are the reasons and can something be done about it. There just may be a difference between good healthy competition and organizational consuming unhealthy competition.
When competition is based almost exclusively on the defined objective of the least cost delivery of PV plants, “cheap cut rate PV projects” result. However, allegedly, the market forces those players to stay on track for their primary objective even when it undermines the bottom line. Margins shrink to negative! Profitability goes the way of reliability, availability, maintainability, testability and safety while serving nobody. Feeding the sales and delivery funnel outshines that profitability.
Is there anyone in the industry today who hasn’t heard or known of business leaders saying that they’ve trimmed their margins to the point where it hurts? It’s like trimming your fingernails to the first joint. It should not be a point of pride. It is a robust lesson in the macabre as margins go negative in order that the beast is continually fed. Companies appeared to be expanding while income is not keeping up with outgo. The assumption tends to be that something mysterious will turn things around, yet does not.
Maybe, just maybe the industry is competing with the wrong objectives or shall we say the wrong objective. Maybe, the objective should be broadened to include delivering the least cost PV systems that are reliable, available, maintainable, testable and safe, oh ...and profitable. After all, that is the true historic intent of the levelized cost of energy (LCOE). However, this would require raising the bar throughout the industry.
That would require looking beyond all of the marketing hype and raising the industry bar where companies are invested in those specific elements of what the project should and could engender. Just saying that an organization is doing a great job does not necessarily mean that they’re achieving results beyond these least cost, dubious margin results. … like profitability.
Yet the facts are based on real market leading organizations that are on the border of being insolvent, in default or bankrupt. We read it every week in the industry news. The subtle nature of all of this is that the self-destructive results are masked due to the fact that the number one objective is being met — cheap systems. What ever happened to long-term profitability?
It is reminiscent of the Wizard of Oz booming, “Pay no attention to the man behind the curtain!” … and remember it was the dog that caught on to his charade first. If this perspective is accurate, it may explain why so many companies are in trouble.
That is the subtle nature of competition of this sort. It just doesn’t seem to be healthy competition.
The more blatant aspects are watching organizations who in many instances have grown in size and capability and are taking that “Dead man walking” jaunt over the edge. The blatancy is in that the problems did not happen overnight and that a lot of internal gnashing of teeth took place while no one could or would pull the organization out of the nosedive.
Perhaps a reevaluation of what the goals of the PV industry are might be a good place to start.
Historically, the industry has continually made great strides in meeting pricing signals while ignoring overall quality of content. Maybe shortsightedness should not be rewarded…just saying!
That does not mean that there are not great products out there; there are. However, from experience we’ve seen many great products mixed with many not-so-great products, applications and efforts that result in a less than spectacular outcome.
Just assuming the product meets the litmus test of reliability, availability, maintainability, testability and safety, does not result in actionable delivery. Some of the challenge here is in communication while much of it is an assumption that these things happen automatically at bid. They only happen when they are detailed in the specification prior to design and the whole team sets them as their true objectives. That, however, is the owner’s responsibility first, even if they are recipients though a PPA.
Quality does not just happen because of a well-written mission statement or bountiful bonding! It requires great competitive effort, not just the ease of nibbling away at costs, margins and vitality. It requires better specification and design and yet can only take place if the industry as a whole decides that these elements are critical to the success for the industry and for each individual organization.
Sometimes, you have to spend a little bit more to deliver a better product. Sometimes, you have to embrace continual reliable improvement, and not treat it as a marketing/sales phrase. And sometimes you have to come to the conclusion that the way things are being done, although a defacto standard for industry, they are self defeating, undermining and require a series of new models to make the leap out of the fire and onto the beach, not into the frying pan. That requires industry cooperation and agreement.
The most important discussions that the industry will ever make must begin with talking about quality and longevity of product where that product is appropriately selected for and applied to the specific environment. For over two decades we have known that one size does not fit all and that selectivity over the actual applied conditions are critical to long-term success.
The fact is that all of us in the industry have made mistakes and in many instances, have repeated them. Sometimes it’s hard to get out of the rut. Nevertheless, there comes a point where this kind of self-flagellation is counter productive to the point of actually competing for profit and not for loss. This requires that we change our attitudes about the actual and financial value of reliability, availability, maintainability, testability and safety.
There are inklings of this discussion taking place today. Generally, it’s by the practitioners who physically deal daily with the plants that are built. At the same time, many of the upper managers are focused on meeting contractual goals even when they are physically unattainable over time. By letting the long-term dollars be the guide, we may eventually have those quality discussions that result in meaningful change and a healthier more fiscally mature industry.