Market Analysis

Market Analysis April 2021 - Is sustainable market development possible?

Module manufacturers have once again adjusted their prices upwards. This is already the third or fourth price increase in the last six months, and there is no end in sight. But why is it so hard to achieve long-term, sustainable development in the global solar market, at least on the part of manufacturers? I know of no other industry with such a turbulent market, with constant swings between excess supply and bottlenecks, between price collapses and price rises – and always to the breaking point of the market. Planning security is - yet, again - out the window.

Stabilization across all technologies has given way to renewed price adjustments by most module manufacturers in recent weeks. We saw price hikes last month of up to a cent per watt, more-or-less across the board. Compared to mid-Q4 2020, prices on average have risen a full two to three cents per watt, which corresponds to 10 to 15 percent at the current level and cannot simply be compensated for elsewhere in the calculations for existing projects. It is rare for a module manufacturer to agree to binding price commitments for new orders. Wholesalers and project customers can still lock in binding quantities, but generally can no longer receive firm prices, at least not beyond the current quarter. One reason for this reluctance is that upstream suppliers, especially for polysilicon, wafers and solar glass, no longer want to be bound by price guarantees, preferring to trade on the basis of daily prices.

Demand continues unabated, at least in Europe, especially in the booming small-scale sector and for medium-sized installations. The restrictions in the German EEG have not led to a decline in demand - at least from the point of view of wholesalers - and it far outstrips the current supply of modules. For inverters and battery systems, the situation is a bit better at the moment. However, sought-after module types are sold out months in advance, and in some cases fresh supplies have not even been announced, even in the case of the new module formats. When manufacturers are asked about the reason for this shortfall, they sometimes reply that they have had to cut production due to the difficult supply situation and high raw materials prices - is that even possible?

An armada of analysts regularly predicts global trends in PV demand with great accuracy. Every quarter, forecasts are published with installation figures that point only in one direction, up. In addition, climate experts and activists also regularly note that the figures predicted or set by politicians are still far too low to achieve the CO2 reduction targets mentioned in the same breath. Why, then, is the industry unable to keep capacity planning in step with the actual rate of development? It cannot be due to investor money, of which there should be enough by now that could be channeled towards rebuilding a European solar industry with all stages of value creation, instead of being parked in cryptocurrency for lack of other stable and lucrative forms of investment.

Instead, we are still at the mercy of Asian manufacturers, who have massively expanded cell and module capacities in recent years, but at the same time have apparently missed the boat on successfully expanding polysilicon production. Of course, investment sums on a completely different order are required here. Asian manufacturers can usually rely on the generous support of their central government. Apparently, they are still afraid of overproduction and a resulting drop in prices, and therefore often lag behind the market. Yet politicians and producers should be wary of overly pessimistic market forecasts and trust in rapid growth in demand, especially if prices are right. Unfortunately, we cannot necessarily rely on the former industry leader, Germany's Wacker Chemie AG. Its factory in the U.S., which opened in 2016, has been a constant source of problems since its opening, with the result that the planned production output, at least for solar silicon, has not been achieved to date.

Steadily rising module prices have again brought a completely different aspect of the global solar expansion into focus: the quality of solar installations. The fact is the low electricity prices that keep making headlines and being celebrated by solar and climate activists do not necessarily have anything to do with the genuinely achievable values. Given the current state of the technology, a multi-megawatt PV plant cannot produce a kilowatt-hour of electricity for 1 cent on a sustained basis, regardless of where it is built. Either massive savings must be made in the quality of the products used, or it is a risky bet on future electricity prices. Outside Europe, participation in auctions is often solely about rapid grid access – even bids of €0/kWh are not uncommon. After the fixed price period has expired, however, the revenue must be at least 2 or 3 cents or more for the project to pay for itself in the long term.

The second option – namely, that only the cheapest components are used and savings are achieved in the cost of calculation, planning and subsequent operating costs – is rather rare, according to an industry expert, because clients are usually experienced energy conglomerates or international investor groups. Such an approach would be extremely negligent and should be a thing of the past. As the saying goes: buy cheap, buy twice. But in the field of large-scale projects, this means that the initial operator will not experience the second time. Therefore, I can only urge that project prices be planned realistically, that only serious bids be submitted at auctions for grid access and subsidy volumes, and that the solar industry itself finally try to adapt to the generally known, always positive market development and formulate offers that fit the respective demand.

Overview of the price points by technology in April 2021 including the changes over the previous month (as of April 19, 2021):

pvXchange Solar Price Index April 2021