Market Analysis

Market Analysis August 2020 - Hot summer - hotter fall?

From mid-July to early August, prices fell across the board - perhaps for the last time this year amid indications that the slide in prices over recent months will soon come to an end. Most manufacturers have either announced price increases in the range of a few cents per watt for the fourth quarter, or have already released adjusted price lists. But anybody who thinks that they can still buy cheap modules in unlimited quantities for short-term delivery is in for a disappointment. Sought-after products and performance classes are scarce, and there are at best just a few remaining consignments in warehouses. This year there has been no summer lull.

In Germany, at least, the pace of new PV construction has been unabated in recent months. According to recent surveys, the 52 GW upper limit once set by the German Federal Government for EEG-funded systems would already have been reached, but fortunately the scare was eliminated before it came to that. Now that the handbrake that many companies had pulled as a precaution has been released, the run on any available capacities is in full swing. Even the less popular consignments of polycrystalline modules in the lower performance classes have now disappeared from the market, apart from a few containers-full. All that remains for project planners eager to build is to rely on new orders. However, since most panels have to be imported from Asia, longer lead times and higher prices can be expected.

Sustained solar module price increases: For and against

Change in global demand for modules has always been a key driver for price adjustments. At present, however, there are different trends and contradictory forecasts of demand. In Europe, the PV industry is booming, at least in those areas where it is possible to work efficiently despite coronavirus-related restrictions. High demand is expected above all from China itself, this should already be in full swing - but it has not yet been felt on the world market. I already reported last month on the incentive programs that have yet to be fully utilized this year and which could absorb up to 40 GW. At present, however, the supply situation for new orders for delivery in the last few months of the year is still quite relaxed, making it increasingly unlikely that the forecast volumes will actually be reached.

The situation in North and South America, usually key markets for PV panels, also speaks against any dramatic shortage of supplies. Steadily rising numbers of Covid-19 infections are causing problems for many companies, resulting in installation figures that fall short of expectations. Some manufacturers are reporting deliveries that have either been significantly delayed or cancelled altogether, especially from their customers in the USA and Brazil.

One factor in the pricing of solar products, at least in Europe, is the U.S. dollar exchange rate. Following a relatively weak euro at the beginning of the year due to the threat of a dire economic situation triggered by the escalating pandemic in many European countries, the pendulum is now swinging in the other direction. U.S. President Trump seems to have neither the spread of the virus nor the economic decline under control. Consequently, the dollar is also coming under increasing pressure, which is causing a drop in module prices in Europe, which are mostly calculated on a dollar basis. But this trend may well weaken or reverse over the course of the year.

On the Coronavirus front, everywhere in the world the daily number of new infections is still high. With Europe already well on the way to containing the coronavirus crisis, many now fear that a second wave will either come on the heels of the summer travel season or is already gathering steam. China alone seems to have low figures, and the crisis there is rarely discussed in public. Yet, this does not seem very credible, given the conditions prevailing in the rest of the world. According to China’s manufacturers, solar production is back to normal - but can this really be the whole truth? Might not the incidents reported so readily and quickly - the press has reported on fires and explosions at Daqo and GCL - in reality be local plant closures at several silicon producers due to new coronavirus outbreaks, which the Chinese central government has ordered to be kept under wraps? Might there be some satisfaction in the resulting reduced capacity and the consequent stabilization of prices for downstream products?

How should investors respond?

As is so often the case, a two-pronged approach is not a bad idea. For important projects or those which are not so price-sensitive, materials should be procured immediately, but buyers should not be eager to agree to price increases, however justified. At the moment there is no real urgency, but there is still a lot of room for manufacturers to interpret future market developments. For projects that are only attractive once prices come down, the spot market should be the preferred option. In the coming months, there will certainly be the odd batch that can be purchased at an attractive price.

Overview of the price points by technology in August 2020 including the changes over the previous month (as of August 10, 2020):

pvXchange Solar Price Index August 2020