Market Analysis

February 2021 - Why the protection of human rights is making module prices rise

The solar industry, as well as actors connected to this industry, see themselves predominantly as supporters of the environment and humanity and as such also advocates of human rights. Even large Chinese PV manufacturers publish statements to this effect, at least to the extent they are listed on Western stock exchanges. I do not want to speculate on whether these statements reflect the truth. But what does the topic of human rights have to do with the solar industry? What connections exist, which are possibly not that unimportant to the further success of the European photovoltaics market? I will return to these connections later on in this article.

In my January commentary I reported on various factors shaping the current PV market and module prices. In addition to political factors, there are transportation bottlenecks between Asia and the rest of the world, as well as supply constraints with many essential materials required in panel production. Not much has happened in this area in the past weeks and the situation has surely not improved. On the contrary, an increasing number of Asian manufacturers and suppliers have raised prices or have announced such increases in the period after Chinese New Year. The first order of business is to assess the current strategic and pandemic situation and then present the results for the coming months. It is highly unlikely that something unexpected will happen to relax the current situation and cause a reduction in module prices. A further increase in prices is more likely.

We cannot even count on five fingers anymore which basic materials required for a continuous module production have in the meantime become supply constrained and therefore more expensive. It has become commonly accepted that sourcing polysilicon and solar glass has become a challenge. Some industry participants also have on their radar the supply of steel and aluminum (required materials for module frames and racking products), which is slowly becoming critical. Supply challenges in this category are generally based on insufficient production and transport capacities, but these are being expanded, so that these supply constraints should disappear in a matter of months. A far grimer picture presents itself in the case of precious metals, where mining and processing capacities cannot be readily expanded. Based on the Corona pandemic institutional and private speculators are pouring money into assets like platinum, silver and copper, but also other basic materials in high demand, leading to sharp price increases in the relevant commodities exchanges. Unfortunately, these precious and semi-precious metals are utilized in the production of PV cells and modules, creating necessarily further cost increases.  

Some of us might already be familiar with the term Xinjiang. This is the name of an autonomous region in China and it has been mentioned in the context of forced labor, specifically alleged measures taken by the Chinese government to the detriment of the Uygur people, a Muslim minority in this westernmost part of China. This issue of forced labor, wherever it may occur in the world, is cause for concern, but not many in the solar sector are aware, that a large part of the globally available polysilicon, which is the raw material used to manufacture solar cells, is produced in Xinjiang. The U.S. has already ordered sanctions on other materials produced in this region, including cotton and cotton-based products. The next step is to possibly extend sanctions to the import of polysilicon or to at least impose significant punitive tariffs on such goods. In addition, pressure is mounting on the European Union to follow suit.

Such import measures could have a dramatic impact on the global trade of solar products. Fifty percent of the polysilicon produced in China comes from Xinjiang, which amounts to a global market share of forty percent. Some polysilicon manufacturers like Daqo New Energy, TBEA and East Hope produce almost exclusively in this region and cannot move their heavy industry so easily to other regions in China. And all this is happening in an environment in which supply constraints are already elevated and the situation is a very challenging one. It is too early to tell, if the statements released by some manufacturers, in which they verbally distance themselves from the use of forced labor and human rights violations generally, can still prevent the imposition of sanctions against the solar industry, while reports continue of human rights abuses of the Uygur minority.

Let’s be candid – environmental and social standards are still not accorded the value they should have in our economic system. In Germany this is made plain by the current very controversial discussion surrounding a new law on global supply chains, a law that is long overdue. This law has the purpose of requiring companies to assess production steps across the entire supply chain to then certify that none of these steps harm the environment or violate employment conditions. The law applies to all materials and finished products sourced outside Germany. No real consequences are attached to non-compliance with this law, but it will serve to increase transparency and make greenwashing or profit maximization on the backs of workers in other countries more difficult. Products that do not satisfy this law will also become less attractive in the market. At the same time European companies, faced with increasingly stringent environmental and social standards, will be strengthened by such a regime. This should be in all of our interest!

Overview of the price points by technology in February 2021 including the changes over the previous month (as of February 15, 2021):
pvXchange PV Price Index February 2021