Market Analysis

January 2021 - A wrench in the works

Looking back at the past year, the renewables sector has seen two extremes. In Germany, disparity was triggered in part by the recently passed amendment to the Renewable Energy Act (EEG). For PV in particular, the pendulum will swing in favor of installers of small systems in the near term. For installations up to 30 kWp, the new law has cleared market barriers. Likewise, incentives for storage systems are still available in some German states. With this baseline situation, the future for small-scale systems in Germany is bright. Medium to large-scale rooftop installations, meanwhile, have fared less well.

Germany’s 2021 EEG places a hurdle at 300 kWp for rooftop PV systems. While projects of this size and above are not required to participate in the public tender process, abstaining means that they automatically forego remuneration for 50% of the energy they feed into the grid. This new option seems so unattractive that many will for the time being prefer the old scheme, in which operators of rooftop systems up to 750 kWp are entitled to full remuneration for the power their systems generate. For installations designed according to the old rules there is a deadline of March 31, 2021, when rooftop systems up to 750 kWp must be connected to qualify for the full feed-in tariff.

Industry players know too well what such a deadline means: a scramble for all of the panels and inverters available by mid-March is already running at full tilt. Unfortunately, this has been exacerbated by the fact that Chinese manufacturers cut back on production volumes, and in particular on delivery volumes to Europe, at the end of last year. Raw materials prices rose across the board in the course of 2020, presumably due to Covid-19-related production shortfalls in spring. This caused bottlenecks and price increases, which made inexpensive modules hard to come by.

Even more dramatic, however, is the bottleneck in the logistics sector. Freight prices from Asia to Europe have increased almost fivefold in recent months. This sharp rise, which accounts for the largest proportion of current module price increases, is probably due to the lack of return freight to Asia. In European seaports containers – both full and empty – are piling up, and that is squeezing the supply in Shanghai and Shenzhen. The pandemic has meant that for some time now fewer goods are being exported from the U.S. and Europe to Asia than vice versa. The lack of affordable transport options has probably resulted in many modules being sold and installed in Asia.

In China, after a weak first half of the year, a race to catch saw up to 40 GW of new PV capacity added in 2020. In 2021, this trend is expected to continue with up to 50 GW of new installations. Accordingly, supply capacities for Europe are likely to be limited for some time. The Lunar New Year is also just around the corner. Time will tell whether an intensive travel activity within the country leads to another extensive lockdown in China, as was the case in 2020. After last year's Covid-19-related lockdown, it was impossible to imagine a regular flow of production and distribution of important goods for months.

Overall, we should expect a further module price increase of 2 to 3 cents per watt-peak in the commercial and large-scale plant segment for future deliveries; in the already higher-priced small plant segment, the rise might be less pronounced. The current sharp surplus in demand will settle down somewhat after March 31, at least in Germany. Modules in the higher efficiency range will probably be somewhat easier to come by in April and May.

Gambled away

For most in the PV sector, 2020 went comparatively well. After the first few months in the tight grip of the pandemic, something akin to normality returned to the solar market. Prices were on target, orders were in the pipeline and for the first time it was possible to plan for the future. In December, which was slowed by the lockdown, everyone had been preparing for a quiet Christmas and did not want to hear anything about precautions and materials hedging. Thus, most players unfortunately did not see the dark clouds gathering.

Only in the first few weeks of January, was there a rude awakening. Suddenly, nothing seems to fit together anymore, long-term plans are not working out and supposed winners are turning into losers. Manufacturers, for instance, are dissatisfied with contract prices from 2020, which they can no longer maintain without incurring losses. In some cases, agreed selling prices are already 10% below current procurement costs. But fierce resistance from contractual partners means it is seldom possible to raise agreed prices. Suppliers can only hope that they will be allowed to deliver the quantity owed at a later date when production costs come back down to earth.

Purchasers’ are not much better off. At the very least, installers for up to 750 kWp plants who have failed to make timely preparations are now likely to be in a world of hurt. They neither have access to the materials they need at the conditions they had previously calculated, nor sufficient time to procure and install new installations. There are simply not enough modules left on the market that can be delivered by the deadline. Everything that does arrive in time is sold to the highest bidder at steep markups. In fact, the products that are available are coming from those who made provisions in time but do not have to meet a deadline. Many of us know this type of hustle, not only from the stock market, but from the early years of the EEG, when the feed-in tariff degression kicked in on December 31, and in the depths of winter, during the holidays, assembly and installation work had to keep going. This time, however, the deadline falls in spring, when temperatures will hopefully have risen again and work on the roof will be a bit more pleasant.

Overview of the price points by technology in January 2021 including the changes over the previous month (as of January 24, 2021):