Market Analysis July 2018 - Greetings from the madhouse

… so ended a recent e-mail from a good friend in the PV industry, someone with over 30 years of experience in photovoltaics, one of the pioneers of the industry. It was regarding an exchange about current market developments and the sharp price declines over the past few weeks and months. His superiors and colleagues at one of the big German energy companies just cannot believe what is happening in the market right now - and the madhouse comparison is not a bad analogy!

Both the outcry in the media and the reactions of industry stakeholders were heated when the Chinese central government aired its plans in May to significantly cut all incentives and programs for the further development of renewable sources of energy. The growth in this sector was probably too fast for the government, although one wonders what it expected when the subsidies were approved - yet another failure to heed the lessons of history, as we have already seen similar emergency braking in a number of markets in recent years. But, the influence on global market development has never been as great as in this case. All of the forecasts of the past few months have already become obsolete.

Instead of predicting a decline in installation figures, the European industry association SolarPower Europe, in its recently published global market outlook, now anticipates a small but very real increase of 3 to 4 percent in 2018, and 5 to 6 percent in 2019. Only then will there be a return to healthy growth of 12 to 15 percent annually, as we have already seen on average over many years. For Europe, however, the forecasts for the coming years are somewhat more optimistic, with an average increase of 15 percent. Within Europe, which also includes Turkey, Germany should again become one of the strongest markets, with an increase of 20 percent, even without further political support. The low module prices alone should ensure that many new systems for on-site consumption are built.

Whether this actually happens remains to be seen. Opinions on the further development of module prices have diverged widely since the Intersolar trade fair. Initially, prices for polycrystalline products in particular were expected to continue their precipitous slide due to imminent or current oversupplies. Buyers were already hoping for a drop to the 25-cent mark, at least for megawatt-scale purchase volumes. However, the major Asian manufacturers at all levels of the value chain apparently knew how to take quick corrective action. Through artificial shortages, such as production shutdowns, companies are now trying to counteract oversupply and the associated price free-fall. Although the effect is not yet immediately apparent, as is evident from the continuing decline in prices, a major crash could probably be prevented in the long term.

However, it is doubtful that this strategy will work out in the medium to long term and that prices will stabilize at the current level or just below it. All module and cell manufacturers with large production capacities in China are waiting for the EU's minimum import price to be eliminated in September so that they can then offer their own modules even more cheaply in Europe. If this actually happens, the outlook for the remaining European manufacturers would likely be grim. Their survival would then depend heavily on general market growth, their international business orientation and strong support from their own customers. Yet, even if there is a review of the dumping case against Chinese producers and the minimum import prices are kept in place for the next three to six months, it will only be a short reprieve for domestic producers. The companies that are not currently well funded and solidly anchored in the market will not be in six months’ time either.

I myself expect a general price dip of a maximum of 2 cents per watt-peak across all technologies in the fourth quarter. The EU Commission can indeed be relied on to initiate another review of the minimum import prices, meaning that a large glut of Chinese products is not in the cards for the short-term. The drop in prices for high-efficiency modules is currently already somewhat more pronounced than for other products, as high performance is itself becoming increasingly "mainstream." This is why I raised the lower limit for "high-efficiency" modules to 285 watts-peak in May, but these products have become disproportionately cheaper over the course of the year. However, production capacities for monocrystalline modules, mostly with PERC cells, have also been massively increased at nearly every manufacturer. Nevertheless, the price spread to the mostly polycrystalline "mainstream" modules is still 8 to 10 cents per watt - at the current price level, a difference of 25 to 30 percent. This price spread cannot actually reflect the difference in the manufacturing costs between monocrystalline or polycrystalline cells, but rather indicates that many modules with lower performance classes are already being sold off close to the production cost to reduce inventories.

Strap on the straitjacket and off into the rubber cell would be the right course of action for some politicians who repeatedly manage to stop generally positive market development through erratic, ill-considered actions and tear down what they have already created. Often even the mere announcement of policies and cuts is enough to upset the world market. Long-term thinking and planning seems to be increasingly unpopular, and prominent politicians change their minds and make complete U-turns within a matter hours. This makes it particularly difficult for companies in the solar industry to make positive decisions in favor of investments with long amortization periods. Thus, the implementation of the energy transition has become a game of chance with an uncertain outcome. The best strategy in this roller coaster market is probably to rely on one's own experience and also a little on one's own gut. So far, every downturn has been followed by an upturn - usually relatively quickly - because we in the industry have learned to adapt to every adversity and make the most of it. In the medium term, the world market for renewables has still grown and system prices have fallen. The motto is to stick to your own vision, and the way ahead is to stay the course in an unsteady market gone mad.

Overview of the price points by technology in July 2018 including changes over the previous month:

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