Market Analysis

Market Analysis July 2020 - Clash of the Titans Reloaded

As early as March 2019, information began to emerge on the patent lawsuit being filed on three continents by module manufacturer Hanwha Q-Cells against its competitors Longi Solar, JinkoSolar and REC. At that time, it was still unclear whether the lawsuit would even be admitted and what exactly its purpose was. Just over a year later, the first verdicts have now been handed down. In the USA the rulings were against the plaintiff, but in Germany they came down in its favor. The Düsseldorf Regional Court confirmed the unlawful use of the patented technology by competitors in lower court. The judges granted Hanwha Q-Cells a remedy in the form of an injunction. But what does this ruling mean for the parties concerned, and in particular for their customers? Into that I will go briefly below.

The overall decline in prices that has set in over the past few months continues for the time being - price reductions in the upper single-digit percentage range are evident across all technologies. Although demand in the European market is stable to growing, there are still large-volume surplus stocks in many places, which have piled up due to coronavirus-related delays in project implementation and are only slowly being drawn down again. The usual end-of-quarter inventory adjustments have prompted broad-based price cuts, which continue to dominate the market at the beginning of the second half of the year. Manufacturers and dealers are undercutting each other for in-stock items available at short notice to make room for new shipments. This trend will be short-lived, in Europe at least, as the race to catch up is already in full swing. EPC and project companies at home and abroad have full order books, banks and licensing authorities are also working off their backlogs quickly. The satisfaction of a well-functioning market is clouded, to say the least, by the uncertainty among some banks and investors arising from the ongoing patent dispute.

In the meantime, the so-called bankability of the three accused manufacturers has been called into question and investors for projects using their products have threatened to pull financing. JinkoSolar, for one, has asserted from the very beginning that its current module production, or rather its currently available products, were not affected by the lawsuit. The other two competitors have remained cautious in this respect and have preferred to refrain from making public statements. But, the word on the street is that REC has reduced its product range to the Alpha series, which uses n-type cells, which for technological reasons cannot be affected by the legal dispute. Longi Solar is also likely to reduce the delivery volumes of certain products for the time being until there is greater clarity in the proceedings, but in particular until the demands of Hanwha Q-Cells are made public.

How should affected companies react to the court ruling?

Buyers who want to play it safe with new orders should seek a binding clarification of the patent situation from their supplier in the form of a separate written confirmation. This document is particularly useful in cases where there is no existing supply contract containing clauses on the legality of the technologies used. Under no circumstances should the buyer hastily agree to a change in the supply terms and conditions without reviewing the legal consequences. There have been cases where manufacturer representatives have advised their customers to buy directly from the Asian parent company rather than from their German supplier, as the patent lawsuit would only be valid in Germany. But in this case the problem will just resurface again – at the latest when the modules are delivered to Germany and installed there – and then it will be the buyer's problem. As the importer, the purchaser then assumes liability for the dubious products. Even for an installation in another European country, the buyer is unlikely to be automatically off the hook since the patent is a European one and Hanwha Q-Cells can extend its claim at any time.

Clearly formulated statements of confirmation quickly dispelled concerns of the banks and investors in the cases submitted to me, clearing the way of any obstacles to the progress of the projects. In any case, it is important to be vigilant in the selection of suppliers and products. For the time being at least, the patent dispute has not had any effect on the availability of monocrystalline modules in the European market or on product prices – other mechanisms are at work here.

How much farther can prices drop? At present, there seem to be no downward price limits, even for products from the top manufacturers – price reductions in the megawatt range below €0.18 per watt-peak are no longer the exception. This sell-off, which could be the downfall of some smaller manufacturers with a low capital base, is unlikely to cover costs at all. If this situation continues for a prolonged period, market adjustments will inevitably occur.

Only the financially strong manufacturers can survive a phase of low prices such as the one we are currently witnessing. However, stabilization is generally expected due to increasing demand, especially in China. Funding programs are in place there, and so far, the uptake of these programs has been sluggish, but they still need to be utilized by the end of the year. There is talk of installation volumes in the 25 to 40 GW range for the third and fourth quarters. It doesn’t take an expert to imagine what this will mean for the global market. Any module not tied to a binding purchase agreement at an early stage will not leave Asia, as the Chinese market will absorb any production capacity. However, we know from past experience that such forecasts are not always accurate. Nevertheless, provisions should be made quickly for projects scheduled for completion in the short to medium term in order to avoid unpleasant surprises. Betting on further falling prices is pure gambling.

Overview of the price points by technology in July 2020 including the changes over the previous month (as of July 14, 2020):