Module prices have again fallen significantly this month, with no end in sight. Depending on efficiency and quality, prices fell by 6-8% compared to the previous month, which means that all values have fallen by at least 20% since the beginning of the year. Zooming out to the last 12 months, you see that prices have fallen by an average of 30%. The last time we saw such a sharp drop in prices was in 2018. The lowest solar module price level to date was recorded in the third quarter of 2020, and this will probably be equalled in the current quarter. However, inverter and storage prices in the European market are also visibly crumbling.
At the beginning of 2023, the industry was in a state of euphoria - business was very good, as all players had a lot of catching up to do after the delivery problems of the previous year. The project pipeline for installers seemed to be almost endless, as did the waiting times for end customers willing to build. Fortunately, the supply problems, especially for products from Asia, gradually disappeared and transport costs were no longer an obstacle - we were all able to draw on our full resources and process the piled-up orders. At the same time, energy costs were skyrocketing and PV was the means of choice to mitigate the impending cost explosion, although system prices were also high compared to the past. Customers were lucky to get an installation in a timely manner. Everything was going well, and nothing seemed to be able to slow down Germany’s PV industry.
In anticipation of a flourishing market with good margins, masses of solar modules and other components were manufactured and shipped to Europe. Dealers and installers were still stocking up in the first quarter so as not to be surprised by another bottleneck. But then something unexpected happened: Demand dropped off noticeably. Although the climate targets are well known, the way to achieve them is through renewable energies, and politicians had announced broad support and corresponding programs, the momentum did not seem to be enough to keep the photovoltaic market moving at a steady pace. The will to change does not seem to be great enough in most people to look beyond their short-term needs and trained behaviors.
An energy crisis that does not occur, combined with a minimal reduction in energy prices, is apparently enough for many people to put the brakes on investments they have already planned and to put off setting up their own PV power supply. In addition, the Covid-19 restrictions are over and flights are cheaper again - the money saved can be put back into long-distance travel or simply put aside for a rainy day. In Germany, an unspeakable public discussion about the long overdue so-called heat turnaround transition has flared up in recent months. The draft of the Federal Minister of Economics, Robert Habeck, for a new building energy law was fought with all available means by the opposition and from within the ranks of the governing coalition, and was torn apart in relevant media. The previously positive mood in favor of renewables has tilted again.
The consequence of the public discussion and the resulting postponement of the law is a complete uncertainty of the population regarding the costs that will still come to individual homeowners, and is thus another building block for the gradual shutdown of the German small systems market. Let's look at the whole thing in figures: If a company, which is quite active in social networks, was still receiving an average of 30 inquiries per day in the spring, these have now dropped to less than 5. At the same time, the completion figures fell from up to ten to around one new order per week. Once the existing backlog of orders has been dealt with, the company may not be able to hold on to its assembly teams, which are currently still working in threes, busy.
This is also how the shortage of craftsmen can be combated - simply strangle the demand!
The seller's market is slowly but surely becoming a buyer's market again, where suppliers have to fight over the few prospective buyers and undercut each other to land orders. It will not be enough to just pass on the lower component costs to the end customers, but they will also have to make allowances for planning and assembly costs if they want to be able to keep their employees busy in the future.
For those on the sales side, high inventory levels, immediate availability of goods and a continuing drop in prices, but also the uncertainty regarding end customer demand mean that installers no longer want to plan for the long term, but instead want to buy on an ad hoc basis. This in turn makes forecasting difficult for wholesalers and manufacturers. Incoming deliveries have to be turned around quickly again to avoid risking losses. Future demand is difficult to calculate, and negotiated prices become wastepaper again in a few weeks.
That leaves us with the market for medium to large installations. Here, unfortunately, things don't look much better. It is true that the fall in material costs theoretically makes it possible to increase the operators' return on investment. However, such installations are often planned months to years in advance, the components have already been purchased, so short-term price fluctuations hardly play a role. Falling stock market and industrial electricity prices, on the other hand, play a significant role, especially for plants with direct marketing or under power purchase agreements (PPAs). At the same time, the reduction of bureaucracy in grid connection is still a long time coming, and the medium-voltage grid itself is reaching capacity limits in many places. As a result, it will not be possible to build and connect larger projects for a long time to come, while grid expansion continues at such a sluggish pace.
Is there a silver lining on the horizon? I can't see it yet. Of course, lower prices and greater competition among installers are making offers more attractive to end customers. However, the environment must also be right, and a positive investment mood must be created instead of fomenting existential fears. The leading media should pack up their "heating hammer" again and rather report on the possible positive consequences of the energy transition and the sensational successes of renewables. One can and must only call on our politicians again and again to refrain from their petty squabbles and finally do their homework. The transformation of the energy system requires not only ambitious goals, but also clear strategies and rules on how to achieve them without major detours. The market alone cannot and will not regulate things if boulders keep being rolled into its path.
