Market Analysis

Market Analysis June 2021 - 2030 climate targets and current PV price trends – A viable mix?

More money for climate protection. That is what the G7 heads of state just agreed on at their recent summit in Cornwall, UK. That will involve making a whole lot more money available to expand renewable energy use and significantly increase the current pace of that of expansion. Following a successful constitutional complaint against their insufficient climate protection efforts, the governing parties in Germany have had to beef up their climate protection plan in recent weeks. Instead of by 2050, Germany would now commit to being climate-neutral by 2045, and the bar has been raised for the 2030 climate target as well: greenhouse gases will be cut not by the originally proposed 55 percent but by 65 percent. Nevertheless, climate experts warn that even these targets are not sufficient to limit global warming to 1.5 degrees Celsius. In order to achieve the goals of the Paris Climate Agreement, at least 200 gigawatts of installed capacity would have to be added by 2030 (from 55 gigawatts today). This would mean an annual increase in photovoltaics of at least 15 gigawatts in Germany alone, a far cry from the 2 to 3 gigawatts added annually in recent years!

But how are such increases to be achieved with the legal hurdles and red tape still in place today? In what way should the "market" drive the expansion when building medium to large-scale generation plants based on renewable sources is becoming more and more expensive and uneconomical due to steadily climbing prices?

Last month, almost all of the values in the pvXchange price index went up again by around 1 euro cent per watt-peak, and bifacial modules even saw a jump of 2 euro cents. This means that the prices of some module types are now up to 20 percent higher than at the beginning of the fourth quarter of 2020 when module prices had dropped to a historic low. With currently rising raw material and transport prices, all forms of energy generation are becoming more expensive, but wind power and photovoltaics are getting hit particularly hard. While the procurement costs for inverters and power storage are still largely stagnant, the prices for solar panels are skyrocketing, as are those for substructures and installation materials. This is due, among other things, to soaring silicon prices. Since the beginning of the year, the cost of polysilicon has already tripled, thanks to a continuous undersupply due to lack of capacity. Following a recent accident at a polysilicon factory in Xinjang, the Chinese province that produces about 40 per cent of the world's supply, the bottleneck is expected to worsen, which will further drive up prices.

But the increase in copper and steel prices is also causing problems for the industry. The purchasing terms for solar cables are also being adjusted upwards almost monthly due to their high copper content, and a similar trend can be observed in mounting systems. Last but not least, the now horrendous costs for the delivery of goods in a globalized market are having a negative impact on component prices – international freight prices have multiplied within the last year due to Covid to seven or eight times their original levels. Unfortunately, this is not expected to change much in the near future. For shipping prices to come down, the economy outside China would first have to pick up again and the container congestion in Asian ports would have to be cleared up.

Some analysts are already correcting their forecasts for global photovoltaic expansion this year since many planned projects cannot be completed economically. Some already see a revival of polycrystalline modules in the offing, sparked by the persistently high cost of pure silicon and for mono-PERC cells in particular. However, since cells are no longer the decisive factor in the module and all other production costs are constant, there will be no decisive price advantages here. I do not see any new availability in the poly sector yet. The only major module manufacturer that is currently still consistently using polycrystalline technology is Canadian Solar. Otherwise, the best you do is find remaining stocks produced years ago, mostly modules in the lower power classes below 300 watts.

At present, however, solar panels are cheaper to obtain on the international spot market than directly from the manufacturers, which mainly draw on surpluses and returns from unrealized projects. Some of the product prices were negotiated well before the price increases of the last few months. This means that at least small to medium-sized plants can still be built as expected. Many a large project will probably have to be put on hold for an indefinite period until the situation eases again. It remains to be seen whether the Chinese market will perform as predicted in view of the high prices and gobbles up a large share of the modules it produces in the second half of the year. After all, Chinese project developers are not as dependent on affordable overseas shipments as we Europeans are. If these expectations are not met, we can hope for an easing as early as the fourth quarter of this year. Nevertheless, we will not return to the historically low module prices of 2020 any time soon.

The photovoltaics market needs good ideas in order to carry on and stimulate the construction of medium to large-scale plants in the near future. The rapid removal of market barriers by lawmakers is certainly one of the possible and sensible measures, but larger tender volumes are also needed as is straightforward access to the public auctions, especially for smaller players. Only concerted action by all of the stakeholders can ensure the success of the energy transition, the goals we have set for ourselves and the urgently needed expansion of renewables at the pace German lawmakers expect.

Overview of the price points by technology in June 2021 including the changes over the previous month (as of June 14, 2021):

pvXchange Solar Price Index June 2021