Market Analysis October 2018 - Is the bottom in sight?

Judging merely by the prices over the past few weeks, the answer would seem to be an unequivocal no. But if you believe the voices of some manufacturers, then the end of the across-the-board slump in module prices is within reach. Once again, a shortage seems to be emerging, at least among some tier-1 manufacturers. Both inexpensive polycrystalline and high-performance monocrystalline modules with PERC cells are no longer available on short notice in whatever quantity is desired. Apparently the products of the top manufacturers have sold so well in recent weeks due to the low prices that short-term supplies are no longer guaranteed. Some manufacturers have even started turning away major project enquiries for this year and are advising customers to wait until the first quarter of next year. And potential buyers can drop their hopes for further discounts - quite the opposite. Module prices for delivery in October and early November are at best stable, if not rising slightly. That's how fast the market can turn around.

Some producers had apparently cut back production immediately after the subsidy cuts in China became public to avoid producing module stockpiles and risk further erosion in value. Less production in Asia also means that fewer goods are shipped to Europe. Many modules that were already stored in and around Rotterdam have probably already been sold over the past few weeks. Also, there are currently still few container goods delivered directly from China. The many smaller manufacturers active in the European region in the past first have to regain a foothold. Due to the recently abolished market restrictions, they had scarcely any realistic sales opportunities in the European market over the past 5 years. These tier-2 and tier-3 products are trading at a price discount of only a few cents per watt-peak but are a riskier buy than the established brands. The major players now also have a noticeable technological lead, which is reflected in more modern cell formats and higher performance classes. Producers who do not make significant investments in research and development will be hard pressed to compete with ever more efficient modules using less material.

A recently published forecast by the IEA (International Energy Agency) expects the number of new installations worldwide to fall by 15 percent year-on-year to around 83 gigawatts in 2018. The slump is mainly attributable to lower demand due to reduced state support programs in China. In my view, however, the authors have failed to give adequate weight to the increased attractiveness of PV systems thanks to falling module prices. By the end of the year, these will have fallen in some categories by up to 30 percent compared with the price level in December of last year. This of course boosts demand, and not just in the area of new plant construction. The repowering of old plants - that is, replacement of poorly performing old modules with the latest generation of products - is also becoming increasingly attractive. At module prices that are just a tenth of the price of the original modules installed 8 to 10 years ago, the financial cost of a system upgrade can quickly pay off.

Declining demand naturally leads to overcapacities among manufacturers, which are not completely offset by control measures taken by the affected companies, such as plant shutdowns to create artificial shortages. The analysts at Trendforce claim that global module production capacities now total around 150 gigawatts, almost double the level of this year's demand. As a result, we are on the cusp of another wave of consolidation of unprecedented magnitude. According to some manufacturers, global market prices for polycrystalline solar modules are already in a critical range anyway, in which hardly any modules can be produced that meet today's requirements. Further price reductions are practically impossible if current quality standards are maintained, at least with the familiar technologies and manufacturing processes. Simply scaling to ever larger dimensions beyond the 10-gigawatt production capacity range could provide a remedy. Such gigantic factories, which alone could supply a tenth of the world's demand, would first have to be run at full capacity to benefit from all the economies of scale. One wonders how many of these "gigafabs" could operate at the same time and in competition with each other and what would happen to the many hundreds of smaller production facilities that currently still exist throughout the world.

At present, this seems to be the trend, especially among European manufacturers who, although they are still holding on to their own brands that are well established with their customers, have long since had the modules themselves produced in one of the large contract manufacturing plants in Asia. After all, the European companies are still liable for their warranties. But how much is that really worth in a limited liability company with low liquidity reserves? To be on the safe side, the plant operator is more likely to go to one of the major Asian manufacturers, which at least also has a sales office and a service team in Europe that can be contacted in the event of problems. Nevertheless, carefully checking the terms and conditions of warranties and how they are secured in the event of a claim is essential to avoid any nasty surprises later on. The rule of thumb here is: the lower the product price, the more carefully the conditions of sale should be examined. High-quality materials, quality assurance and warranty reinsurance cost money, which is immediately reflected in the price - if you buy too cheap, you buy twice or pay with your life...

Overview of the price points by technology in October 2018 including the changes over the previous month (as of October 12, 2018):

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