Market Analysis

Market Analysis October 2020 - Will Covid-19 continue to weigh on the PV industry?

As much as 15% of all renewable energy projects in Europe could be delayed or cancelled due to the coronavirus crisis, according to a recent warning issued by McKinsey. Financial difficulties and reduced working hours had held many back from investing, despite a raft of economic stimulus programs. The pandemic also had a negative impact on the energy markets themselves, says the consultancy. Persistently lower commodity prices made conventional energy sources more attractive, and the expansion of renewables less popular. As low electricity prices chipped away at future profitability of PV and wind energy, McKinsey writes, incentives for companies to invest had failed to materialize. And this, in turn, was deterring project developers from concluding new power purchase agreements.

Although McKinsey’s assessment may be correct, it paints an incomplete picture of the market. The coronavirus-related delay it describes primarily affects medium to large projects, often with supraregional participation. The degree to which current travel restrictions have crippled the installation segment, which is otherwise characterized by freedom of movement of workers and companies across Europe, is something I will return to later. After all, under normal conditions, hard-working installation crews mainly from Eastern European regions move from one major construction site to the next in their daily work. We do not see this practice in the small-plant segment, since for economic reasons the companies installing small installations tend to work with their own people or seek help in the immediate vicinity.

In the small to medium-sized PV systems segment – in Germany, at least - there has scarcely been any discernible negative impact from the pandemic so far. Sustained demand for high-efficiency modules is leading to price stagnation. Smaller projects are usually planned and built by a single provider. If necessary, the contractor will pitch in if there is a shortage of personnel. The greatest concern with such projects is delayed delivery of components. Storage systems in particular have been a bottleneck for small PV plants throughout 2020. Fortunately, a PV plant can be completed and connected to the grid even without the planned storage system. The battery is simply delivered later and then integrated into the already-prepared system.

Nevertheless, demand for storage is holding steady. IHS Markit even forecasts a significant uptick in global sales of storage systems across all sectors this year. In Germany, residential storage is enjoying growing popularity. One almost has the impression that faced with a pandemic and the threat of a lockdown, many consumers are not only stocking up on food and toilet paper but are also trying to become more energy independent with their own PV systems and integrated storage. This trend has filled the order books of many solar installers this summer, with the result that they can scarcely keep up with the workload. There does not appear to have been any investment fatigue in the private PV plant sector so far. Long-term home office work with the increased focus on the self and the environment that often go along with it seem finally to have moved many of our fellow human beings to start thinking about their own PV and storage systems. The vacation fund, left unused due to the Covid-19 restrictions can then be happily reallocated.

Furthermore, a trend is emerging of companies in the environmental technology sector gaining increasingly easier access to project and corporate financing through crowd-investing instruments. Numerous platforms offer companies, often in the start-up scene, the opportunity to raise funds on fair terms without the need for a costly financing round or an IPO. Hundreds of private investors can pledge small amounts, which then earn moderate interest over the subsequent years before the initial investment is repaid in the context of another, larger financing transaction or an IPO. Of course, for the small investor, there is always the risk of a total loss of the investment. Nowadays, however, you take the same risk when you book a flight with the wrong provider. The jury is still out on whether this increased willingness to invest in crowdfunding schemes is another consequence of the coronavirus pandemic and increased liquidity of private individuals freed up by the reduction in long-distance travel.

In the longer term, however, the solar industry as a whole could also benefit from the knock-on effects of the pandemic. The coronavirus has led many regional governments to loosen their purse strings a bit – running up debts is no longer frowned upon. Some of the money released in the current pandemic budget will now be channeled into the expansion of renewable energy. Politicians are apparently slowly beginning to see the connection between environmental destruction caused by the nuclear and fossil-fuel based economy and the growing number of natural disasters and worldwide viral epidemics. Due to the penetration of humans into untouched regions, pathogens that we did not even suspect existed in the wildlife there are now entering our civilization. If these mutate and jump to us humans, the next global crisis is not far away.

All in all, however, we in the solar industry can consider ourselves fortunate to have escaped with just a black eye so far. Limiting ourselves to absolutely necessary business trips, shifting office work to the home, and foregoing major trade shows and indoor events has not really hurt us. Productivity may even have increased at many companies, while costs have often come down. Digitalization was unstoppable even before the pandemic - it has simply overtaken us a bit more brutally and quickly. Once the general crisis has died down somewhat following the cold season, we may also be able to look forward to some new, well-qualified and motivated workers from other industries who have fared less well. Former employees from the automotive sector or the steel industry who are fed up with reduced work hours or uncertain conditions could soon put an end to the shortage of skilled workers in the solar industry. That would be good news for once!

Overview of the price points by technology in October 2020 including the changes over the previous month (as of October 12, 2020):

pvXchange Solar Price Index October 2020