Market Analysis

Market Analysis October 2021 - Module prices set to rocket back to 2019 levels

First, the bad news: PV panels will also be caught up in global inflation. After a very brief respite, prices are picking up again for almost all module technologies. But the changes recorded for early October are paltry compared to the price increases still to come. As of the cutoff date for this market survey, some manufacturers had already announced even more significant upward corrections for future deliveries. The price adjustments shown in the October index are thus only a tentative start to rises of no less than 15 to 20 percent over the price levels that prevailed just a few weeks ago towards the end of the third quarter. However, this will probably be the last price correction we can expect at the manufacturer level until the end of the year.

Five of China's largest module manufacturers – namely, Longi, Jinko, Trina, JA Solar and Risen – recently issued a joint statement apologizing for supply chain disruptions as well as delays and other negative impacts on customers. In the statement they invoke force majeure; that is, external circumstances not under their control such as government regulations or natural disasters which they were powerless to avoid. This was likely done as a precautionary measure to justify and pave the way for gradual adjustments to existing supply contracts. Unfortunately, this is a fat lot of help for an EPC or distributor. The rest of the value chain is in turn dependent on them – from planners to installers to end customers. In most cases, commitments have been made to these downstream stakeholders that cannot simply be tossed out the window.

If delivery dates and purchasing conditions that were presumed to be secure start to waver, it will push many photovoltaic projects to the brink. In the event of a cancellation, contractors could find themselves having to choose between the bleak alternatives of taking a loss – in the worst case, a contractual penalty - or postponing the installation date indefinitely and possibly having to reapply for grid access and plant certification at a later date. Recalculation and renegotiation with the client are not always possible or reasonable. But how long can plant builders wait and hope for an improvement in the market?

Managing the price increase

In the statement mentioned above, the manufacturers list measures taken by China’s central government in response to the impending energy shortage in China this winter, which are expected to lead to production cuts of up to 90%, depending on the sector. This means that, for some suppliers, these requirements – and in the case of module producers, the added woe of raw materials that are either unavailable or overpriced – could soon bring production to a complete standstill, which would put additional pressure on the overall capacities that are still available. With such an outlook, the laws of the market immediately kick in. Only those who are prepared to pay a premium will still be supplied, while those who are not fall by the wayside. In addition, global shipping prices are still through the roof. This problem will not be solved any time soon – on the contrary. The current shortage of truck drivers in the UK and elsewhere further exacerbates the situation. Empty containers – and no small number of full ones – are sitting in temporary storage facilities and can neither be unloaded nor sent on their way; and are thus effectively removed from the international logistics chain.

In this precarious situation, module producers are now going all in to minimize their impending losses and renegotiate older supply contracts. They do not want to find themselves in a predicament similar to the one they faced at the turn of the year 2020/2021, when there was an unexpected increase in the price of raw materials and a shortage of shipping capacity, so that conditions negotiated last year could only be maintained this spring by eating their entire sales margin. This fall, all contracts signed before March or April 2021 will apparently be up for review. At issue will be whether and how an amicable solution can be found for all stakeholders. Small to medium-volume customers are generally going to be the ones holding the short end of the stick in these negotiations and will have to expect smaller or larger losses in delivery-volume commitments if they had negotiated conditions at the beginning of the year that are unattractive for the supplier from today's perspective. Larger, strategically important customers will probably be spared for the time being.

Options for affected buyers

Once again, this is a case where good advice is expensive – in the truest sense of the word! First of all, the installer or EPC should talk to the client again and determine whether a price adjustment is possible for the current project. Of course, the financing bank or the investor should also be involved in the discussion so as not to jeopardize the release of funds. Sometimes there is still a bit of a buffer in the budget that can be tapped without crushing profitability or sacrificing the company's own earnings. After all, prices on the electricity exchange have also crept up a bit, increasing the value of a solar-generated kilowatt-hour accordingly.

The second option; namely, to wait until prices fall again, requires something of a gambler's mentality. Certainly, at the end of the fourth quarter, there will again be the odd remaining lot of existing modules, which will be offered on the market at special prices. However, whether it is suitable for the project at hand, and whether the interested party is fast enough, is largely left to chance. Unfortunately, a steady price decline for crystalline modules is nowhere in sight for the foreseeable future.

Overview of price points broken down by technology in October 2021 including changes over the previous month (as of 14 October 2021):

Overview of price points broken down by technology in October 2021 including changes over the previous month