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Solar module prices not expected to stabilize until 2024: analysts

13 October 2021 Amena Saiyid

Global solar module prices will take another two years before they stabilize following the current supply chain tightness, which in the near term will delay construction and installations, analysts told the recent Solar and Storage Finance Summit.

"We expect to see [solar] module prices return to the normal price decline in the next year or so," Ravi Manghani, managing director of Denver, Colorado-based Clean Energy Associates, said during a 6 October presentation at the summit, which UK-based Solar Media Tech hosted.

But, Manghani said, it will take until the end of 2024 for solar module prices to reach 23-24.5 cents/watt prices, "which is where we effectively would have been prior to the upswing in commodity and logistics prices."

The global weighted-average levelized cost of electricity (LCOE) of utility-scale, solar photovoltaic (PV) plants declined by 85% between 2010 and 2020, from $0.381/kWh to $0.057/kWh in 2020, owing to "improving technologies, economies of scale, competitive supply chains, and improving developer experience," the International Energy Agency said in a June 2021 report.

At the start of 2020, solar module prices were in the mid-to-low 30 cents/watt and currently they are in the mid-to-high 30 cents/watt, Manghani said.

Supply chain disruptions a challenge

Global supply disruptions are posing a challenge to both business and world leaders as they attempt to revitalize pandemic-battered economies. The solar industry is no exception, especially as it seeks to maintain its growth track record. According to an International Monetary Fund (IMF) blog, pandemic and climate-related disruptions resulted in shortages of key inputs and cut manufacturing activity across the globe.

"These supply shortages, alongside the release of pent-up demand and the rebound in commodity prices, have caused consumer price inflation to increase rapidly" in, for example, the US, Germany, and many emerging and developing economies, the IMF said.

Manghani said tightness in the global supply chain for solar modules existed prior to the COVID-19 pandemic due to the increased demand to decarbonize energy sources. The disruption kicked into a higher gear during the pandemic-induced lockdowns when solar installations were brought to a halt, he added.

When the lockdowns were lifted and global economies began resuming normal activity, Manghani said there was initially some concern about an excess of supply. Instead, he said, manufacturers fell behind demand, which resulted in the scramble that has now worsened with the uptick in commodity prices and across-the-board global freight and shipping delays.

Energy restrictions compound tricky supply landscape

IHS Markit Executive Director Clean Tech and Renewables Edurne Zoco agrees with Manghani's assessment that solar module prices will not see any reductions in the short-term.

"Manufacturing restrictions in mainland China, prioritization of the domestic market, and increased module prices will shape the fourth quarter of 2021 and extend uncertainty for developers and offtakers to 2022. We do not anticipate significant price adjustments before the second half of 2022 based on the module production cost forecast and strong pricing in the domestic market," Zoco wrote in a 12 October insight article.

Zoco told Net-Zero Business Daily that President Xi Jinping's announcement at the UN Biodiversity Summit on 11 October that China has started work on adding 100 GW of wind and solar capacity provided an "indication that solar modules will prioritize the domestic market that will result in strong demand and strong prices."

Energy restrictions in China are compounding an already difficult situation, where power shortages are affecting the ability of factories to produce and deliver modules, according to Joern Hackbarth, global head of engineering & construction at Sonnedix, a global independent solar power producer.

For the last decade, China has been the world's largest solar module manufacturer, according to Columbia University's Center on Global Energy Policy.

Near-term impacts "massive"

During a separate discussion on the near-term impacts of the supply chain disruptions, Hackbarth said he was concerned about the effect energy restrictions in China are having on production. "We don't know where we will get in a lot of cases the panels, which then will have an impact on construction times, on contractors," leading to cost overruns and delays in installations, he added.

For investors and owners with purchase-price agreements for power generation that include a delivery deadline, the supply chain disruption in the near term will take a financial toll, Hackbarth noted.

Hackbarth said he would advise his clients that are tied to a delivery deadline to seek up to a 12-month delay because the price tag associated with creating each step of a solar panel has gone up.

A solar panel or module is made from layering polysilicon wafers that in turn are fashioned from polysilicon ingots.

Delays to deliveries of vital components, construction delays, and higher commodity prices pushed up by increased demand have added at least 12-15 cents per watt to the overall capital expenditure on solar installations, which Hackbarth termed a "massive impact."

US checks on Chinese solar imports

Recent steps taken by the Biden administration to check imports of Chinese solar modules and cells in the US will "have a big impact on the US market," but not a major impact on global solar installations, Johannes Bernreuter, head of Bernreuter Research, told the summit. The volumes that cannot go to the US will just go elsewhere, he said.

Manghani also doesn't expect the US efforts to consider allegations regarding Chinese solar module imports to affect the prices of solar modules in the long term.

Under the new order, companies importing silica-based products must furnish a certificate of origin to ensure they are not made by Hoshine Silicon Industry Co., Ltd, a company based in Xinjiang province of China that the Biden administration said is using forced labor of the Uighurs, a Muslim minority. The upshot of this order has been that several shipments have been detained at ports by the US Customs and Border Protection agency.

But Bernreuter, whose firm tracks the polysilicon and solar industries, is of the view that supplies of polysilicon will fall short of demand in 2022. He based his analysis on 37-40% growth of solar power installations to 190-195 GW from available polysilicon supplies in 2021.

According to Manghani though, spot prices for polysilicon were somewhere around $6-$7/kg in January 2020, whereas today, owing to demand, "we are seeing prices approaching as high as $30/kg."

He said the hike in polysilicon prices will start to ease up towards the end of 2022 and that will be accompanied by further improvements in solar cell efficiency.

Together, these two factors, along with an expected easing of freight and shipping delays in 2023, will lead to overall solar price declines by 2024, he added.

Posted 13 October 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst

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