PV modules expensive and scarce, no change in sight

From pv magazine Germany

The PV industry has weathered the worldwide Corona pandemic comparatively well. Nevertheless, there are few who would currently trade places with European engineering, procurement, and construction (EPC) contractors.

According to sources, many ground-mounted PV projects are being postponed – chiefly due to high module prices, coupled with increased transport costs, in play since the fourth quarter of 2020. Too few containers are currently available in Asia, especially China, to bring solar modules to Europe. In addition, many companies are having to recoup losses incurred during the pandemic.

But this is not the only dilemma for Europe’s large-scale PV project planners. Recently, the Chinese government has rationed power supply, thus affecting the gigawatt production facilities of China’s PV manufacturers.

“They are currently sending letters and emails to their customers that they have to shut down their capacities,” Michael Nöding, account manager for large EPC companies in Germany, Austria, and Switzerland at PVO International, tells pv magazine Germany in an interview. In doing so, they are invoking force majeure to avoid possible penalties for breach of contract.

Whether this would hold up in a court of law is difficult to assess. In any instance, such a clarification would take months – time that PV project planners with their tight schedules usually do not have, especially if they have postponed projects until winter or next spring. Thus, Nöding recommends close communication with the relevant suppliers to work out a joint solution.

Power deficits

According to an initial assessment by analysts, China is at risk of running a power deficit in the winter despite current rationing. “The world’s second-largest economy is at risk of not having enough coal and natural gas to heat homes and run factories, despite efforts over the past year to build fuel stocks as rivals in North Asia and Europe compete for limited supplies,” wrote Bloomberg in a recent statement.

In addition, gas and coal prices are currently sky high, which could lead to astronomical electricity prices in China, and significantly impact PV production in the country. “If coal and gas prices remain high in the coming winter, the risk of a power crisis is high,” according to an analyst at IHS Markit. As a result, she said the Chinese government has already instructed utilities to be better prepared than in the past. However, this “energy saving” is now leading to the downsizing of PV production capacities in China.

“We lack a non-Asian alternative,” Nöding says. He is referring to large-scale integrated PV production in Europe. In recent years, much of the production on the continent has disappeared, while new and ever-larger PV manufacturing capacities are built in Asia and China in particular.

This dependence on China is now also reflected in PV module prices and is tantamount to preventing the energy transition in this country, he said. “We are seeing levels last seen in 2018 or 2019, and further price increases are foreseeable against the backdrop of electricity rationing in China and rising commodity prices – especially silicon,” Nöding says. “Currently, we have a clear seller’s market.” There is a low supply of modules and extremely high demand – in China and worldwide, he says, adding, “Companies in Europe are leading the charge.”

The PV module manufacturers in China can, and do, determine the prices for their modules, as the current price level shows. Nöding does not expect to see the usual end-of-year inventory sales by Chinese manufacturers this year. At the earliest, he expects a significantly lower price level for PV modules again from the end of the second quarter of 2022.

PVO International strongly recommends that all project developers take care of the purchase of solar modules on time, in order to be solidly positioned. The timing of the purchase is much more important than the number of modules ordered, says Nöding.

Spoiling profitability

The currently significantly higher PV module prices are spoiling the profitability calculations of many EPC companies in Europe. As a result, many solar parks planned for 2021 have been postponed until winter or even next year.

This means project planners are having to weigh up whether they should accept the higher module prices or whether they should instead pay penalties for the delayed realization of projects, according to Nöding. In some cases, there is also the threat of losing land leases if project construction does not begin, he says.

Nöding sees a “relatively simple solution” for the EPC firms’ dilemma: “They have to calculate their photovoltaic systems with higher purchase prices. If, in the end, they do buy more cheaply than assumed in the preliminary calculation, project planners and investors will be pleased,” he says. Unfortunately, this advice comes too late for the ground-mounted PV projects that have already been calculated and are in the starting blocks.

How the situation in China develops remains to be seen. Nöding does not expect any new news this week – China is on vacation. From October 11, we can expect to see how things may play out.