Solar panel prices have been dropping almost continuously for more than a decade. Everyone just assumes that solar gets cheaper every year. At Avolta we often hear from clients asking whether they should wait to buy their system as it will just get cheaper. We always reply that while prices may continue falling – the opportunity cost of paying another year of higher energy prices far outweighs any potential savings.
What A Difference A Decade Makes… Levelized Cost of Energy For Utility Scale Solar down 90% since 2009
At Avolta we monitor PV markets closely as we buy a lot of panels and need to price projects appropriately. We were bullish on panels back in November last year as we were hearing from our sources and suppliers that panel manufacturers in China were struggling with surging glass prices.
Now the prices for almost every raw material are surging and PV panel prices are heading higher – even after jumping by almost 20% since the start of the year.
Polysilicon prices in China led the charge – up from $6/kg a year ago to over $21/kg this month. Outside China prices were quoted between $24-27/kg. This price surge is leading Chinese PV module manufacturers to both raise prices and in some cases cut back on production due to poor margins. There is also market talk about middlemen hoarding panel inventories in expectation of higher prices later this year due to surging input prices.
Global Polysilicon Prices Show No Signs of Cooling Down
At present the solar panel industry uses on average about 3 grams of silicon per watt so the $13/kg jump in the polysilicon price implies a 4 to 5 cent per watt increase in panel manufacturing costs, which are already starting to be passed onto buyers.
Adding to the bullish outlook is the surging price of Copper, which is up 90% over the last year.
The rise in copper prices is a problem for solar and the entire clean energy sector. The clean energy sector is already consuming about 23% of the world’s copper production and according to the IEA’s modelling this is set to rise to between 30 – 45% of global production by 2040. The range is between stated government policies already in place around the world (30%) and what is required to stay below the 2 degrees of global warming target (45%).
The International Energy Agency earlier this month published an excellent report on the metal and mineral requirements for the shift to a carbon free energy system. The chart below reflects solar’s much higher need for copper and polysilicon versus hydrocarbon based energy systems.
Commodity prices are rising across the board – from aluminum to wood to corn. Renewed talk of a commodity super cycle is off the mark in our view, but the combination of an economic rebound meeting ongoing massive fiscal stimulus, and ongoing supply chain issues (see the semiconductor industry) are all feeding into higher prices and a big reflation trade on Wall Street.
Another bullish factor for panel pricing is shipping costs. Freight rates have gone ballistic over the past few months for a variety of reasons: airfreight capacity is down by more than 40%, warehousing and port logistics have been a disaster with social distancing requirements, and supply chains everywhere have been upended by COVID-19 and government policy responses.
Shanghai Container Freight Index – weekly rates
The key question is how long is this bullish outlook going to last?
This is the multi-billion dollar question for the industry, and the short answer is it does not show any signs of ending in the next few months.
Polysilicon supplies are expected to stay very strong until next year when some significant new capacity comes online in China. One wild card factor to watch out for is that roughly 40% of global polysilicon production comes from China’s Xinjiang region, which has been coming under increased scrutiny because of forced labor concerns. Governments action to attempt to curtail purchases from the region this could have a very bullish impact on prices.
Freight rates also look supported through year-end, as the industry continues to wrestle with container shortages, port congestion and distorted supply chains. US imports from Asia in March 2021 were up an extraordinary 90% from March 2020, this has left massive congestion on the West Coast tying up ships and containers. Shippers are ordering more ships but they will not get on the water until 2023 given the industry’s long lead times.
These two alone are enough to be bullish on panel prices for the next 6 months. The other commodity issues such as copper may take even longer to sort out, though they will be impacted by any potential slowdown in the energy transition caused by higher panel prices.
The key takeaway for Avolta clients is this – panel prices are going higher as are interest rates. So if you have been thinking about going solar to cut your energy costs, you should get a move on. Get in touch and we will get you set up ASAP.