June 3, 2021 Edurne Zoco, Executive Director of Clean Energy Technology, IHS Markit

IHS Markit currently maintains its installation forecast of 181 GW for 2021. Our low scenario for 2021 is 156 GW (low case still 9% year-on-year growth) with demand spillover through 2022 and impact uneven higher costs in different markets.

The current environment poses a significant threat, but it is too early to say what the consequences will be as the solar industry has already faced other crises (e.g. COVID-19 in 2020) and demonstrated extreme resilience and continued growth despite all challenges.

Module costs will remain high in 2021

The price of raw materials for modules started to increase in July 2020 and had a significant impact on module costs from the fourth quarter of 2020. The market expected production costs to decrease from the second quarter onwards. of 2021, causing the prices of module quotes to drop, but we have seen the exact opposite. The supply chain is experiencing further price spikes for some materials in the second quarter of 2021, including polysilicon, copper or steel, among others. The increase in raw materials puts additional pressure on module manufacturers who pass only a portion of this higher cost on to customers and adjust utilization rates to control the increase in materials due to a market overheating.

In this high-priced PERC environment, we are seeing a resumption of demand for Multicrystalline BSF, a technology that was being phased out, and which has seen its demand and prices increase in some utility markets (for example, the ‘India, Middle East) and even in C&I applications. IHS Markit’s view is that this increase in demand and prices for BFS multi is a short-lived phenomenon triggered by extraordinarily high PERC prices and that the multi will continue to phase out in 2022, remaining a commodity for some niche markets due to lower efficiency.

Transport costs have multiplied and will not go down this year

Although the trade imbalance between China and Western markets is not a new phenomenon, the rapid increase in demand for goods in Western markets from very low demand during shutdowns to high demand during shutdowns. Loosening of COVID-19 restrictions and reopening of economic activity posed serious logistical challenges. Freight charges have increased 3-4 times over the past 3 quarters for shipments from China to Europe or the Americas and IHS Markit predicts that the situation will not improve significantly this year.

This is a global phenomenon that affects all industries (semiconductors, automotive, consumer electronics, etc.). The most recent IHS Markit global survey of manufacturers found that stretching supply chains in recent quarters have extended delivery times to the highest level in more than 20 years of data availability, delays being most pronounced in Europe, the United States and Taiwan. Solar photovoltaic is one of the most affected due to the high concentration of manufacturing in China. Transportation costs and long lead times could jeopardize the completion of solar projects in 2021, delaying projects until 2022. Higher transportation costs also impact other system components like trackers, which are a high weight and low value component, with a final impact on the total CAPEX of the system. .

Solar Photovoltaic System Price, Supply Cycles and Impact on CAPEX

In this high price environment that started in the third quarter of 2020, international developers are postponing purchases in the hope that equipment and freight prices will be lower in 2022. The extreme volatility of raw materials, module prices and freight costs do not help manufacturers or developers to close contracts whose terms change weekly. Given the long lead times, if the supply is delayed beyond the summer, the risk to the outlook for 2021 installations will become a reality.

In previous years, if demand slowed down around the summer and inventory increased, it triggered a drop in prices that quickly reactivated the supply process. This year, however, even if inventories start to rise and manufacturers would be willing to scarify margins, it would still have little impact on the total cost of the module to a developer. Modules costs for a developer will remain high due to the high cost of unchanged freight which will remain stable or may even increase in the second half of the year with the reactivation of economies in Europe and the United States.

High component and freight costs have a direct impact on the project’s CAPEX and IRR, which are expected to continue into the second half of 2021. This could be the first year that global average solar CAPEX may not decline after major cuts. year-on-year over the past decade. Although developers try to delay procurement as much as possible, a significant portion of the pipeline of projects under PPA contracts or programs is due to be completed in 2021. In some cases, developers accept lower IRRs than originally planned. . In others, CFEs might decide to pay penalties for project delays – which could be a lower cost than getting construction on time in the current pricing environment. The final decision depends on various factors (type of company, contractual conditions, possibility of reducing other CAPEX contributors, etc.) and cannot be generalized.

Europe and India are the main markets at risk of underperforming

IHS Markit predicts that Europe and India are the regions most at risk of underperformance. Europe faces the highest risk of being hit the hardest by high component prices, expensive shipping and long lead times, as regional market growth depends on advancing the highly sensitive segment of utilities and many contract negotiations and shipments are now paralyzed. The US market is less risky because it is less sensitive to prices, but it is also impacted by long delivery times and soaring freight costs and higher prices that could delay the completion of some projects until 2022.

Finally, despite a weak first quarter connection, mainland China, relieved of shipping problems, should stay on course for its year-on-year growth. However, IHS Markit remains cautious that price increases for additional modules, some recent tender prices have reached over 1.70 RMB / W, could jeopardize the 2021 installation forecast which are strongly biased in the second half of the year.