Solar PV installations are expected to post 27% year-on-year growth in 2021 amid strong demand despite increased module prices, long lead times and rising freight costs, according to a new report from IHS Markit, a world leader in critical information, analytics and solutions. This comes at a time when the solar supply chain is moving into a new phase with increased emphasis on three critical factors of profitability, technology leadership, and consolidation.
“Leading module manufacturers are sold out for the first half of the year,” said Josefin Berg, Research Manager, Clean Energy Technology at IHS Markit. “There is no indication of price weakness for July shipments yet, manufacturing capacity remains sufficient and no major material bottlenecks have arisen to change our forecast for 181 GW in global solar PV installations.”
High production costs and module prices set to continue
Although module prices remain higher than the lows seen in 2020, IHS Markit expects global demand to grow through the second half of 2021. The supply chain is experiencing further price peaks for some materials including polysilicon, copper and steel that put additional pressure on module makers to maintain high module costs.
While the costs of some module raw materials, such as glass, are forecast to decline from the second quarter of 2021, the impact towards lowering module prices will be limited due to strong demand in both China and the international markets from May and an increased focus on manufacturers’ profits.
China, the United States and India set for a record year in solar PV growth
IHS Markit expects mainland China to surpass 60 GW in solar PV installations in 2021, continuing the country’s renewable power growth trajectory. The US market will install 27 GW. Meanwhile, the highly cost sensitive India market will have a surge in module demand from August 2021, as a duty-free import window opens until April 2022. Given the strong backlog of projects that piled up in India in 2020, as much as 12 GW could be installed in 2021.
In Europe, a large share of tendered projects must be completed this year, and awarded tender prices have in some cases been high enough to accommodate a cost increase. However, due to lower than anticipated returns, not all projects that were planned for installation in 2021 will go ahead.
Module industry steers towards increasing focus on profitability
The solar supply chain is entering a new phase with a bigger focus on profitability, technology leadership, and consolidation. Increasing consolidation on the manufacturing side – approximately 72% of modules were produced by the top 10 companies in 2020 according to IHS Markit research – in addition to high production costs and investors’ pressure to increase profitability will be major factors in maintaining stable module prices this year. Procurement concentration is also occurring on the development side, with the arrival of large non-traditional solar players influencing procurement strategies and creating less price-sensitive market dynamics.
“Profitability in the solar supply chain is becoming critical since the leading module companies are publicly listed and require cash to accelerate investments in product R&D and equipment CAPEX to prepare for the commercial scale of next solar generation technologies from 2023. Investments will also be needed to adapt module supply chain to lower-carbon and ESG standards demanded by the market,” said Edurne Zoco, Executive Director, Clean Energy Technology at IHS Markit.
Freight costs and lead times could put added constraints on end of year installations
Demand for finished goods and components is likely to increase in the second half of 2021 as European and US economies re-open.
“Even if demand for PV modules grows from Q2 2021, increased lead times resulting from shipping disruptions from China to overseas markets may still constrain the seasonal fourth-quarter installation rush this year and result in some installations rolling over to 2022,” says Edurne Zoco.