It has been the big concern of the solar industry for months: low prices. Chinese solar panel manufacturers have significantly expanded their production capacity in the past two years, without a significant increase in demand. The increase in demand caused by the COVID pandemic and the energy crisis turned out to be more temporary than expected.
Due to the widening gap between supply and demand, selling prices fell for months on end. This decline was so rapid that traders were left with overpriced lots. In the Netherlands, also the demand for solar panels has fallen sharply.
At the largest global solar energy fair SNEC, the atmosphere was not very optimistic, says Scheper. "It was the biggest SNEC ever, but everyone involved in solar panels complained a lot. Worldwide demand is simply very disappointing, while production capacity has doubled.“
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In recent years, the solar industry has often struggled with persistent supply chain bottlenecks that have caused rapid price increases and decreases. For example, containers were poorly available for a period of time, causing logistics costs to explode, there were temporary raw material shortages, interest rate fluctuations and so on.
"But in all those periods, it was one or two links in the supply chain that were disappointing, so that the rest could often benefit from rising prices. Now everyone is suffering from the lower prices, which means that the dynamics of the market are gone," says Scheper.
"Quite recently, only the logistics branch has become the exception to the rule. For example, the container price has risen from 900 to 9,000 dollars per container since the beginning of this year. With the current low prices, transport costs account for 25 percent of the total cost per panel. Overproduction remains the central problem that needs to be solved.“
Chinese measures
The Chinese government has now taken a first step towards a solution. Bloomberg reports that the Chinese Ministry of Industry and Information Technology will impose restrictions on manufacturers. They must not increase their production capacity any further and must use the financial resources freed up to improve existing product technology and reduce production costs.
This is a remarkable move by the Chinese government, because in the long term it is still aiming for a larger production capacity. By pausing these expansions now, we are clearly opting for the short term. Not something China is known for. What will undoubtedly have played a role is that several major manufacturers recently announced that they had suffered huge losses and therefore insisted on government intervention.
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Although this step will prevent further expansion of the existing overcapacity, it is not a solution to the current supply surplus. In addition, while reducing production costs will help manufacturers to reduce their operational costs, this is of no use to a trader with a too big and overpriced stock. They are only benefited by rising panel prices.
Countries such as the US, India and Turkey have put a significant brake on the import of Chinese solar panels with import restrictions. Europe remains wary of this, even though it has done so before for Chinese electric cars. But while the EU still has plenty of alternatives to electric cars available, this does not apply to solar panels – a market that is completely dominated by China.
Large-scale projects are the exception to the rule
Large-scale solar energy projects are still running reasonably well at the moment, Scheper observes. "That market is not doing badly, so the solar installation figures are still quite reasonable, but that is mainly due to investments in energy storage.“
A phenomenon that is becoming visible in a large part of Europe. According to recent research by SolarPower Europe, the European battery market grew by 94 percent in 2023 compared to 2022. A total of 17.2 gigawatt hours of battery capacity was installed.
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"With large-scale batteries, you can currently achieve your returns on the imbalance market. In addition, many companies in the solar energy sector have started selling home batteries. However, this is not a structural solution either. If the flex offer is significantly increased in the coming years, it will change its own business case. Then it's just a matter of waiting for an increased solar energy supply." (GS/hcn)
