Filip, how would you describe the current market situation?
As employees of the fastest-growing solar equipment distribution company in EMEA, we’ve been on a journey that feels a lot like a roller coaster ride - a ride that is often referred to as the “solar coaster.” This year is no different.
On the one hand, the residential and C&I market has moved from module and inverter shortages of the past 2-3 years to abundance of equipment. The European market, in particular, is experiencing an oversupply situation, with an estimated 40 GW of solar panels stored in warehouses across the European Union, as reported by Rystad Energy's Freedom from Fossil Fuels report.
On the other hand, many developers and EPCs are struggling to secure supplies of utility-scale modules, inverters and storage solutions. This is why we have established a new business line, which aims to provide these players with better access to the needed components.
You mentioned oversupply in the residential and C&I space. Are you seeing residential and C&I PV demand slowing down?
We do not see the overall demand for residential and C&I PV systems falling. However, its geographical distribution is changing. Some markets are experiencing slowdowns, but others, like UK, Germany or South Africa, are reaching record levels of installations this year.
What has definitely changed is de-bottlenecking on the supply side. More manufacturers have entered the competition for this segment of the solar market, with strong funding from investors and hence more capacity. Distributors, who scaled up their businesses over the past 3-4 years, stocked up more to prepare for the current season. Also, the energy prices have dropped significantly in Europe this year, resulting in less urgency from investors as compared to last year. For these reasons, the market may feel as it slowed down.
In 2022, the world installed 239 GW of new solar. According to the Solar Power Europe report, 2023 promises another solar boom year, with an expected addition of 341 GW of solar capacity to the grid by the end of the year – representing a 43% growth. This demonstrates that the demand for solar PV systems remains strong and continues to grow worldwide.
Menlo Electric recorded ca. 600 MW of sales in all of 2022. This year, we reached that level in Europe alone by end of September.
You said that the supply situation in the utility space is very different from residential and C&I?
Indeed. Neither module manufacturers nor distributors do not typically stock up on the panels needed for the utility-scale projects. This is why new builds are contracted with manufacturers on-the-go, and due to the growing demand, the capacity is not always immediately available.
The situation is even more demanding on the inverter side, with long waiting times for inverters from market leaders, like our key partner Sungrow.
Over the past years we have worked with major developers and EPCs several times to help them overcome these challenges. Thanks to this experience, we realized that the needs of this segment are quite different from residential and C&I installers. This is why we have recently announced the establishment of a new business line for IPPs, EPCs, and developers.
The new business line will focus on providing key accounts with improved access to utility and C&I-scale modules, inverters and batteries. In addition, clients will be able to beneft from a direct point of contact, legal support, flexible financial terms and end-to-end logistic support directly to the investment’s location. By providing these services, we aim to streamline the project management process for our clients, especially for projects in the 1 – 30 MW segment.
Does Menlo currently have high inventory levels? What strategies are being implemented to deal with the existing challenges?
As a distributor, our role it to provide our clients with constant availability of the brands we represent and promote. At the same time we need to avoid overstocking due to falling prices. It is a tricky balance to strike. It requires continuous, open communication with clients and suppliers, as well as forming strong, trust-based relationships on both sides.
Responding to the current trend, we have reduced the stock levels for modules. On the other hand, we have extended the number of brands we work with in the inverter and storage space, which led to an increase in stock value of this component group.
Did you miss that? Navigating price fluctuations
What helps Menlo Electric navigate the current environment is our breadth of presence. This year we strengthened our position in key European markets, like Germany and UK, as well as opened new chapters in South Africa and the Middle East. Having this global perspective is crucial. By diversifying sales across various markets, it is possible for us to mitigate the impact of market downturns in one region with growth in others.
What is the current financial outlook for your company?
Menlo Electric’s scale of operations shields us from the downturn in the industry. Our profit for the first half of the year was significantly higher than in 2022. We do expect the second half of the year to be more challenging, though, due to the module price drop in Q3.
Our financial health is confirmed by our recent financing arrangements with leading financial institutions, like HSBC, mBank (Commerzbank Group) and KUKE (PFR Group).
We are constantly expanding into new markets, building a truly global distribution player, but with strong local presence in all of our key regions. In South Africa, for instance, Menlo Electric started sales at the end of February and we already have 100 clients that we serve with modules, inverters and storage solutions.
We are committed to maintaining this momentum and continuing to deliver value to our stakeholders.
When do you expect inventories may reach reasonable levels?
On the manufacturing side we are entering a period of prolonged overcapacity. Most leading players have already raised or are raising capital on the promise of continued growth & sustainable, high margins. That means they will have “war chests” to draw from during this period.
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On the distribution side, I see most players right-sizing their stock levels already this year. And based on the lessons from 2023, I do not think they will overstock for 2024.
On the utility-scale, we still expect to see shortages and delays for key components. We are inviting all developers and EPCs experiencing these challenges to reach out to Menlo Electric.
Could you provide some figures?
In January, our European module stock was over 50 MW, but currently, PV module stock has been reduced by almost three times and is now less than our monthly sales.
It's evident that we've made significant progress in addressing the challenging conditions faced by distributors. (hcn)
