Blog: Frank Heijckmann

24-07-2020

Price drop of more than 25% in 2 months…… for how long?

 

For a few months now, we have been enjoying sharply falling panel prices. The decline came faster and was greater than many expected (and that includes myself). It makes sense at this time to immediately state COVID-19 as the reason, but that is too easy to say. The Corona virus caused shortages in Europe and even a temporary rise in prices in March and April. After all; demand exceeded supply, because less could be produced in China. Then it went fast, very fast. In no time about 25% of the price dropped. China has recovered its production in record time and global demand has fallen due to COVID-19. However, this is only one part of the whole story. There are a number of other reasons that have caused this exceptional decline.

 

Price drop

First, the cost of component products has dropped, mainly due to falling raw material prices. The cost of a panel has therefore decreased. The second reason is we have made a leap in efficiency and size of the cells in the recent months, which has increased the output of panels. Since we calculate the price of a panel in €/Wp, it makes sense that price per Wp decreases when the overall panel output increases. Third, the largest manufacturers, in particular JinkoSolar and Longi, have aggressively expanded their production capacity above 15 GWp per year. While the world market is currently smaller than forecasted, they continue to open new factories. That is why there is now a (temporary) oversupply on the market.

 

Interesting to note that there is some speculation that caught my attention these recent weeks. It was striking me that recently Longi set the pace of the price drops, while last year they followed other brands most of the time. Two weeks ago I saw a correlation between the verdict in the lawsuit between Q Cells vs Longi and Jinko. The latter two were accused of infringing on a patent from Q Cells, which has to do with the way Perc cells are produced. My understanding is that Jinko changed their process some time ago, but Longi hasn’t. The ruling (for the time being) only concerns Germany, which means that German customers are avoiding Longi at the moment because the risks are too high. After all, using panels that were the subject of the lawsuit could mean that they have to remove them. We see developers and EPCs in other European countries following suit. Could it be that Longi had foresight and wanted to sell their panels before the ruling was announced? This is not a hard fact and certainly not proven, but I think it is too much of a coincidence to be ignored.

 

Price falling further in H2?

The question now is how long will this continue. We would all like to know whether the price will fall further and if so how long and how far the decline will continue. In recent weeks the first signals surfaced on the world stage that suggest prices will increase. A report was released by Goldman Sachs on 3 July in which some interesting statements were made by the management of various manufacturers. The main conclusion is that a strong increase in the demand for panels in China is expected in the second half of 2020 and growth in North America and Europe in the same period. I also noticed that the “production slots” at the big brands are filled up into late Q4. That can only mean one thing: the order books are full. In addition, a series of explosions has occurred at GCL’s silicon plant in Xinjiang, accounting for 10% of world production of polysilicon. Already we have seen significant price increases for mono-Si cells (+ 15%). But what does this mean for us in Europe?

 

I do not believe that prices will rise immediately, but I do believe that we have reached the bottom for the time being. But price is one thing. Availability is just as important. Where we did well in the last few months by buying the panels at the last moment, I do believe there is a better strategy for the rest of Q3 and Q4. Of course everyone may think differently about this subject. I see the market shifting. When it is turned, we are too late; and we all know how fast the turn can come.

 

Frank Heijckmann

Founder PVO International