Supply Chain Crisis Take 2 – Impact on Solar PV Industry

Abhishek Shukla, Managing Director, Synergy Consulting, discusses Supply Chain Crisis – Impact on Solar PV Industry.

Solar PV market is yet again faced with an unplanned price hike due to supply chain bottlenecks. Shanghai and Ningbo, the ports handling 90% of solar module export volume are on lockdown. The question is will it be a temporary or long-term impact to the Solar PV market?

In 2009 when the global financial crisis unfolded, global PV installations grew by 25% on the back of a 30% reduction in solar module prices. During the past decade PV component prices have fallen in all categories due to a massive module oversupply pressuring manufacturers to reduce their costs. Early in the mid-2010s the industry saw a rapid decrease in cost of electricity generated from Solar PV projects. A reduction in tariffs attained by utility-scale Solar PV projects also continued till the end of the decade where Solar PV attained grid-parity with fossil fuel fired generation in most geographies.

Fast forward to 2020, zero-COVID strategy imposed global lockdowns in key export cities yielding a severe impact on the Solar PV components supply chain. Once the lockdown was lifted, most of the PV manufacturers did rebound quickly resuming normal production resulting in historically low prices. However, demand caught up with crippling supply chain and prices soared. To compound the PV supply chain bottleneck, several factors influenced the upward pricing trend including raw material and polysilicon shortage, higher shipping, fuel costs, an increase in funding for Chinese Solar PV module manufacturers in wake of real estate crisis, and commodity prices due to inflation. To further intensify the problem, Chinese Yuan appreciated against US $.

The global economy limping back to normalcy, hit another bump in the road further fueling inflation, in 2022, the market is facing challenges due to geo-political and humanitarian crisis in Eastern Europe together with the zero-COVID strategy lockdown in Shanghai and Ningbo. The surge in pricing is directly affected by the increase in shipping costs. The Shanghai Freight Index, which tracks the cost of shipping a freight container from Shanghai to numerous ports around the world, has increased approximately six-fold from the pre-pandemic baseline. This is in addition to the significantly higher gas prices. These and other supply chain constraints have resulted in significant delays in utility scale Solar PV projects acknowledging postponements until 2024 / 25.

With market clarity unknown, global initiatives are necessary to ensure that supply chain bottlenecks only have a temporary impact on the solar industry. Most recently China Commerce working together with foreign businesses including European, Japanese, South Korean, UK, and US chambers are exploring options to help resolve the supply chain issues. Solar PV needs market clarity for the rebound.