Most solar module producers and inverter manufacturers have taken a significant beating on stock exchanges over the last few months, well before module capacity expansion announcements. Jenny Chase, solar analyst at BloombergNEF, said that there is an oversupply across the entire value chain.
“Module and polysilicon prices crashed,” Chase told pv magazine. “There is a lot of inventory of modules in different markets. That means that, although installations are still booming and there is no sign of slowing down, the prospects for individual companies are not generally good, as they are selling more at a lower profit.”
Polysilicon prices spiked to more than $30/kg throughout most of 2022. Since the start of this year, they have fallen from $30.50 to just around $9 today.
Chase said that supply has finally caught up with demand. She said polysilicon prices have had a significant impact on polysilicon makers.
“New Chinese factories have come online and produce a lot of material. There is just enough of that,” she said. “It also has knock-on effects because it lowers the barriers to entry across the value chain, with additional competition from new entrants. It also means that any company with inventory, which is basically all of them, sees a reduced value of what they have in stock.”
Chase said that module prices were expected to decrease, but not to this extent. Module prices dropped from $0.22 to $0.24 at the beginning of the year to $0.15 today.
Rebecca McManus, renewables lead at Aurora Energy Research, agrees on the significant role played by the decline in polysilicon prices. She noted ongoing manufacturing capacity expansion in China, and plans to expand manufacturing capacity in Europe and North America.
“The rapid expansion of production capacity by Chinese manufacturers has outpaced the growth in demand,” McManus told pv magazine. “This is particularly relevant as prices there are normally two-thirds of the production prices in Europe.”
Similar European announcements are broadening the gap between supply and demand.
“There has been a big push for a more European-led manufacturing of the solar modules. Instead of importing from China, European countries want to produce 30 GW by 2025,” said McManus, noting that EU subsidy reforms are a crucial pillar of this EU strategy.
However, there is potentially another element to the EU plans.
“The new European policies could penalize developers not sourcing from Europe, but from China,” said McManus. “There is a geopolitical risk connected to that.”
The United States is a somewhat similar case, although with some differences. The US Inflation Reduction Act (IRA) provides opex support for local manufacturing capacity, while EU support is mostly capex-based.
“The IRA is incentivizing capacity manufacturing locally in the US, setting up funding for that,” said McManus. “The US has a large budget for encouraging local manufacturing.”
A second geopolitical risk is related to the supply chains, with China controlling most polysilicon production. Possible tensions could take a toll on European module manufacturers that rely on polysilicon imports from China.
On the other hand, geopolitical risks don’t simply have a bearish effect on stock prices. In some cases, they are pushing up the stock prices of American companies. While several US-based companies have seen the value of their stocks increase by up to 35%, Chinese players have seen decreases of up to 40% to 45%.
“First Solar is an index of US-China trade tensions at the moment. First Solar is expanding because the US has a trade war going on with China and it is trying to restore manufacturing,” said Chase. “Every time there is an intensification of the trade war First Solar is up.”
Other US solar companies are suffering, though – especially in the inverter and microinverter business.
“Some of that could be just that there are other microinverters coming into the market,” explained Chase. “When stock prices change, it does not necessarily mean that there is something bad that has happened to the company, but that the company is not doing as well as the investors expect they would.”
Nonetheless, European manufacturers are considering scaling up operations in the United States.
“Meyer Burger is reallocating the equipment it ordered for Europe to the Colorado factory. Basically, it has bet on the American market,” said Chase, adding that the company reported disappointing results due to the crash of Chinese module prices.
The idea is that Europe should pour more money into domestic manufacturing, especially if it anticipates an escalation of geopolitical tensions.
“US wants to keep the Chinese modules out. Europe has the more realistic goal of having some supply chain that is not Chinese, and ideally some in Europe, in case geopolitical tensions ramp up, so we don’t have a situation where the West is digging up things to burn, while China is running on solar and wind,” said Chase.
She said she feels more certain that European manufacturers will be getting major capex grants than she was six months ago. Still, doubts remain. “How much is that going to help if your opex is higher than the selling price of modules?”
McManus noted that technological developments can have a negative effect on stocks.
“As the technology is maturing, the actual installation costs increase. But there is another element: the size of the installation is changing,” said McManus. “The lifetime of the inverters will have an effect too. Previously, the usual lifetime for inverters was 12 to 15 years, now 25 to 30 years. There is also a similarity for modules. They will last longer and will be more efficient.”
But not everybody agrees.
“I don’t think that most companies tracking stock market investments care much about higher efficiency,” said Chase. “Although they want to invest in companies that have good manufacturing, which generally means being able to increase efficiency without increasing costs.”
The two analysts agree that stock prices for module and inverter manufacturers will reflect the capacity of companies to embrace, if not anticipate, technological advancements in the highly competitive sector, potentially leading to bankruptcies in the coming months, despite the installation boom.
“You can have a very highly successful solar sector, with many companies going bankrupt,” concluded Chase. “I think we should expect quite a lot of bankruptcies and some exits.”
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