Increases in prices across supply chain send PV demand lower

The global PV market has been recovering since the end of Q2. As the COVID-19 pandemic gradually subsides in non-Chinese markets, market demand beat forecast. While the high season was expected to fall upon the second half of this year, a series of explosions at polysilicon factories in Xinjiang and flood threats in July has made polysilicon shortage worse than expected, prompting prices across the supply chain to climb amid concern over the shortage.

As a result, module prices have been on the rise, putting off solar installation, and they look set to depress demand in the second half of this year. Meanwhile, considering that it is not yet clear how the pandemic will evolve and Europe, the United States, Japan, South Korea, and the Middle East are facing risks of COVID-19 resurgence, InfoLink has revised down its forecast for global module demand from 121.5 GW to 117.1 GW, somewhat lower than last year’s level.

Price trends

In the wake of blast at Chinese polysilicon plants, polysilicon shortage sent prices soaring in the upstream segments since late July. Polysilicon shortage may reach its peak this year in Q3. The marked increases in polysilicon prices have prompted wafer and cell prices to jump. 

As polysilicon factories in Xinjiang have been resuming operation since late August, polysilicon producers are more likely to run at near-full capacity in September. And with non-Chinese polysilicon producers running at full capacity, there won’t be much increase in mono-grade polysilicon prices. In the wafer market, price increases began to slow as the supply of mono-grade polysilicon is growing, some wafer production lines are under maintenance, and polysilicon demand is dwindling due to high prices. 

The rapid increases in polysilicon prices have taken a heavy toll on cell and module segments, as well as the end market. But module prices can hardly pick up to cover growing costs—which is the case in the cell and wafer segments—since many orders for the second half of this year have been booked. With the costs of cells and PV glass rising, some module makers have cut production. The impact of diminished module production is penetrating upstream to the cell segment, which is also dealing with rising wafer prices.

As new production lines for cells are coming online in Q3, cell prices will start to decline at the end of the quarter. Indeed, prices for G1 cells have been on the decrease since the end of August, due to the presence of substantial production capacity and a shift in the mainstream size. Prices for M6 cells have gone down by RMB 0.01/W to RMB 0.92–0.93/W as a result of downward price pressure from module manufacturers, although the cells are still in demand. Cell prices in non-Chinese markets have declined fractionally to USD 0.121–0.122/W on average. Wafer prices are expected to hold ground for a longer while as wafer producers wield higher bargaining power.

In response to growing costs, Chinese module makers have raised their price quotes by RMB 0.1–0.2/W to RMB 1.6–1.7/W. The trading prices for M6-based mono PERC modules has recently climbed to RMB 1.55–1.65/W, but there are only a handful of other deals booked with price increases. If module prices top RMB 1.6/W, it will pose a huge obstacle to unsubsidized projects, for which investments are strictly controlled and are not subject to commissioning deadline.

Unsubsidized projects that are deemed incapable of offering the intended returns on investment may not see inventory draw-in until Q4 or even next year, when module prices are expected to resume their downward trends. As such, developers of these projects will opt to postpone installation until next year, thus eliminating the need to procure higher-priced modules to meet the commissioning deadline at the end of this year. Since increases in module prices have hit unsubsidized projects, InfoLink has lowered its forecast for Chinese demand for unsubsidized projects to 7 GW and that for Chinese full-year demand from 43.5 GW to 41 GW. 

Impacts of increases in module prices have not rippled through overseas markets. And as end customers in China and abroad are biding their time, there are only a few new deals clinched in recent times. Module prices in non-Chinese markets, which show no continued increase, now stay at a trading price of USD 0.185–0.195/W. Some PV projects in non-Chinese markets will be postponed for grid connection until next year, causing module demand to shrink in Q4.

With prices going up across the supply chain, nearly all PV projects that do not have to come online within this year—whether in China or abroad—are postponed for installation. Module demand in Q3 and Q4 may remain stable, rather than growing on a quarterly basis as it did in the pre-price increase period.