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The solar industry has a supply problem

08.02.21

Original article: https://www.canarymedia.com/ar...

By Emma Foehringer Merchant | August 2, 2021

In the early days of the coronavirus pandemic, the solar industry girded for disaster. Experts predicted 2020 installations would drop below 2019 levels. Analysts forecast that home solar installations specifically could drop by as much as 40 percent. Months later, though, the industry emerged relatively unscathed. Solar developers even logged record growth in 2020.

This spring, however, a supply crunch hit like a delayed hangover.

Solar materials including aluminum and polysilicon became harder to obtain, while shipping costs rocketed to unprecedented heights. And the spreading delta variant of Covid-19 has underscored for many that the pandemic is sticking around and could continue to disrupt systems. For solar companies, the pressure doesn’t appear to be letting up.

Taken together, the conditions could push up prices for solar contracts and even delay projects, just as the Biden administration is hoping to dramatically boost solar deployment.

A “perfect storm”

The trouble with solar materials started to emerge mostly in the second half of 2020, said Edurne Zoco, executive director of clean energy technology at research firm IHS Markit, in an email. Shortages of essential solar materials such as glass, aluminum and silver — caused by both coronavirus shutdowns and increasing demand — drove prices up.

While some of those material challenges, such as glass shortages, have largely been resolved, others are expected to linger through 2021. Many of the industry’s top module manufacturers noted challenges related to solar materials on their latest earnings calls.

First Solar, a producer of thin-film photovoltaic modules, said it was reducing aluminum usage in its module frames to cope with increasing prices. Others, such as manufacturer Canadian Solar, are raising module prices in response. Maxeon Solar Technologies, a solar manufacturer that split from residential solar provider SunPower in August 2020, attributed a decrease in profitability to higher prices for raw materials and freight shipping during its first quarterly earnings call of 2021.

Polysilicon in particular has become a recent sticking point, with prices shooting up first due to factory shutdowns and later because of an increase in demand.

“Polysilicon prices have hit the roof,” said Zoco, who added that high prices and shortages are likely to persist through the rest of the year and could worsen if another wave of coronavirus infections leads to shutdowns or if manufacturing hiccups occur.

The issue is particularly significant in the U.S., where polysilicon is constrained by Biden administration policies that require solar companies to ensure their products are not linked to firms that use forced labor in China’s Xinjiang province, where much of the world’s polysilicon is produced. The administration could also take additional action to bar such imports.

Overall, “supply chain friction” has caused solar module prices to jump 18 percent since the beginning of the year, according to an analysis released in late July by Roth Capital Partners. That’s helped push power purchase agreement prices up as well. Nearly three-quarters of solar developers who participated in a survey released in July by LevelTen Energy said they’re boosting PPA prices because of increasing costs for modules and polysilicon.

Shipping delays, which have hit all types of products, have only exacerbated those issues. Cargo space on container ships headed to the U.S. from Asia — where most solar modules are manufactured — is at a premium. The price to transport a shipping container from China to California has increased 43 percent in 2021, according to recent reporting in The Wall Street Journal.

“Global manufacturing and shipping is impacted,” said Chris Murphy, business operations manager at Swinerton Renewable Energy, which carries out engineering, procurement and construction services for solar projects. “All you have to do is look around. Everything you go and try to buy these days, even in your personal life — I went to buy a refrigerator, and there’s no refrigerators.”

And for Swinerton’s business partners, Murphy said, the shipping delays alongside the increase in commodity prices have created “kind of a perfect storm” of difficulties.

Projects in ‘hibernation’

While prices have climbed, this has not yet led to a significant wave of project delays or cancellations, according to industry experts.

Solar producers are relatively accustomed to fluctuations in demand. Unpredictable extensions of the Investment Tax Credit mean developers are no strangers to squirreling away modules or other system components for later use, for instance.

The current challenges will have the greatest impact on installations in the midst of procuring materials. Some developers are using a phased installation schedule to delay module purchases, said Zoco. Others are weighing whether to wait for modules or take whatever is available, which may require system redesign, said Kelsey Goss, a solar analyst at energy consultancy Wood Mackenzie.

Goss said few projects have been delayed thus far. But that could change.

“There’s strong reason to suspect that PPA contracts that have been signed for some time are being reopened and reexamined,” said Rob Collier, a vice president at LevelTen, which runs a marketplace connecting renewable energy buyers and projects. “I think it's reasonable to assume that the key components in those PPAs that are being reexamined and reopened are price as well as commercial operation date and timing.”

Swinerton has already experienced some delays. And though the firm hasn’t seen any of its projects get outright cancelled, Murphy said some are in “hibernations” until circumstances improve.

The crunch is particularly acute for large-scale developers because their projects require significantly more materials than do home installations and they tend to source their materials and modules from abroad. Solar manufacturers based in the U.S. more often supply residential projects.

“Projects that people have bid are under significant pressure, really from all dimensions,” said Mark Widmar, the CEO of thin-film manufacturer First Solar, on the company’s earnings call in late April. “There’s going to be a number of these projects that are just not going to happen.”

It’s unclear how quickly shortages and delays will clear up. But IHS Markit still expects global installation growth in 2021. Demand for solar remains high.

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