By Martin Deak

2021 is expected to have the highest PV installation capacity on record for many key markets, including China. In the last few months, PV module suppliers have been continuously increasing their prices for 2021. A part of the reason is high domestic demand.

With module demand expected to remain consistently high throughout the year, coupled with continued raw material supply constraints, suppliers have little reason to lower prices this year. This blog will outline the increase in 2021 solar demand. A follow up blog will discuss the PV raw material markets.

China’s 2021 Solar Push

While 2020 saw approximately 140 GW of new installations globally, 2021 is projected to see growth up-to above 180 GW. China accounted for around 35% of the global new capacity last year as its annual installations surged after a multi-year period of decline. This trend, driven by the national policy objectives, including the 2060 carbon neutrality target, will also continue this year.

2020 installations exceeded expectations and reversed the declining trend observed since 2017 - a record year tainted by high curtailment rates followed by a period of decline.

Following the 2060 net zero goal announced in September 2020, China’s current 5-Year Plan envisions 370 GW of new solar installations by 2025, a 70% increase from the installations on record from the previous five-year period. Scratching earlier forecasts, the January 2021 guidance from the National Energy Administration regulates annual allocations of these 370 GW by frontloading 120 GW of combined solar and wind into 2021. The feasibility of this plan is yet to be seen, but even if solar installations are on the lower end, the global industry is set to endure some of the impacts of high Chinese domestic demand observed in 2020.    

Taking into consideration the Chinese wind industry’s October 2020 pledge to commercialize 50 GW of new capacity each year through 2025, solar installations would need to contribute 70 GW to the total 120 GW new capacity mix goal in 2021. Although the pledge seems feasible in the light of the last year’s record 45 GW of new installations (72 GW including projects with delayed connection dates), looking at the industry’s five-year annual average of 25 GW (in comparison to around 45 GW for solar) warrants caution. If the wind industry falls short of its goal, the impact on solar could increase; that is if we assume the 120 GW NEA goal will be fulfilled.

Impact of China’s Demand on Global PV Prices

Even with only 70 GW of installations in 2021, equal to 40% annual growth, the global industry is likely to endure some of the impacts of the high Chinese domestic demand seen last year.

The module price hikes observed since October 2020 appear to be far from over. The reasons are various, including high raw material costs and other factors outside of the suppliers’ direct control, yet the incessantly high demand enables sellers to keep the prices high.

As the high year-end installations around the globe, and especially in China, which installed around 30 GW, or 60% of its yearly installations in the fourth quarter alone, led to module price increases, developers pushed out projects into 2021. This has led to strong demand in the first half of this year allowing multiple suppliers to fully book their module manufacturing capacity for the first two quarters within the first two months of the year.

The end-of-year bookings also appear to be good. Per CEA’s estimates, the effective global cell production in 2021 should be around 210 GW (based on 75% average utilization and discounted new build announcements). If China domestically utilizes 30 GW in the fourth quarter (40% of the projected 70 GW), there would be around 30 to 40 GW of cells left to serve other markets, many of which will observe similar year-end uptakes in installations. Although this would mean a less constrained last quarter in comparison to the same period last year, the supply and demand could be just balanced, benefiting the seller. Module suppliers can thus be expected to be in less of a rush to close contracts with international buyers, and, as we have already seen in some cases, prone to adjust the year-end module prices upwards.

The best period for manufacturing and deliveries now appears to be the third quarter, as most suppliers, including a majority of those who have been continuously increasing their prices over the last several months, are signaling a price drop as we enter the second half of the year.

China Solar Subsidies and Seasonality

Historically, Chinese subsidy projects’ commercial operation dates have been in the middle and end of the year. This helps explain why projects in China typically follow a cycle which ensures a significant uptick in demand in the last quarter.

In 2020, when many PV module factories’ utilization was low during the early part of the year, China installed over 60% of its yearly installations in Q4 alone. Q4 2021 installations in China are projected to account for nearly 40% of annual installation totals.

Although the total amount of solar subsidies offered by the Chinese government increased this year, from CNY 1.5 billion to CNY 3.4 billion (USD 230 million to USD 525 million), subsidies are not being extended to newly built projects. Despite the shift to a subsidy free market, developers are still expected to follow the usual schedule, and domestic demand in Q4 will be high. This is also causing many suppliers to increase end-of-year price guidance as they are finding 2021 Q4 domestic bookings to be solid.

2020 Projects Pushed to 2021

Aside from China’s push for solar installations this year, many projects from 2020 were delayed and pushed into early 2021 due to COVID-19 construction obstacles, end-of-year price hikes, logistics slowdowns, and financing uncertainty.

The 2020 delays will likely result in over 25 GW of European installations in 2021, a stronger United States market, and a big resurgence in India, and several big suppliers are nearly fully booked for the first half of 2021.

Beyond Demand

The current PV market is volatile, both for the buyers and suppliers. In the next blog post we will look at the raw material and other bottlenecks impacting the supplier’s bottom lines, and the different strategies employed to hedge against these uncertainties.

Martin Deak is a Senior Manager, Supply Chain Management for Clean Energy Associates (CEA). At CEA, he works with North American and European buyers and Chinese and international suppliers of PV modules, inverters, mounting structures, and storage equipment.