The solar power manufacturing industry is having to deal with two component shortages that are affecting margins today and possibly influencing volume availability.
Solar panel manufacturers are seeing a shortage of polysilicon that has driven solar cell pricing up, even while panel pricing is moving down. Solar inverter manufacturers are seeing the consequences of a tight global market in memory chips, driven partially by iPhone demand.
The price of polysilicon in China has increased from under $13/kg in April, to over $15.50/kg at the end of October. In Taiwan, the price is greater than $18/kg. The spot market in China has seen pricing well over $19/kg. This price increase of at least 19% is eating directly into the profits of solar panel makers.
“We didn’t expect the polysilicon price to go so high inside China and nobody expected it,” Chief Executive Officer Shawn Qu of Canadian Solar
Solar panels currently use about 4.8 grams of silicon per watt. Polysilicon residential solar panels range from 260-300W. That means – in April, a solar panel cost $3.20 less per unit due to the polysilicon price increase. The average 260W solar panel sells for $.30/W – for a total cost of about $78/unit. The additional $3.20 of silicon represents – just over 4% of the cost of the solar panel.
Canadian Solar saw their profit margins in the quarter fall 7%. Hanwha Q-Cells concurred, saying “downward pressure on gross margin, caused primarily by increasing wafer prices” drove their 3rd quarter net income down 88% from a year earlier to $5 million.
Inversely, Daqo New Energy – polysilicon manufacturer – reported a gross margin of 40.8%, increasing from 31.9% in the previous quarter. Dr. Gongda Yao, Chief Executive Officer of Daqo New Energy said,
“Our third quarter polysilicon ASP were US$16.19/kg, representing a significant increase from the second quarter’s ASP of US$13.58/kg. As of today, we continue to see robust customer demand for our high quality polysilicon, with pricing in the approximate range of US$18.50/kg.”
Solar inverter manufacturers are running into the same RAM shortages that Apple, Samsung, and Nintendo are facing. This is because solar inverters rely on the same circuitry components that smartphones, PCs, IoT devices, and gaming consoles are powered by.
The shortage was predicted in 2016 as analysts saw an increase in data hungry industries packing more and more memory into their devices catching up with the global capacity of memory manufacturers.
Huawei – who makes solar panels, inverters, and smartphones – has already used less advanced chips in its flagship P10 smart phone model, while component shortages are said to be limiting production of Nintendo’s Switch.
Solar inverter manufacturer SMA stated that their full 2017 sales volume will come in at the lower end of estimates due to the supply shortage. They’re working hard to fix the issue – stating in their earnings call,
“SMA is in the process to qualify additional suppliers for critical components such as semiconductors,” Chief Executive Pierre-Pascal Urbon told analysts.
SolarEdge also referenced the shortage in their earnings call but gave no details.
Market analysts expect this memory shortage to be corrected by 2019 as global manufacturers begin to catch up with demand.
The polysilicon issue is a challenge created by the Chinese government for the purpose of forced market evolution. It is a calculated play to move the solar power industry from cheaper, lower efficiency polysilicon into slightly more expensive but higher efficiency mono-silicon. This program, called ‘Top Runner,’ was announced earlier in 2017.
One very powerful end result of increased costs of polysilicon means that solar panels that more efficiently use the base material will be less affected by the price increase. For instance, the 260W solar panel that costs $78 sees the same price increase of $3.20 for polysilicon as a more efficient 300W solar panel that costs $102/unit. The less efficient panel is losing greater than 4% of their revenue while the more efficient are closer to 3.1%.
An ultra efficient polyPERC solar panel that is at 315W and $113/unit will see these price increases represent about 2.8% of the solar panel costs.
Interestingly, polysilicon is also getting attacked from above by its more efficient competitor monocrystalline. Major manufacturers of monocrystalline have lowered the prices of the product to compete with poly manufacturers. These price changes are a result of a broad industry move – “for global solar wafer production, the ratio between mono-Si and poly-Si ones was 5:95 in 2014, 15:85 in 2015, 27:73 in 2016, 36:64 in first-half 2017 and is expected to be 40:60 in the entire 2017.”
Polysilicon is taking punches.
In reference to inverters – hearing that manufacturers might have an actual supply constraint, versus just price increases really throws cold water. Huawei limiting the levels of technology in their phone hardware also could produce some heartburn into the inverter market if such tactics become necessary. These groups will figure out how to manage – but as SMA and SolarEdge have stated, it is going to limit the total volume of sales they make – not just eat into their margins.