Supply Update: Yes, Depending on the Country, There Is a Module Shortage
The solar PV industry is at a high degree of capacity utilization in 2017 driven by strong demand in China for PV deployment. Globally from 86 GWp to 92 GWp is on track to be installed in 2017. Currently the industry has 92 GWp of manufacturing capacity and at the beginning of the year there was 3 GWp of inventory on the supply and demand sides. This means that in 2017, and in a perfect world with no unexpected manufacturing downtime, the industry will be >95 percent capacity utilization. It is highly likely that inventory will be worked off in 2017 leaving no cushion for 2018. Given current supply constraints, manufacturers will need to make some hard decisions about capacity additions. Additional module assembly will not ameliorate the situation. Additional cell capacity is required and the decision to add capacity in an incentive or mandate-driven industry is not to be taken lightly.
Figure 1 presents global PV shipments and capacity from 2006 through 2016. In 2016, following several years of improvement, the industry had 87 percent capacity utilization. Utilization of >95 percent would be a record over the industry’s 43 years of commercial production.
Figure 1: Solar Cell Commercial Capacity 2006-2016
Installers in the U.S. and other countries are currently experiencing a shortage in module availability. The shortage is not merely one of perception; supply is tight, the market in China is booming and many manufacturers are delaying orders from U.S. installers and module assemblers until a remedy is announced in the U.S. trade case.
Why wait? Unless the suggested remedy is no tariff (highly unlikely) manufacturers in countries unaffected by the upcoming tariffs and potential quotas can raise their prices. Manufacturers in countries affected by the upcoming tariffs will need to assess the damage and the value of the U.S. market and develop a pricing strategy to take the changes into account. A few manufacturers have offered guaranteed pricing for future orders, in particular, large quantity orders. In an industry with a history of broken contracts and the ensuing litigation, caution is the best way to approach these offers.
The other issue is the dominance of China’s PV manufacturers. China has, including its off-shore cell manufacturing capacity, 59 percent of global capacity to manufacture cells, and as it will install close to 50 GWp in 2017, it is 53 percent of the market. As no markets are currently any more profitable than its domestic market, why should it bother with the U.S., Europe and India? In poker, and in any negotiation, the person who can walk away from the table has the most power.
The current shortage has come about because China has, at least temporarily, walked away from the table. In a year when demand will be met only because there is available inventory on the demand and supply sides of the industry the world market needs China’s solar manufacturers more than they need the world market.
Figure 2 offers China’s share of PV manufacturing capacity and PV demand in 2017.
Figure 2: Solar Cell Capacity and 2017 Demand Estimate
Q1 through Q3 Shipment Estimate
Shipments of PV cells and modules increased by 7 percent in 1Q17 to 18.9 GWp from 17.6 GWp in 4Q16. Shipment growth accelerated during 2Q17, increasing by 15 percent to 21.8-GWp.
PV shipments of cells and modules are estimated at 22.3 GWp to 24 GWp during 3Q17.
Shipments are assessed from the origin of cell manufacture to the first buyer (first point in the supply chain). The first buyer can be a module assembler, an installer or a developer and is often another PV cell and module manufacturer.
Figure 3 presents the share of PV shipments by country through the estimate for 3Q17.
Figure 3: 2017 PV Shipments through Q3 Estimate by Country
Lead image credit: depositphotos.com