Solar Power – Swanson Effect and the China Factor

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If you are considering Solar for your Energy needs, chances are your first question will be: How much do Solar Panels cost and have the prices bottomed out?

Let us look at what Richard Swanson the founder of SunPower Corporation had predicted. He predicted that the price of Solar Photovoltaic Modules tends to drop 20% for every doubling of cumulative shipped volume. Crystalline silicon photovoltaic cell prices have certainly fallen from $76.67 per Watt in 1977 to presently $0.36/Watt. The question today has moved from how much does a Solar Panel cost, to when will the price bottom out? Let us look at what market pundits say.

Taiwan based market research firm EnergyTrend says it expects solar industry over capacity to last through 2017, with supply (polysilicon through to PV Modules) exceeding demand by 18% to 35%, potentially lasting into 2018. Further as per the Market Research firm, worldwide production capacity supply of solar cells in 2017 will increase by 13GW to 15GW compared with the prior year leading to as per Swanson Effect a further drop in the price.

But wait, if there is over capacity, shouldn’t the Wafer manufacturers be making losses.? Let us look at Xian Longi Silicon, the largest solar monocrystalline silicon manufacturer in the world. Xian Longi has a manufacturing capacity of 4.5GW Wafer, 400mW cell and 1.5GW module manufacturing capacity. The first half financial (2016) of Xian Longi shows Longi achieving an operating income of $968 Million in H1 2016 and a profit of $129.77 Million. Further Longi is preparing to invest $240 Million in Malaysia and will comprise a 1GWp of Wafer, 500Mwp for monocrystalline solar cells, 500MWp for Modules and 300MWp for ingots. Now let us look at Zhonghuan Semiconductor. Zhonghuan’s capacity is close to 3GW (versus Longi’s 4.5GW) and is investing in Inner Mongolia $900 Million which on completion will catapult it to a 8GW capacity.

So the moot point is, are we seeing the bottoming of Panel prices? The fly in the soup is China and its strategy. China is contemplating a decrease in Feed in Tariff process in this year. This will reduce demand in China, causing Chinese manufacturers to drop their price in the overseas market. So are we seeing an Italy like effect of 2011 in China?

The National Development and Reform Commission (NDRC) of China has considered reducing the Solar Power Tariff by 5.6% in 2016 and a further 15% by 2020. Currently, China gives a subsidy of 1.00RMB (Rs 9.89) for ground mounted installations and RMB 0.42 (Rs 4.16) for distributed PV systems. Projects of 2016 have a subsidy of 0.8 RMB a KWH. In the personal opinion of this author, with such a subsidy, it is difficult to see any stability in solar panel prices soon. Yes, it is true that feed in tariff subsidies in China do come late; delays in receiving subsidies have crossed 12 months in 2016. Today, the subsidy shortfall is $4.7 Billion in unpaid bills (as per Chinese Government’s National Centre for Climate Change Strategy and International Cooperation). But these factors, are too little to impinge on solar panel prices.  Yes, large panel manufacturers like Trina and Yingli Solar have experienced financial difficulties. What Trina Solar does to offset such difficulties is interesting. To insulate Trina Solar from the Chinese Government’s late payments and Grid Curtailment issues; it plans to spin off its Power Plant division. However, this plan, we believe has gone into cold storage. In short, solar panel prices are linked to the larger question of subsidies in the Chinese Manufacturing Industry.

Further, the Swanson effect will go on possibly till 2018 thanks to China. In the Chinese solar ecosystem, the only player suffering are the power plant producers like Trina, Yingli etc. The rest of the ecosystem, the wafer manufacturers, the furnace manufacturers are all thriving, and will do so probably till 2018. Moreover, to avoid being linked to the Chinese market, one can now find all these manufacturers drifting on to India to avoid import duties, safeguard duties etc. These are limited to panel manufacturers. We have seen this in Malaysia and now in India. So as a consumer, should you take a decision now or wait until 2018?