Tumbling prices increase access but bring warranty, quality challenges

The solar story in 2023 was one of rapidly falling solar module prices. After a period that combined supply-chain disruptions with strong demand to cause a price spike, 2023 saw prices take a tumble. And while cheaper modules can open rooftop solar to an increasing number of households, it can also bring with it significant risks.

With the growth of the global solar industry, there are a huge number of sources for price and market information and analysis. And one report, from UK-headquartered energy analysts Wood Mackenzie, or WoodMac, was notable.

The report was “Top of the charts: ‘Five low-carbon tech trends worth tracking’” and its release shortly after the COP28 climate negotiations in Dubai and in the run-up to the holiday period could well have passed many by. In it WoodMac noted that China’s PV production costs had fallen by 42% in 2023.

It observed that while there is increasing support for the establishment of a more geographically diverse solar manufacturing landscape – particularly in the US and India – the Chinese PV industry is proving remarkably adept in achieving cost reductions. The result being that as manufacturers outside of China try to establish new production capacity or expand their existing operations, the goal posts of costs and pricing have moved.

One of the report’s authors, Steven Knell, WoodMac’s vice president of Power and Renewables, put it pretty bluntly: “If there was a green arms race, China has won it. Although there are multiple dividends like domestic employment and getting on a more resilient supply chain basis, from a cost standpoint the contest is over.”

The report observes that module prices fell to USD0.15/W (AUD0.23/W) in 2023. And taking a look at the WoodMac chart below, it is clear that module prices from the factory gate are a solid whack higher in India, Europe, and in particular the United States.

Where savings are made

The WoodMac chart is based on module prices from manufacturers, but it’s not a matter of just cutting prices - the analysts’ claim that costs have also fallen, and fast. “The cost savings have been achieved through structural shifts, which point to a persistent competitiveness and not selling below cost,” said Knell.

The savings have been achieved through the scaling up of production, Knell reported, the vertical integration of manufacturing, larger wafers sizes, thinner wafers, thinner aluminium frames, and “critically cost reductions in the raw material side.” And while the technology shifts have been at least a few years in the making, the drop in raw material cost has been sudden and looks to have been hugely impactful.

The primary raw material in a solar module is polysilicon. Unlike some minerals used in battery production, like cobalt, there are few raw-material constraints in polysilicon manufacturing. Global polysilicon production capacity has increased massively over the past decade or so – primarily in China, although it also produced at volume in Europe, Southeast Asia, and the United States.

Germany-based analyst Johannes Bernreuter is pretty much the guru when it comes to collecting data and analyzing global polysilicon production and market dynamics. In a recent piece published on LinkedIn, Bernreuter set out the reasons as to why polysilicon prices tend to spike and then crash on a seven-to-eight year cycle.

In his analysis, Bernreuter argues that the high capital expense required to construct a polysilicon production facility, alongside the long period of time it takes to build and then ramp the plant, results in a highly cyclical market. In short, when supply is short and prices are high, investment decisions to build new polysilicon factories are made. Yet, by the time large amounts of polysilicon are produced in the new factories a lot of other fresh capacity comes online, resulting in oversupply and a price crash.

2023 saw polysilicon prices take a dive after having been very high for the previous two years. While there are different polysilicon classes and geographic market fluctuations, in general terms the price of the material has plummeted from a peak of around USD40/kg in August 2022, down to less than USD9/kg in December 2023.

Why poly matters

The fast-falling price of polysilicon is great news for PV manufactures as it translates to cheaper wafers and cells, the building blocks of modules. And it can be attributed to a big chunk of the module cost declines in 2023 as observed by WoodMac.

Significantly cheaper polysilicon may well have helped solar module makers stave off losses, as the PV manufacturing segment also shifted into oversupply. Finlay Colville is the head of research at Solar Media, the publisher of PV-Tech. In a lengthy article on PV-Tech, Colville argues that a downturn in the solar manufacturing segment was delayed by the falling cost of polysilicon. In short, while module prices started declining in mid-2022 and then accelerating throughout 2023, the impact of the price decline was absorbed by cheaper polysilicon – module prices and costs fell at the same time.

However, the polysilicon price cannot fall indefinitely, and prices today are approaching historic lows seen in mid-2020. “This is why I think from the start of 2024, it is highly likely the PV manufacturing segment goes into the next downturn,” said Colville.

Of course, cheaper modules may see more PV get installed, across all market segments. But as many in the industry know, there are limits to installation that price can’t address – like permitting, availability of grid connection, and financing costs.

Sydney-based financial analyst Tim Buckley, formerly of IEEFA and now Climate Energy Finance, said that he expects module prices to sink to USD0.10/W by the end of 2024. Speaking to pv magazine, Buckley noted that this is well ahead of pioneering UNSW solar researcher Martin Green’s prediction, made at the end of the 2020s, that module prices will sink to that price point by 2030.

Buckley said that he expects the price decline to spur investment in solar installations but also result in older manufacturing facilities going out of business. “Old facilities simply can’t compete with the scale advantages nor the new technology investments of the world leading firms in this sector, almost all of which are Chinese.”

What matters to us

So, where does that leave rooftop installers in Australia? It is both a windfall and a threat, with lower prices making a rooftop system more affordable to a wider range of homeowners. It also makes bigger system sizes more attractive, a trend that is being borne out by the latest installation data.

Yet, it’s important to recognise the threats of oversupply. With manufacturer profit margins squeezed by intense price competition to vanishingly thin levels, questions about product quality and after-sales service arise. And bankruptcies can leave warranties worthless and dent the confidence of end customers.

As PV-Tech’s Colville puts it: “Yes, low module pricing is great, but a bankrupt manufacturing segment has way more risk than opportunity for anyone in the industry.”