Price of solar panels are falling due to excess production capacity

The energy crisis caused by the Russian invasion of Ukraine and the increasing awareness about renewable energy in many countries still result in a robust demand for solar panels, according to InfoLink. 'Demand rose to 280 gigawatt peak in 2022; a growth of 56.5 percent compared to the previous year," says Corinne Lin, chief analyst of the Chinese market research firm. “As the energy transition continues around the world in 2023, we expect global demand to increase by 21.6 percent to 338 gigawatt peak.”

Optimistic scenario

InfoLink expects growth to be less steep this year than in 2022, because demand growth last year was largely caused by the Russian conflict with Ukraine and rising energy prices. “That means that if there isn't another major event this year, the solar energy market won't grow as strong as last year. But that said, the global PV market is expected to see demand grow by 60 gigawatts despite the slower growth rate. Demand may turn out higher, but policy changes are necessary for that. In an optimistic scenario, global demand could reach 398 gigawatt peak.'

500 gigawatt peak polysilicon

InfoLink sees that production capacity is developing rapidly. “Compared to the growth in demand, capacity expansion across the entire supply chain is significant,” says Lin. “In 2022, there was only 294 gigawatt-peak of production capacity for polysilicon at the beginning of the year and less than 280 gigawatt-peak of demand. This kept supply chain prices high until the fourth quarter, when new polysilicon production lines came online. That led to a total polysilicon production capacity of more than 500 gigawatt peak at the end of the calendar year. As a result, prices fell – polysilicon and wafer prices both fell deeper than expected – while solar panel prices also fell from 26.5 cents per watt peak in early November to 23.5 cents per watt peak last January.”

Excess production capacity

Based on existing expansion plans, this year will see excess production capacity throughout the entire supply chain, according to InfoLink. In addition, production capacity in every part of the value chain will exceed the 800 gigawatt peak mark by the end of 2023. Lin: 'Increasing concentration can make it difficult for tier 2 and 3 manufacturers to maintain market share in the low season. Competition is intensifying, while the vertical integration and overseas expansion plans of leading manufacturers will significantly impact the manufacturing landscape.”

Sluggish demand in the first quarter

'Looking at quarterly demand, the first quarter is the traditional low season in Europe and China,' continues Lin. 'The weakened demand from Europe at the end of last year may persist at the beginning of this year due to high stocks. India, which experienced fiscal year-driven demand at the beginning of each year, saw demand shrink due to import tariffs. Due to these factors, global demand is slow in the first quarter, but may recover gradually in the second and third quarters if supply chain prices continue to fall. Demand will peak in the fourth quarter. If China connects a large number of projects to the grid at the end of the year, provided solar panel prices fall.'

Prices significantly lower

'In terms of prices, the adjustment of the capacity utilization by the manufacturers may cause price fluctuation in the short term, but the general trend, according to InfoLink, is that prices fall due to oversupply. The market research firm expects an average price of 21.4 cents per watt-peak, significantly lower than last calendar year's average of 26.6 cents per watt-peak.

“Last year many utility-scale projects were postponed due to high prices, with the installation of ground-based solar parks in America falling by 36 percent,” says Lin. 'The installation rush was also less visible in China than in previous years. This year, if prices in the supply chain fall, projects that were postponed last year will start again. The demand from the market segment of ground-based solar parks will increase.'

Prices significantly lower

'In terms of prices, the adjustment of the capacity utilization by the manufacturers may cause price fluctuation in the short term, but the general trend, according to InfoLink, is that prices fall due to oversupply. The market research firm expects an average price of 21.4 cents per watt-peak, significantly lower than last calendar year's average of 26.6 cents per watt-peak.

“Last year many utility-scale projects were postponed due to high prices, with the installation of ground-based solar parks in America falling by 36 percent,” says Lin. 'The installation rush was also less visible in China than in previous years. This year, if prices in the supply chain fall, projects that were postponed last year will start again. The demand from the market segment of ground-based solar parks will increase.'

Prices significantly lower

'In terms of prices, the adjustment of the capacity utilization by the manufacturers may cause price fluctuation in the short term, but the general trend, according to InfoLink, is that prices fall due to oversupply. The market research firm expects an average price of 21.4 cents per watt-peak, significantly lower than last calendar year's average

From shortage to surplus

According to InfoLink, the global PV industry will not face a shortage in 2022, but rather a surplus. “This will depress prices and increase demand in the short term,” Lin expects. While the outlook for market demand seems optimistic so far, there are uncertainties such as the policies of India and the United States. The policies of these countries are contradictory, because on the one hand they want to secure local production capacity, but on the other hand they want to accelerate the roll-out of solar energy. In addition, there are questions about the development of the European economy and possible measures in the field of forced labor in relation to solar energy products. Finally, in China, the lifting of restrictions related to the coronavirus and the changing industrial landscape could drastically change supply in the short term. In the long term, the market will continue to grow as the deadline for energy targets approaches and governments stimulate the energy transition.”