(Editor’s note – With the bidding process for the 750 MW of solar projects through VGF under JNNSM Phase 2 about to commence very soon, prospective developers should be vary of underestimating the project cost. We expect the module prices to go up further and we explain the reasoning behind that in this blog).
45-50GW – That is the total annual global PV capacity expected to be added in 2014. This outlook was released by Deutsche Bank last week at the Solar Power International event in Chicago. A few days, market research firm Solarbuzz came out with a more aggressive outlook that solar PV annual installations will break the 50 GW barrier in 2014 and forecast that the demand could be in the range of 45-55 GW. On the other hand, its market research rival IHS predicted a more conservative number of 41 GW of solar capacity addition in 2014.
In comparison, there is a near consensus that the solar PV installations in 2013 would be around 35 GW. It may be recalled that solar PV installations crossed 100 GW global cumulative installed capacity in 2012.
(Source: EPIA, solarbuzz, IHS)
If these estimates are right, 2014 will be a watershed year in the history of solar PV, mainly because the growth will be driven not by Germany and rest of Europe, but predominantly by Asia(Japan and China) and USA.
PV Module prices
However, there is also a downside(probably a big one) to this record growth. After years of excess supply of modules in comparison to demand, the year 2014 might see the mismatch between supply and demand disappear. It is also possible that demand might outstrip supply. According to SolarBuzz, the global solar PV manufacturing capacity is 45 GW in 2013. If the solar PV manufacturing capacity is able to ramp up to the expected demand of 50 GW in 2013, a supply-demand equilibrium would be restored.
But this would also mean that there would be no more fire sale or inventory clearance of PV modules as happened in 2011 and 2012 as result of excess production capacity. Since the solar PV manufacturing capacity is not uniform across the entire PV value chain(Polysilicon, Wafers, Cells and Modules), it is likely that supply bottlenecks can appear in one or more parts of this value chain, leading to non-availability of PV modules, thereby leading to price increases. To complicate matters, the PV manufacturing capacity is skewed in terms of geography, with most of the PV manufacturing capacity located in China and Taiwan. (Several prominent European and US manufacturing capacities went out of business as a result of the consolidation – click here and here for a list of bankrupt firms.) This could lead to module shortages in certain regions in the world. In fact, Deutsche Bank has already predicted that Pricing is set to remain stable in Japan and increase slightly in China, while solar companies also expect that “Pricing is set to remain stable in Japan and increase slightly in China, while solar companies also expect that some supply shortages will affect certain global markets next year, specifically the cell and wafer markets. Polysilicon will also be in short supply, a situation likely to lead to slight price increases, from $18-19/kg currently to at least $20/kg before the second half of 2014.”
Implication for India
The success of the JNNSM Phase 1 can be attributed to a large extent to the falling solar PV prices. Most of the bidders who quoted extremely low prices could still build the solar plants due to extreme solar PV module price drops caused by the excess inventory in the system. Since the low prices were not driven by fundamentals, the prices had to go up at some point and it started to go up earlier this year. (RESolve had highlighted this trend last year -October 2012. Click here for a detailed analysis). The increase in PV prices is now putting pressure on lot of project developers who won projects under various state policies by quoting low tariffs. The drastic depreciation of the Indian Rupee has only added to their woes.
Bottom line
While there is enough domestic manufacturing capacity in the country, the domestic manufacturers still have to import PV wafers, and as such the domestic module prices will be in line with the global prices. Now, with the chances of prices increasing further, prospective bidders under the JNNSM Phase 2 should consider the impact of the increasing module prices when they place their bid under the Viability Gap Funding mechanism.
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