1.1 Is There an Oversupply?

Yes, there is. Zhang Sen, Secretary-General of the Photovoltaic Branch of the China Chamber of Commerce for Import and Export, wrote in an article published on China’s Ministry of Commerce website that “Due to the optimistic atmosphere in the European market last year [2022] and the recent decline in European electricity prices, distributors have excess inventory.” Sen continues that as the EU is poised to install approximately 70 GW of PV capacity in 2024 it becomes evident that a chunk of next year’s PV installations will already exist within European warehouses at the onset of the new year. Furthermore, in conjunction with the data derived from the EUPD Research price and stock monitoring databases in Germany and Europe, as well as the disconcerting feedback received from various stakeholders, it could be concluded that the concern is real.

In accordance with the studies conducted by EUPD Research, we meticulously monitor the net purchase price of PV modules crafted from monocrystalline PERC cells from the perspective of PV installers. It is noteworthy that these prices have reached historic lows. In the fourth quarter of 2023, prices for monocrystalline PERC modules from Chinese manufacturers have gone down by 30% compared to the first quarter of 2022. While the lower prices generally reflect market developments over the last eight quarters, the reductions for Chinese manufacturers are particularly striking. For modules of the same technology produced by German manufacturers, the price decline over the same period was around 15%, only half the decline of Chinese manufacturers. The persistent price fluctuations pose a particularly formidable challenge for installers who had made substantial prepayments to accumulate significant module stockpiles, anticipating extended delivery times. A testimony from one such installer underscores the predicament:

“The market has completely collapsed. Even the suppliers have cut their selling prices by almost 50% from 2022 to 2023. We are the ones left behind because we ordered in 2021 for delivery at the end of 2022 so that we can work in 2023 and we will make huge losses this year. We are expecting a 75% drop in volume and a 50% drop in purchasing because prices have dropped so much. We are curious to see if we can survive that. And that’s after 20 years of stability in the market and having weathered every solar crisis so far.”

This testimony poignantly illustrates the issue of price erosion. In previous years, the primary challenge for installers was extended delivery times, prompting many to diversify their product portfolios and accumulate larger quantities in stock. However, these forward-thinking installers are now confronting the brunt of the challenge. Availability is no longer a major concern, and the market oversupply has driven prices down significantly compared to the previous year, when some installers made significant stock purchases.

We think there are some main reasons for the current issue:

• Solar PV learning curve
• The solar industry to undergo some reshuffling
• Chinese manufacturers upscaling was faster than market development
• Chinese manufacturers could reduce their market share as local support surges

2.1 PV learning curve

Like any other technology, solar PV has to go through a learning curve. The solar PV learning curve refers to the process of continually reducing the cost as more experience and expertise are gained in its development and deployment. The Swanson’s and Wright’s laws clearly describe how the cost or time required to perform a task in the industry decreases as the task is repeated and experience is gained. In other words, the costs decrease and performance improves as the industry gains knowledge and experience in manufacturing, installing, and maintaining solar PV systems. The price drops we are experiencing in the solar PV market today is therefore primarily a phase in the solar PV evolution that needs to be understood and managed.

2.2 A reshuffling of the industry

According to Zhang Sen, the industry is poised for a transformation due to the recurrent issue of oversupply. In 2023, prominent photovoltaic companies, including LONGi Solar, JA Solar, Jinko Solar, Trina Solar, and Tongwei, have unveiled their plans for expanding production. The expanded capacity predominantly focuses on N-type production, known for its enhanced photovoltaic conversion efficiency. Notably, the N-type TOPCon technology route is the primary choice, although N-type HJT (heterojunction) technology is also in use. The expansion of these companies serves a dual purpose argues Zhang Sen – facilitating the rapid advancement of new technologies and reducing production costs. However, it also accelerates the depreciation of photovoltaic equipment due to the excess production capacity, compelling enterprises to increase their investments in backend research and development (R&D) and continually expand their high-efficiency production capabilities to meet market demand. Sen’s conclusion is that this in turn forces the relatively lethargic small and medium-sized photovoltaic companies to exit the market.

Moreover, the newer, more efficient modules mean faster installation, with less required workforce and subsequently higher margins. Put this in the context of acute shortage of skilled workers in Europe and it would not be difficult to understand why this tectonic reshuffling with focus on new technologies is transpiring.

2.3 Chinese manufacturers upscaled a lot faster than the market

Chinese manufacturing capacities increased at a pace much faster than the markets. As the Chinese companies competed to have a bigger share of the market, the European market had to deal with basic issues such as the supply issues (critical material delays), and installation bottlenecks (grid issues, and labor shortages). As an example, according to EUPD’s PV InstallerMonitor 2022/2023©, 63% of the surveyed installers in Germany stated that customers had to wait at least four months for the installation after the initial contact. Although not as acute as in Germany, the situation was more or less the same for other major European markets.

2.4 Local support surges

COVID-led supply chain disruptions, Russian invasion of Ukraine and increasingly ambitious climate change actions has mobilized the main importer of the Chinese modules to kick off initiatives favoring local manufacturing. The most important export destinations of the Chinese module exports have traditionally been the US and the EU. Both these markets (US and the EU) have/are now planning to further support their local manufactures via certain local manufacturing support policies. The Inflation Reduction Act (IRA) in the USA [8] and the Solar Energy Strategy (within the REPowerEU plan) – the Green Deal Industrial Plan (published in February 2023), the Net-Zero Industry Act (NZIA) and the Critical Raw Materials Act (both published in March 2023) are such policies [9]. These latter EU policies are aiming for 40% of installed solar PV (~30 GW) being made in Europe by 2030.

Furthermore, it should be emphasized that, as a consequence of the Russian invasion of Ukraine, the European Union is adopting a more cautious approach to avoid placing exclusive reliance on Beijing for its solar energy initiatives. To put it differently, if China takes on the primary role in advancing green energy within the EU, it would grant Beijing greater influence in key political decisions, thereby displacing Brussels. European policymakers are thus striving to reduce their critical infrastructure dependence on China.

From 2013 to 2018, the EU Commission introduced minimum import tariffs on Chinese solar products in order to protect the domestic solar industry. This, however, did not deliver a renaissance of European solar manufacturing, with persistent insolvencies. In this period, we also witnessed the bust of solar demand – it took several years for Europe’s solar installation rates to return to 2011 levels. Thus, one would think that the EU will not sleep walk again into such a blunder especially as Brussels does not have the support of the majority of the solar sector which is responsible for almost all European solar jobs and revenues today.

Against such a background, and as Europe’s solar sector association, Solar Power Europe recommends:

• The European Commission should amend the EU State Aid rules (the Temporary Crisis and Transition Framework) to allow EU Member States to support European solar manufacturers opex costs
• Allow for specific resilience auctions within Member States under a swiftly-adopted EU Net-Zero Industry Act to meet is solar manufacturing targets
• Set up an EU-level financing instrument dedicated to European produced solar PV, like a “Solar Manufacturing Bank” [10]

Moreover, as each EU member state has a different PV ecosystem, it is highly likely that each state will create special mechanisms to further support their local PV production. The reaction on member states level is a matter to be determined in the coming months.

In the realm of the PV industry, effective inventory management in the face of fluctuating demand and prolonged lead times presents a formidable challenge. This challenge necessitates a meticulous and collaborative approach, recognizing that no singular entity operates in isolation within this dynamic industry. Instead, it is prudent for all stakeholders to adopt a holistic perspective, encompassing the broader business ecosystem. This comprehensive approach mandates decisions that not only bolster individual profit margins but also foster the collective well-being of interconnected companies.

Inherent uncertainty persists in demand due to the perpetual evolution of technology. Consequently, it is imperative for manufacturers to engage in proactive collaboration with their clientele, gaining profound insights into the actual, attainable demand for their manufactured products. Additionally, an opportunity exists for suppliers, manufacturers, and distributors to participate in innovative and cooperative endeavors focused on the efficient recycling of unused components, ensuring their sustainable integration into the hands of end-users or entities.

EUPD Research maintains a steadfast belief that the market will naturally self-regulate as the industry undergoes a transformative ‘reshuffling.’ This self-regulation will occur in tandem with the stabilization of regulatory mechanisms, rendering them less susceptible to fluctuations. Simultaneously, different stakeholders will acquire a refined understanding of the rules governing their activities. It is evident that component manufacturers boasting exemplary back-end R&D will strategically prioritize shipments to regions where reasonable profit margins can be maintained, meticulously factoring in logistics and distribution costs. Conversely, markets characterized by a high risk of revenue loss will be approached with caution.

Within this intricate landscape, pivotal factors for achieving success encompass access to comprehensive market intelligence, the harnessing of invaluable insights from industry installers, the adoption of a strategically astute regional positioning, and the judicious entry into the market with a meticulously calibrated level of investment. It is imperative to recognize that Europe constitutes a mosaic of distinct states, each delineated by unique political, economic, and environmentally sustainable strategies and prerequisites. The linchpin for survival and subsequent prosperity in the European PV market lies in the nuanced understanding of ‘what,’ ‘how much,’ and ‘when.’ This is achievable exclusively through rigorous market research and data analysis.

Against this backdrop, EUPD Research extends its resolute recommendation to principal stakeholders (both in the realm of politics and industry) for the forthcoming months:

Punitive tariffs would severely impact the EU climate goals, job market, slow down the PV industry as the European end-customers and consumers costs will increase. With the EU goal of achieving 42.5% renewable energy by 2030, which entails an acceleration of the PV deployment (600 GWac by 2030), solar PV is expected to create over 1 million jobs in the EU by 2025. Therefore, the re-shoring of the European manufacturing must happen with great caution and the right tools so that the painful, fruitless experience of the 2010s is not repeated.

In the ever-evolving landscape of the European Union’s renewable energy industry, navigating the complexities and embracing innovation are paramount. The art of communication tailored specifically to the target audiences would be key. Messages that resonate deeply, addressing the concerns and aspirations of diverse stakeholders within the renewable energy sector need to be created. The expertise in understanding the nuanced needs of installers, distributors, and other market intermediaries. By identifying and engaging with these key players, synergistic partnerships should be created that drive meaningful progress.

Macro market intelligence would be vital in understanding global and regional trends, installed capacity, module prices and the amount of PV components manufactured and exported. This would lead to a clear understanding of the top and emerging markets in each region in short and mid-term and help align supply and demand on a macro level. In other words, and strategically speaking, it optimized supply chains and ensures products reach the right places at the right times. Coupled with nuanced understanding of local markets as micro market intelligence, it enables the stakeholders to establish a localized company presence that resonates with regional sensibilities.

At the heart of any successful approach in Europe lies a finely tuned brand management strategy. Compelling narratives that capture the essence of each renewable energy initiative must be created along with adaptive strategies, acknowledging the unique challenges posed by each European state. By employing country-specific language, cultural gaps should be bridged and a sense of connection that transcends borders should be fostered.

Finally, in a world where sustainability is not just a goal but a necessity, implementation of the right communication strategies combined with comprehensive market knowledge emerge as the catalysts for transformative change. The mission is to accompany business partners to thrive in the EU’s renewable energy industry. By aligning the right strategies with the pulse of local communities, impactful change is created, which ushers in a future where renewable energy isn’t just a choice but the cornerstone of progress.