Module prices crater as supply eclipses demand
Up till the middle of 2023, solar module manufacturers were in a race to expand capacity, buoyed by sunny projections of demand. Then, module prices started declining as four headwinds – excess production, severe competition, technological advancement and falling raw material costs – coalesced, cooking up a perfect storm.
Global module manufacturing capacity stood at 800 GW at the end of 2023, far exceeding the addition of 407 GW in solar generation capacity. And in 2024, global manufacturing capacity is forecast to touch 1,100 GW, while installations are expected to remain below 500 GW, obviating any possibility of a letup in the trend. The excess capacity and expanding inventory will likely keep prices low through this year.
By the second quarter of 2024, the average global price of mono-crystalline modules, the more widely deployed technology, had plummeted 50% to $9.50/watt (W), down from $19.3/W in the corresponding period a year ago. The downward spiral also reflected in domestic module prices, which decreased 38% to $18/W from $29/W over the period.
Also affecting the business prospects of module manufacturers is a sharp fall in the price of polysilicon, a key raw material, which plummeted to a record low of $4.36/kg in July 2024 from $16/kg on average in the second quarter of 2023.
All this has put considerable pressure on the financial health of solar manufacturers and squeezed their profit margins—particularly for Chinese manufacturers, which dominate the global market.
Figure: Most Chinese PV manufacturers facing margin pressure since second quarter of 2023
Source: Company financial statements
Most Chinese manufacturers reported losses in the fourth quarter of 2023, which continued into the first quarter of 2024. And no respite is likely anytime soon. Module prices are expected to continue to trend at these low levels owing to sustained intense competition within China as well as new manufacturing capacity being commissioned in other countries.
To cope with the financial strain, manufacturers are exploring all possible avenues:
- Industry consolidation: Low prices, impacting profitability has led to cancellation or suspension of new production capacity aggregating to 59 GW between June 2023 and Feb 2024 alone. To curb overinvestment in the sector, China’s industry ministry issued draft rules in July 2024 increasing the minimum capital ratio for new projects from 20% to 30%.
- Technological innovation: Also, solar manufacturers are pursuing technology innovation. Companies are accelerating their transition from passivated emitter and rear contact (PERC) solar cells to tunnel oxide passivated contact (TOPCon) panels, with PERC technology expected to be largely phased out by 2025
- Transition to n-type: The industry is seeing largescale shift towards n-type modules as well, with two out of three modules shipped in 2024 expected to be based on this technology. n-type modules, particularly those based on TOPCon technology, are proving more popular owing to their superior performance
It is noteworthy that despite the low prices, Chinese manufacturers aim to continue their dominance with improved technology.
TOPCon is quickly dominating the market, with over 90% of manufacturing capacity located in China. This poses a challenge for manufacturers in Western countries and in India, where most capacity is still based on the soon-to-be-obsolete PERC technology. Therefore, while the sharp fall in solar module prices has led to financial challenges for manufacturers, it has also catalysed significant market adjustments and technological advancements. Leading manufacturers are leveraging scale and innovation to navigate the current turbulence, while smaller players must adapt quickly to survive.
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