How will constantly dropping solar prices affect firms?

Solar Universe India's Shubhaang Gupta worries that panel manufacturers will have to resort to manufacturing panels against ready orders.

It’s starting to look like 2016 is a year that will be owned by renewable energy if costs of solar power is anything to go by. In just five months, the solar power prices dramatically dropped by 25%, as revealed by two recent construction bids for solar projects in China and Abu Dhabi. A bid of $0.46/W was submitted to build 500 megawatts of solar power in China on August 11. A little over a month later, on September 19, a record low bid of $0.023/kWh was submitted for 1.2 gigawatts of solar power in Abu Dhabi. 

Asian Power caught up with Shubhaang Gupta, director of Solar Universe India, a solar equipment design, development, supply, and installment firm. 

Why is there a 25% drop in solar power prices in just five months? What happened?

Over stocking by Chinese manufacturers in one reason. The devaluation of the Chinese Yuan should have made this condition better but one can only imagine the stocks that must be in idle condition in China that still the prices reduced. China is still the largest manufacturer of Solar PV cells & modules in the world and impact caused by them on the industry will act as a domino effect on all countries and the general price of Solar PV.

Cost reduction in prices of raw materials is another reason. Again most of the solar cells in the world are manufactured in China and the prices of the same have also reduced due to devaluation. Prices of aluminium and glass used in panels has also reduced due to a general slowdown in Realty segment.

Do you see prices constantly going down in the next months before year-end? What do you think will drive this trend?

I personally see the prices hitting rock bottom by early next year by say March 2017 and then stabilising / holding onto the same levels for a minimum of 1 year.
There have been plenty of casualties in China & America since prices started dipping last year and the govt’s of these respective economies will intervene and make sure that no further harm is caused to the green economy. Popular names have filed for bankruptcy because of over stocks and falling prices.

In India for example, the prices of modules have not fallen as much as they’ve fallen in China because of indigenous reasons partially owing to the non availability of subsidy on non Indian modules for solar installations in the residential sector which is currently experiencing the maximum growth in India.
The Chinese were quick in passing on the price reductions to their buyers but the Indian’s were slow which worked to their advantage.

Of course price reduction is also due to technology advancements but as Solar becomes more affordable, the focus is now shifting to making the same modules more efficient and not more cost effective.

The Australian’s and the German’s are working on increasing the module efficiency levels from the current range 18-19% to levels of 30-35%. This would require plenty of technology advancements which will make it impossible for prices to fall further.

To add, it is obviously better to have the same modules produce more energy than to have the prices reduced. At the end of the day, a customer should be more concerned about how much money he saved in producing solar energy and not in how much money he saved by panel A being cheaper than panel B.

How will this affect Asian solar energy firms such as yours? So far, what are the effects you’ve experienced in the past 5 months? 

Of course this makes business better for firms like ours. In India we have reached grid parity for industrial and commercial establishments going Solar. I believe by end of 2018, grid parity for residential rooftops will also be reached.

India for example has alone set up a target of 100 GW of Solar Energy by 2022 out of which 40 GW has to be generated from residential rooftops that means end consumer.

In the past 5 months, we have bagged orders of more than 100kW on residential rooftops itself and we have an executable order book of up to 200kW till the end of 2017 summer. The figure for all of 2015 alone was approx 100kW. hence the increased interest in solar amongst end consumers can be attributed due to price reductions and of course mass promotion by the Government of India.

The announcement of various incentives and benefits for rooftop solar such as Net Metering , Gross Generation Benefits, Single Window Subsidy Program and Virtual & Shared Net Metering have also contributed a great deal to the uptake of Solar Energy amongst Urban India.

Price reductions in Solar are more important for our farmers and village folk who for years have been living without electricity and relying on fossil fuels for their energy needs.

In the past few months, many of our clients who were delaying their investments in solar pumps, off grid systems, streetlights for communities etc have come forward to complete their purchases as the overall cost of Solar Panels and their mounting frames have reduced. In the retail market, a price reduction of 12-16% has been seen in the prices of Solar Panels which ultimately reduces the cost of any solar integrated system by 6-7%. 

If this keeps happening, what will be the implication in the long run? How will firms be affected in the long-term?

I did mention earlier that I believe the prices will stabilise by next year. However if the prices continue to fall like they did between 2015 August till 2016 August, panel manufacturers will have to resort to manufacturing panels against ready orders which means their orders with Solar Cell manufacturers will also be placed against confirmed orders.

This as a whole will increase the manufacturing timelines in our industry and all business with happen against hard cash.  It will be difficult for anyone to maintain large stock piles (beyond say a month maximum) due to stock manipulation by countries or a cartel of manufacturers.

Moreover, a slew of crony businessmen will enter the market to make a quick buck and exit without any guarantee on qualities.

The coal industry is falling apart not just because of raw material supply problems and of course the range of ill affects they have on the environment but also because of constant reduction in price of coal extraction. We do not want a situation like this for solar and I believe the aim should be for Solar to reach grid parity and hold onto those levels.

How should solar energy firms cope up with this downward trend in solar energy prices?

As a developer, it will be next to impossible to stock materials at this point of time. One cannot afford to bear losses just by stocking solar panels and raw materials for a project that will be due in the next 30-45 days.

Having said that, the most difficult aspect of falling / declining prices is the apprehension that sets in the mind of a customer who is willing to push his purchase in anticipation of a further reduction. This way a steady flow of business and integration is difficult to maintain. 

Personally we have weathered such a problem by value addition to the existing solar systems / plants that we install by the means of erecting super structures on roofs thus freeing space for other activities, developing auto cleaning systems for solar panels (a big task otherwise for clients who find it a hassle to clean the panels every 10-15 days) and by erecting auto tracking structures that increase energy generation by up to 22%. 

This way we convince our clients that the falling prices do not indicate the true picture of innovations and developments in the Solar PV domain.  

Solar Universe India (SUI), a brand of Success Impex, started out in 1995. Conceived by Mukesh Gupta (SRCC Alumni) – a respected entrepreneur and business leader of the pen industry, it began with a simple idea and a vision for the future.