87% Solar Manufacturers Expect Increased Prices for Consumers: GOGLA

Netherlands-based GOGLA has conducted a survey of 33 solar equipment manufacturers, primarily SHS Kit manufacturers, to understand the impact of disruptions caused by materials shortages and raised shipping costs on the off-grid solar industry.

An unprecedented high demand for electric vehicles and consumer electronics (among others caused by COVID-19) has resulted in manufacturers facing chronic shortages of electrical components, increased prices of raw materials, and shipping disruptions, leading even big car manufacturers to pause production.

The challenges are hurting the off-grid solar industry as well and causing significant disruptions in its supply chain, GOGLA’s findings have shown. The off-grid solar body, formerly known as the Global Off-grid Lighting Association, has made the following predictions about the possible impact of these difficulties:

73% of manufacturers expect product stock-outs

Solar water pumps are forecast to have growing problems in the second half of 2022. The stock-outs do not necessarily impact a company’s entire product range, and companies will maintain certain products whilst pausing others.

The manufacturers expect the disruption to continue for another 12 to 18 months. Global chip production is ramping up with massive investment, though market research forecasts the shortage to continue through 2022 and into 2023. There may be some easing of availability with a rebalancing of the supply chain and allocation practices of suppliers.

The shortages may impact product performance, with implications for quality verification

45% of respondents reported that they will have to make changes that may impact on the product performance or functionality. One manufacturer wrote, ‘For one component we’ve been able to find an alternative that won’t make any visible impact from a consumer perspective, though may require us to do tests and validation. For another missing component, the available alternative will result in the light dimming feature being lost.’

This is likely to impact testing and certification. For instance, if the shortage necessitates changes in the design, parts, or suppliers in a way that impacts consumer functionality, product performance, or product safety this could render the products non-compliant. Also, if a product needs to get a renewal tests to retain certification, this would be difficult without products for sampling or if there has been substantive product changes.

87% of manufacturers expect increased prices for consumers

Manufacturers expect an increase in the cost of production across the product range, and while these may be absorbed in the short-term, will ultimately need to be passed on to consumers. TVs face the biggest hike with a whopping 52% expected increase, potentially dampening demand from the 458,000 sales reported in 2020. The 9-14% expected price increase of solar lanterns and SHS Kits is also a concern in a price-sensitive market in which consumers are under financial stress from the COVID-19 fallout.

Adjusting the finances and strategy

All this will have serious implications for a company’s finances, with both costs and revenues shifting beyond the norm. Leading debt providers are working with their clients to adjust lending and repayment timings, including increasing the availability period to allow for longer working capital cycles. Capital discipline seems a prudent strategy in these times.

Resilience and strength

The manufacturing disruption will send stress waves along the off-grid solar supply chain. It comes at a time when the industry is already facing difficulties with the COVID-19 pandemic hurting consumers’ ability to pay, continued operational restrictions, and tough macro-economic conditions. The sector has so far proved resilient through innovation and solidarity; these strengths will help navigate further disruption. Consumer demand remains strong and the industry is best placed to lead the charge on SDG7.

But these developments also indicate that the continued growth and success of the industry is not a given. Governments, investors, and development partners must work together to achieve energy access goals and unlock the massive social, economic and environmental impacts of off-grid solar.