Developers, Indian Government May Need To Discuss Solar’s Perfect Storm Soon

As China moves with rolling power cuts and energy cutbacks to industries across key provinces, provinces like Jiangsu, which host some of the largest solar manufacturers, have been included in the cutbacks. The power cuts have been necessitated by a coal shortage/high cost coal, rising gas prices, a push for controlling overall emissions and more, which has forced the Chinese government’s hand as it tries to keep its energy costs in control.

For the solar sector, much like the other sectors of the economy, the hit has been heavy. Coming as it does after the almost continuous rise in costs seen this year, ranging from polysilicon, to wafers, to freight and key commodity metals like aluminium and silver used in solar equipment, production cuts are expected to follow now. Even float glass prices, which seemed set to stabilise till August, have seen a hike subsequently. At SaurEnergy, we have been warning about the impending storm for a while now. The incredible part is that things are only getting worse for now.

What all this means is a perfect storm for the solar manufacturing, and global solar movement. Not only is the world dependent on Chinese supplies for all or some part of the supply chain, the disruptions have also come at a time when solar was finally being weaned off a subsidy based regime in almost every market.  For developers in India, the changes have come much too fast and in succession for any developer to claim they are well positioned to ride it out without any financial implications.

With the price disruptions likely to continue well into 2022 and perhaps even early 2023, many of the recent auctions won at sub Rs. 2.50/unit levels will throw up serious challenges for winning bidders to maintain profitability.

In fact, even as all scenarios are being gamed, comes the news that the top 5 Chinese manufacturers, namely, Longi Green Energy, JinkoSolar, Trina Solar, Risen Energy and JA Solar have issued an open letter to developers (everywhere we resume), imploring them to delay projects if possible. After the fracas of Feb-March this year when some Chinese suppliers reneged on commitments, this appears to be a more polite request to cancel or defer orders till things stabilise.

While ever rising polysilicon prices have been well documented, the final straw seems to have been the order to many silicon metal refineries to shut down or reduce production by upto 90% to cope with the power crisis in China. And this is an area where dependence on Chinese origin raw materials is even higher than for cells and modules.

The appeal has come when Q4, China’s busiest installation quarter normally, looms. Add to that a strong recovery in India and the US, markets which have actually been contemplating or imposed high duties on solar imports, and you have the perfect storm for the solar recovery that was building up.

While global agencies are yet to come out with the impact on final predicted numbers, we estimate that it will definitely be in double digits, if not high teens. With the warning that 2022-23 may be no better.

While no single factor will qualify for a force majeure clause, the fact of the matter is, collectively, the impact of what we are seeing in China is as good as a force majeure, in terms of scale on costs and procurement.

Even the positive news flow on manufacturing facilities in India being set up, set to cross 12 GW by March, will not be enough, as almost all of these new capacities still depend on imports of wafers, forget ingot level supply chains.

The impact of the successful PLI scheme will only be visible from 2023 onwards, in the best case scenario. That puts the onus on industry and government to start considering the worst case scenario soon, because, like it or not, the almost 40 GW plus pipeline of solar projects in this country simply cannot remain untouched by the events in China. If nothing moves, expect to see the first of potentially many cancellations announced soon, as developers weigh the cost of losing their Performance guarantees versus projects that may never make money anytime soon.