Rising Chinese module prices a cause for concern, says Mercom report
After falling by approximately 5 per cent in the second quarter of 2017, for the first time in years, the average selling price of Chinese modules has increased quarter-overquarter in India.
The average selling price (ASP) of Chinese modules in India has risen by almost 12 per cent in August 2017 when compared to Q2 2017. In comparison, the price of these modules had dropped by 12 per cent between Q2 2016 and Q3 2016.
Worst case scenario
This is the worst case scenario that Mercom Capital Group, the market intelligence firm, had been warning about. For the past two years, it has been stressing that “aggressive bidding in an effort to capture market share with the assumption that component costs will continue to fall, no matter what, is a risky strategy.” Developers not just in India, but across the world, have been modelling their auction bidding strategies based on the assumed perpetual fall of Chinese module prices. This has worked most of the time, and developers have become a bit too ‘comfortable’ with this strategy, resulting in aggressive bidding in India, which has reached new heights with government agencies cheering the low bids as an incredible achievement.
Short term fluctuations do not usually make a huge difference, but if module prices continue to rise or even stay flat for a couple of quarters, it will start hurting the developers who cannot wait indefinitely to procure the lowest priced panel.
We need to remember that the price drop was steeper than expected in Q2 2017, even though high Chinese demand firmed up module prices in June before the feed-in tariff deadline at the end of the month.
Factors driving the rise in price
Polysilicon and wafer prices have increased significantly since June. Polysilicon prices are up by 19
per cent since June, though these have started to flatten out later. A major polysilicon producer reduced its polysilicon and wafer production significantly due to technical and maintenance issues resulting in some wafer shortages, which pushed wafer prices higher.
According to Mercom India’s channel checks, module prices quoted by Chinese companies ranged from US$ 0.32 to US$ 0.37 (~` 20.5 to 23.6)/W in Q3 2017. So far this year, installations in China have crossed 35GW, which is already more than the entire 2016 installations combined. For 2017, solar installations in China could rise to nearly 45GW aided by the 5.5GW Top Runner Program, which carries a deadline of September 30, 2017, and the Poverty Alleviation Program, which is a year-round, capital subsidy driven program strongly supported by both the local and central governments. Module demand for 2018 installations in China will begin in December 2017.
There is, however, the question of how the Suniva anti-dumping case under way in the US against China and other countries will turn out. The first hearing in the case, scheduled on September 15, 2017, will be followed on September 22, 2017, by an International Trade Commission (ITC) decision on whether harm was caused to domestic solar manufacturers.
If the ITC finds that domestic manufacturers in the US were harmed by the exports of China and other countries, there will be a follow-up hearing on October 3, 2017, followed by ITC recommendations to President Donald Trump on November 13, 2017. The president will then decide on January 12, 2018, whether he accepts the ITC recommendations. If the president agrees with the recommendations, the effective date of remedy will be January 27, 2018. If the president does not agree with the ITC recommendations, he will have until April 12, 2018, to propose his own remedy. This timeline gives a roadmap for how long the uncertainty could last, and a general framework for when the case could start affecting demand.
That said, regardless of which way the Suniva decision goes, the demand for modules from the US is bound to decrease after the ruling. If an anti-dumping duty is imposed, then demand from the US is likely to crash immediately afterward. Even if no anti-dumping duty is imposed, demand will still fall as there will no longer be a rush to procure panels. The less drawn out the case, the better for the Indian solar industry.
The uncertainty is challenging for the Indian solar industry and comes at a bad time. A case has also been filed by Indian solar equipment manufacturers against the dumping of Chinese solar cells and modules, for which the Directorate General of Anti-dumping & Allied Duties (DGAD) is expected to recommend a decision by the end of September.
According to the Q2 2017 Mercom India Solar Quarterly Update, developers were expecting module prices to be in the US$ 0.285 (~` 18.35)/W range in Q3 2017 (almost 20 per cent less than the current Q3 prices) and to fall further to the US$ 0.27 (~` 17.39)/W range in Q4 2017. Developers have been modelling their auction strategies around these projections.
Considering the uncertainty, it does not make sense for developers to participate in future auctions until there is more clarity on module prices.
The Indian solar industry can expect some turbulence ahead. The lingering situation caused by the anti-dumping cases is likely to slowdown auction activity in the short term, as well as pose procurement challenges for Indian developers, if the prices don’t reverse in a few months.
(Source: ‘Rising Chinese Module Prices Pose Significant Short-Term Challenge for India’s Solar Industry’ published by the Mercom Capital Group)