Accelerated by collective global goal of net-zero emissions and energy reform amid Russian-Ukraine war, solar demand beat expectation in the first half of the year and continues to grow in the second half, including the Chinese, the US, and European markets. In light of this, InfoLink revised up projected demand to 239-270 GW, up 12% from the forecast made at the beginning of this year. On the supply side, capacity in the mid and downstream segment has reached 264-468 GW in early 2022, but fell short of satisfying demand in the first half. InfoLink offers explanation for the supply and demand.
Demand analysis of the top 3 largest markets
China added 30.9 GW of new installations in the first half, a YoY increase of 137%, and it is expected to rise continuously in the second half. Full-year module demand is projected at 83 GW, a major contributor to this year’s robust growth. The distributed generation sector continues to grow, with the share expecting to reach 53% this year.
The nation’s aims to achieve 50% of rooftop solar coverage for newly built government buildings by 2025 and 1,200 GW of combined installed capacity of solar and wind by 2030 under the “14th Five-Year Plan,” as well as its province-wide promotion of distributed generation PV and 450 GW of utility-scale solar and wind projects in the desert are drivers that spur China market growth in recent years.
Installations in the US market was disrupted by short supply this year, with only 3.9 GW of new capacity added in the first quarter, down 22% YoY. Of which, 1.2 GW came from residential PV, up 30% YoY, while utility-scale PV contributed 2.2 GW, a YoY decrease of 41%.
Despite a pause to tariffs on solar products from Southeast Asia, the Withhold Release Order, the ban on imports from China’s Xinjiang region that took effect on June 21, and the U.S. Customs’ requirement on the origin of certificate of quartz in July led to shortage in the US market. Against the backdrop of Xinjiang issue, demand is not likely to return to the pre-anti-circumvention investigation level; it’s projected to come in at 28-32 GW this year.
The U.S.’ policy for the solar industry has been uncertain. As the Democrats introduced the Inflation Reduction Act of 2022 (the Act), the new bill received wide attention. The Act, in addition to reducing carbon emissions by 40% by 2030 and invest close to US$ 370 billion in renewable energy and environmental justice program, the Act would reinstate the full investment tax credit of 30% and incentivize domestic solar manufacturing. Developments of the draft Act remains to be monitored.
Europe imported 43 GW of solar products from China, far higher than expected. InfoLink’s investigation found that nearly 30% of which are imported by vertically integrated companies for holding stock strategically, with no actual orders having been signed yet. Breaking down the import volumes to demand of each month in the second half, this year’s real demand is estimated to sit at 55.6 GW, up 33% YoY.
Amid surging natural gas prices in Europe and the Russian-Ukraine conflict, demand for renewables grows robustly. To facilitate the development of solar market, the EU has introduced several policies, including REPowerEU, EU Solar Energy Strategy, European Solar Rooftops Initiative, and European Solar Initiative. Overall, the EU aims to achieve 320 GW of cumulative installed solar capacity by 2025, 600 GW by 2030, and raises the share of renewables to 45%. European countries such as Germany and France also raised renewables targets. The solar market outlook is bright.
Analysis of short polysilicon supply
Polysilicon capacity is estimated to reach 1,180,000 MT (442 GW), translating to around 324 GW of factory output. Although the capacity outstrips 239-270 GW of module demand, polysilicon supply remains a bottleneck in the industry due to the following reasons:
It requires more time for new polysilicon capacity to come online, with quarterly production growth lower by 2-4% than the wafer segment. Since supply will not grow markedly until the fourth quarter, wafer makers and vertically integrated companies are grabbing polysilicon in the first three quarters of the year, resulting in severe shortage.
Given production losses and one to two months of healthy inventory level required by each segment, the total required inventory volume expanded amid rapidly growing demand. Coupled with longer lead time in shipping due to the pandemic, real polysilicon supply in the market remains tight against module production volume.
- Polysilicon producing in reducing furnaces has high requirement on purity. Therefore, manufacturers conduct equipment maintenance every year to keep purity and safety in check. Regular maintenance and any accident could cause production to halt or decrease.
Such shortage caused prices to skyrocket in the first half, hitting new one-decade high. Accelerated commissioning of new wafer capacity in the third quarter also added to the short supply.
Failure to acquire enough polysilicon pushed up wafer production costs, for manufacturers are unable to run at full capacity. Silicon costs across the supply chain rose along with surging polysilicon costs, resulting in increases in prices of wafers and cells. The wafer and cell segments can pass on the additional costs to downstream for now. Increasing costs put module makers under huge pressure, for they are unable to pass on the pressure to end users.
In the fourth quarter, real polysilicon supply will grow by around 22% from the third quarter, coming in at nearly 100 GW of supply. This will widen the gap of production between wafer and ease shortage. By then, prices are likely to lose ground. Having said that, supply could remain short while prices stay high if demand grows higher than expected, as fourth quarter is the traditional high season.
For the long term, polysilicon production will grow significantly against demand from the first quarter of 2023. The short-term market situation is subject to manufacturers’ stock up activities prior to the Lunar New Year. As supply gradually increases, polysilicon shortage is expected to turn around in the second half of 2023, allowing prices in the supply chain to return to a healthy level. The short-term supply-demand relationship and profit performance in the supply chain will continue to change amid policy and market developments.