Written By Jonathan Doochin, Soligent CEO
As the economy has grown at a breakneck speed after the COVID-19 shut down, shortages are being seen in specific areas and commodity prices are increasing.
General trends across the world have seen macro shifts causing inflationary commodity pricing on products across many supply chains. In short, inputs are going up. Freight prices have gone up over ~225% in the last 12 months and freight timing has been extended due to port congestion. The exchange rate between the US and China has seen the devaluing of the USD by almost 10%.The world has seen many general commodities, typical raw material inputs to power electronics, increase in price by over 45% on silver, 50%+ on aluminum, and 65% on copper in the last 10 months. Steel has generally increased over 20% in the last year and lithium has increased 30%+ year to date. Consumer prices in the U.S. are up 4.2% from a year ago while producer prices are up 6.2%, signaling further future inflation where consumer pricing lags supplier inflation.
On the solar panel side, in the last ~9 months, polysilicon prices have increased 200%+ and in the last 6 months, mono wafer prices have increased roughly 25%+. This in addition to the raw materials and freight cost increases puts pressure on the pricing for modules. That said, there are still substantial decreases in many aspects of solar panel costs as efficiencies increase, product innovations occur, and production levels scale and rightsize for demand. Growth spurts feel hard, but it signals large growth which is a secular long-term upside for the industry.
On the power electronics side, companies as large and prolific as Ford are pausing facilities at times due to semiconductor shortages. It only takes one chip, or one product, to be short and stop the production line. Suppliers are seeing these gaps across all types of industries and though solar is not immune it is most certainly not alone. That said, this is not a new trend for semiconductor demand-supply cycles. This is common when we experience economic growth and has happened many times in history, regardless of industry. These temporal supply constraints have been reflected in shocks in renewable stock prices even though the long-term secular industry trends, energy cost, and policy position the industry for substantial long-term growth. When we look at the long-term cost curves for these products, there is little doubt of a strong recovery, growth in valuations, and general health of companies serving the renewable space.
Finally, the impact of these commodity prices and shortages will have a greater impact in the short term on the utility-scale projects while the higher-margin residential solar and small commercial are more insulated and expected to see substantial growth. We do expect the channel will see weeks of supply of product on hand reduce and such has already been reflected in distribution inventory levels. We also see and expect some slight increases in pricing on specific commodity-based product categories. That said, without a doubt, we expect continued secular market growth through the channel.