High module prices make Italy an early victim of supply chain disruption

Italy is the first European country to pay the consequences of the reduced production of solar modules because of the large demand fluctuation over the last months, but the mismatch between supply and demand is progressively becoming global, experts told pv magazine during the third day of the Key Energy event in Rimini, Italy.

“We observe challenges regarding module supplies, to some extent regarding batteries too,” Paolo Rocco Viscontini, president of trade association Italia Solare, told pv magazine. “It is easier to buy inverters, at least for now.”

The pandemic-related logistical complexities, exacerbated by a series of factors in spring, affected the availability of modules, inverters, and batteries. The difficulties to source modules in the market then intensified over the last four months.

Operators, developers, and producers at the trade fair expect the trend to continue, at least till spring. “The delivery of large quantities of unplanned, not ordered modules has to be expected in spring,” Viscontini explained, adding, however, that even large planned orders are sometimes not carried out due to the complexities in the supply chain.

There are fewer module producers at the fair than usual, visitors reported. Chinese module maker JA Solar is one of the very few producers with a stand.

“The problem is that the cost of the materials, particularly silicon, has increased because of the policy in China, where most of the modules come from,” Alastair Mounsey, JA Solar's country manager for the UK, Italy, and France, told pv magazine. China is trying to match energy supply and demand, overcoming the difficulties stemming from a global shortage of natural gas and coal, he explained. “The government had to take action to reduce energy consumption for two reasons: to reach climate targets and more importantly to have energy security for the core industry and the population.”

Mounsey reported that silicon prices went up also for signed deals, which meant that module producers lost money for existing contracts. “All the profit is in the silicon supplier. They have a higher cost, but they are also keeping the profit. As you go down the supply chain towards the cells and the modules, the profit level is very low. It only takes a small cost increase to lose money. When you start losing money in production, you stop producing as much.”

Another problem is that producers often cannot even buy raw materials, which forces them to reduce production even more, Mounsey added.

“Now the situation is becoming a bit more clear and the modules are steadily coming into the market,” he said. Meanwhile, installers expect problems on the supply side, triggering a rush, which is further deteriorating the situation. “It is a bit like the petrol crisis in the United Kingdom,” he stated.

Mounsey agrees with Viscontini on the expected positive developments in spring, but not with the usual prices and under pre-crisis conditions. “There will be a new normal by March, April, meaning that by then you will have information. But we are not going back to the normal low price: we are going to a new, higher normal,” Mounsey said, adding that the availability disruption will equally continue for five or six months. “In terms of capacity, it is not going to be full capacity at least going into Q2, middle of Q2,” he added.

Italy recently passed a series of incentive schemes that increased the expectations for the PV market and created mixed signals. The main scheme has a limited length. According to developers and producers, this created an incentive for distributors to stockpile modules in their Italian warehouses at the beginning of the summer. Several developers explained to pv magazine that they received lower offers from distributors than from producers for the same modules.

“If we go back to six months before, the demand for modules was very high. Then over the summer, everyone in the market was nervous to get the modules. After the summer, I think, Italian buyers realized that they had a lot of modules on the Italian market, while installations were not quite as quick as they expected. Around Q3, they stopped ordering so many modules. Then the crisis happened in China, buyers saw the prices going up, new production prices being 3 to 4 cents above what they have paid. There was a lot of panic in the market,” Mounsey explained.

The lack of a clear long-term planning, combined with very strong temporary incentives, created disruption and triggered confusion, he noted. Producers could not understand the demand side.

“Maybe it is possible that the uncertainty of how the eco-bonus and the super-bonus are running creates a distortion,” Mounsey emphasized, noting that these high fluctuations in demand are not typical of other markets. “Markets hinging on pure grid parity, like private PPAs, are affected by the higher price, but it is a problem that is going to come later. In Italy, they made it harder earlier.”

His comments were in line with other signs. Other module producers at the fair declined questions on the situation, but indicated that their production capacity might be at least equally affected. The supply of modules is still a pressure cooker.

At the Rimini fair, operators said the supply chain also affected batteries, whereas inverters are still available on the market under “normal” market conditions.

Italian energy storage company EEI, whose supply chain is based on a partnership in China, reported that they had no problems delivering batteries. “Speaking about batteries, challenges to the supply chain occurred from May/June through August. Component availability on large volumes is problematic, but it's an issue that can be resolved very quickly. Issues were related mostly to logistics,” Andrea Praticò, EEI's energy storage team leader, told pv magazine.

According to Praticò, logistic complexities were due to a series of events. “Suez created a three-to-four-week delay, but the real problem was related to the blockage of certain ports in China.” He explained that their large warehouses in China have simplified their logistic processes and planning. The company also decreased risks by over-ordering materials when the first signs of market stress emerged.

“The battery cells are produced by Catl, and they are assembled in China, where we produce batteries also for other big players,” Praticò explained. “For now, they say they have not been late with deliveries of batteries.”

Some inverter producers still lamented delays in deliveries of batteries, suggesting that less integrated storage companies tended to suffer more.