Market volatility is a common term in the solar industry, particularly because of supply chain issues. Increases in supply chain costs can delay a solar project’s timeline or even cause a company to rethink the way it does business.
What’s causing PV prices to rise, and what can be done to soften the effects of supply chain bottlenecks?
This article provides a brief analysis of current solar supply chain issues. We also discuss how solar companies can strategically offset some losses caused by these issues by expanding into the secondary solar market. Whether you engage in the secondary market as a buyer or seller, you’ll discover opportunities to gain a competitive advantage.
PV Price Increases
No one is blind to the price increases impacting the solar industry as of late. Although the coronavirus may have exasperated supply chain issues, it’s not solely responsible for inflation.
Multiple factors have driven up the cost of solar, causing contract prices to increase 15% in the United States during Q1 2021 compared to the previous year. As a result, a number of developers have opted to delay projects.
Prices are surging because of increasing costs for materials, labor, and freight. Polysilicon has seen the biggest price spike. In less than one year, polysilicon has risen from $6.19 to $25.88 per kilogram. The 352% increase is said to be the major culprit of a 17% PV module price increase over the first half of this year.
Added to that are price increases in steel, aluminum, and copper, which largely affect the racking sector. NREL reports that some steel inputs have doubled in price since early 2021. The steel industry is expected to have a full recovery once supply balances out demand across more sectors.
China’s glass supply is also short of demand. Prices doubled by the end of 2020, which continue to affect the price of Chinese-made solar modules. Reuters reports that panel prices from three major Chinese manufacturers have risen by 20-40% in the last year.
Further, the global semiconductor shortage is hindering many industries, including solar. Microinverters are feeling the pinch as other leading industries, such as automobiles, game consoles, and smart phones vie for the limited supply. Tech experts anticipate this shortage will last for at least two years as chip manufacturers hasten to increase production capacity, a difficult task to do quickly and an expensive one at that.
To make matters worse, freight costs are skyrocketing. S&P Global Platts reports that it now costs $17,000 to send a single 40-ft. container from Asia to Europe. A year ago, the average cost was $1,500. Premium rates from China / South-East Asia to the U.S. West Coast range from $10,000-$20,000 for a 40-ft. container. Containers bound for the East Coast are as high as $23,000. Premiums aren’t guaranteed prompt delivery. The average loading time is three to four weeks. S&P expects no rate increases beyond these levels in the short-term.
Inflation also causes labor costs to rise. In the U.S., the Employment Cost Index reports a year-on-year increase of 2.9%, the largest gain since Q4 2018. Wages and salaries are up 3.2%, and benefits are up 0.4% (as of July 30, 2021). There is a labor shortage that prevents companies from meeting product demands.
These issues go hand-in-hand with supply chain bottlenecks. Such bottlenecks include production delays, shipping and import hold-ups, trade sanctions, and single-country dominance of certain raw materials, like polysilicon.
In a 100-day government-wide review of supply chains and their vulnerabilities initiated by U.S. President Joe Biden, it is estimated that China controls 55% of global rare earths mining capacity and 85% of rare earths refining. NREL honed in on polysilicon and found that 47% of the world’s supply in 2020 was produced in the Xinjiang region. Although global polysilicon manufacturing capacity is expected to more than double in the next few years, the Xinjiang region will construct 41% of new capacity, and China will retain its dominance.
When U.S. Customs and Border Protection issued a Withhold Release Order (WRO) in June 2021 to detain shipments of silicon-based products made by Hoshine Silicon Industry Co. (located in Xinjiang), a company accused of using forced labor, many solar companies called for increased transparency from suppliers. This human rights issue is one more reason why a number of industry professionals are advocating for and working to move supply chains away from China. To do so will take a multi-year effort with big financial commitments by the public and private sectors.
Even if there isn’t a world crisis, like the coronavirus pandemic, other problems can ensue. Solar companies should conduct contingency planning for weather events that delay shipments, prolong project construction, or damage existing systems. Incentives, like the ITC, can be here one day and gone the next. Policies, such as net metering, may change. New electrical code standards can make your current inventory noncompliant. Pre-mature decommissions may leave your company with a large stock of non-EOL, quality modules. The list goes on and on.
As this brief analysis illustrates, volatility in the solar industry isn’t going away any time soon. It’s important for solar companies to pivot and evolve with market changes to lessen the effects of backlogs and price increases. One strategic way to strengthen your company is to expand into the secondary market.
Secondary solar market: A strategic move
Whether you’re a buyer or seller of PV equipment, the secondary market offers an alternative to the primary supply chain and provides ways around many of the issues and bottlenecks discussed.
The secondary solar market is comprised of goods traded that fall out of the traditional supply chain. There are various reasons why this happens. Products come from project leftovers, project delays and cancellations, liquidations, surplus, clearance, and decommissioned goods that have resale value.
Buyers
For buyers, the secondary market offers a wider range of prices from a greater number of sellers. Not only are distributors selling in the secondary market, but wholesalers, resellers, and some manufacturers are as well. Even developers, EPCs, and installers can act as sellers in the secondary market, which is a strategic move to liquidate excess stock and high-quality, decommissioned solar panels.
When wholesale buyers use exchanges, like EnergyBin, to check pricing and product availability, they are able to request quotes from multiple sellers for their project components. Requesting quotes could very well be the advantage you need to out-bid your competition.
For example, Texas Green Energy, a commercial solar contractor, uses EnergyBin during project planning to source options for its customers. The goal is to help each customer make a smart financial decision, particularly if the customer has expressed a fixed budget. When the company requested quotes for a 24 kW project, the customer decided to go with the option that saved them $35.00 per module. More options for price-conscious customers make solar energy more affordable and accessible.
Sellers
With respect to sellers, the secondary market expands reach and increases inventory turnover rates. When your company reports a low inventory turnover, it’s usually an indicator that your primary buyers aren’t purchasing at the rate you expected, and your excess inventory is piling up. Many sellers, who are both primary and secondary market players, seek to liquidate excess stock via online exchanges and marketplaces.
When wholesale sellers use exchanges, like EnergyBin, to resell excess equipment, they are able to connect with new, pre-qualified buyers. Whether buyers are in the market to find replacement parts, source new projects, or secure lower pricing, sellers are able to quickly fulfill their needs.
For example, Solarflexion, an online reseller, uses EnergyBin to sell excess and clearance goods. The company acquires these goods primarily from distributors and other suppliers. When a distributor asked for help to clear a large amount of racking from their warehouse, Solarflexion was able to sell it as a single lot on EnergyBin within 24 hours. Liquidating the racking equipment generated additional revenue for Solarflexion and freed up warehouse space for its client.
Secondary market opportunities for solar companies
Exactly how much money can you make or save by doing business in the secondary market?
Really, the opportunities are limitless for those solar companies who think outside of the box and jump in. We always remind EnergyBin members, who are PV professionals from across the supply chain that you reap what you sow. The more members engage with the exchange community, the more money they make and save.
On average, parts for resale, both new and used, range from 20-70% less than primary market prices. These discounts result from multiple factors, such as depreciation (part of holding costs), freight, and changes in electrical codes, to name a few.
Depreciation
Because holding costs, such as depreciation, can quickly put a dent in bottom-line profit, many companies have found that it doesn’t make financial sense to hold onto products. They work to liquidate products that primary buyers aren’t purchasing within one year or less.
Freight
There are two reasons why freight may cost less in the secondary market. The first has to do with proximity. Where the vast majority of initial solar equipment is shipping from China and other parts of Asia, secondary market goods are dispersed throughout the world. Buyers and sellers may be in close proximity to one another, where goods are shipped shorter distances.
For example, two installers – one in the market to buy a commercial-grade inverter and the other with excess inverters to sell – connected on EnergyBin. They discovered their businesses were located 20 miles away from one another. Due to the short distance, the seller offered to deliver the inverter himself at no additional charge.
The second reason for lower freight costs in the secondary market has to do with wholesale solar equipment brokers. Just like in other industries, such as insurance and finance, brokers do the leg work to find the best deals for their clients. We recommend that if your freight costs are higher than you’d prefer, request quotes from brokers to compare pricing. Some solar equipment brokers specialize exclusively in supply chain logistics. The freight industry can be extremely volatile from week to week in certain geographic areas. A broker can help you watch and plan for optimal shipping times.
Electrical Codes
Regarding code changes, such as smart inverter rules, you may wake up one day to find the inverters you supply will soon be noncompliant. That can be a frustrating situation. But the secondary market offers an alternative plan. Electrical code standards are not uniform from one region, state, or country to the next. What’s noncompliant in your region may be perfectly acceptable in another.
A solar supplier located in New England got stuck in this scenario after ISO’s inverter source requirements took effect. Rather than tossing noncompliant inverters in the trash (Yes! This actually happens in the industry!), the supplier chose to list the goods on EnergyBin’s exchange at discounted rates. Within three months, the company successfully sold the inverters to new buyers. Some buyers even returned to the supplier to make additional purchases.
These are just a few examples of wins that solar companies of all kinds are experiencing in the secondary market today.
Take the next step to expand your business
As the world transitions to renewable energy sources, the solar industry will continue to grow. With the industry’s growth, a robust secondary market will accelerate, creating new opportunities every day for solar companies to make and save money.
Even if the majority of your business operations remain as primary market functions, devoting a portion of your company’s resources to secondary market activities will only boost your profits. You may discover you have a knack for resale, like a once residential installer, but now full-time reseller of excess stock did years ago. He and many other PV professionals have found the opportunities that exist in the secondary market too good to pass up.
If you’re ready to take the next step, let us help you. EnergyBin is an online business community of PV professionals who trade solar equipment on a secure exchange with no transaction fees. Administrative support for tasks, such as help with inventory uploads and equipment sourcing, are included in memberships.
Join our community to get started today.
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