As countries reopen, market recovery begins

With demand turning out better than anticipated in the second quarter and the spread of Covid-19 slowing in some overseas markets, PV InfoLink has raised its forecast for annual global module demand to 121.1 GW. While Chinese demand is projected at 43 GW for now, this may come in even higher if utility-scale projects begin construction smoothly in the third quarter.

Steady pace

China’s solar sector suffered relatively few impacts from the pandemic, with module manufacturers continuing to run at high rates of utilization and the grid-connection deadline for PV projects remaining unchanged.

Chinese demand in the first half of the year mainly came from last year’s projects that were rushing to connect to the grid and secure payment by the June 30 deadline. After the June 30 installation rush, demand in the second half of the year will rely on new projects issued in 2020.

China announced its solar policy for this year in early April, but the government did not move the auction schedule earlier compared to last year due to the impact of Covid-19. The results of the solar auctions are expected to be published at the end of the second quarter, and considering the administrative procedures, demand from auctioned projects is likely to manifest at the end of the third quarter.

Residential, ultra-high voltage, and grid-parity projects will pick up the slack during July and August. Given that the commissioning deadline for new projects awarded this year is set for the end of 2020, project developers will try their best to complete installations in order to obtain payments by the end of the year. In this case, the last quarter will see the highest demand in the year, with newly auctioned projects making up most of this demand.

Overall, the demand level in China this year is stronger than in 2019. PV InfoLink projects that China will have 43 GW of module demand, while many solar manufacturers believe that it could reach as high as 45 GW.

Gradual recovery

Countries across the globe have launched solar stimulus packages in the wake of Covid-19, as part of wider moves to restart their economies. As the virus outbreak subsides overseas, developers outside of China have started to actively request purchase quotes again. However, solar installation works will be slowed due to ongoing cross-border issues and partial restrictions in logistics.

Europe is among the regions that was hardest hit by the pandemic. Nevertheless, China shipped 3.3 GW of modules there in April, a volume that was higher than projected. Shipments to the traditional leading European markets such as Spain and Germany have remained stable, sitting at 410 MW and 383 MW, respectively. This indicates that the impact of the pandemic on the European solar PV market is so far smaller than expected. However, this situation might be the result of developers building module inventory ahead of time. If this is the case, shipment volumes could fall in the second half of the year. Other marketplaces including the United States, the Middle East, and Australia, are also showing signs of recovery. They are likely to return to normality in the second half.

The situation in Latin America is quite the opposite. The region’s politics and economy took a heavy blow amid virus outbreak and oil price crash. Demand weakened in April, with total module shipment volumes from China to Brazil, Mexico, and Chile having dropped nearly 75% compared to March. India’s further extension of lockdown has also hindered its demand recovery. Compared to March, China’s exports of modules to the country slumped by 65% in April. The situations in these marketplaces, however, did not change the fact that overall demand in Q2 fared better than initially expected.

In fact, China exported 6.3 GW of modules to overseas markets in May – the same as in April. It is worth noting that the shipment volume to Latin American countries as well as India seems to have bounced back, although it remains to be seen whether the volume level will remain stable or even increase in June. It is foreseeable that China’s exports of modules in June will be higher than in May, as most countries had relaxed lockdown measures by the start of the month.

It is expected that markets will be totally reopened in July. As overseas markets start picking up during the second to early third quarter, demand will turn better at the end of September and reach the peak of the year in the final quarter.

Deferred demand

With the pandemic being gradually contained in many countries, global demand is likely to grow each quarter in the second half. However, as demand from quite a few projects have been deferred by the pandemic to the first half of 2021, the recovery will remain slow at the beginning of the third quarter and begin to climb, with demand reaching the highest level of the year in the fourth quarter of the year.

The impacts of Covid-19 on the global solar sector may yet continue into 2021. Despite being hammered by the virus crisis, the world’s progress toward a low-carbon and sustainable future remains unchanged. Solar power, which has seen significant reductions in upfront cost and LCOE in recent years, will continue to lead the way in the long term.