The Impact of Global Solar Panel Supply Chains on Pricing

If you’re thinking about finally ditching those sky-high energy bills and embracing the glorious sunshine with your solar panels, you’re not alone. From suburban rooftops to sprawling outback stations, solar energy has become a staple of modern living. In Australia, we’re blessed with some of the best solar irradiance in the world, and with government incentives and a growing desire for energy independence, it’s no surprise that solar panel installations are booming. But, if you’ve been doing your research, you’ve probably noticed something: the prices can jump around like a kangaroo on a trampoline. Why is that? The answer lies in the complex web of global supply chains that bring those sleek panels to our shores.

In this post, we’ll dive into how these international supply chain dynamics, including manufacturing, trade, and even geopolitical shifts, directly influence the price of solar panels for consumers.

The global solar panel supply chain

When you think of solar panels, you might picture them neatly installed on a sunny rooftop. However, the journey they take to get there is a complex, global affair. Over the past ten years, the world’s solar PV manufacturing has changed dramatically, with China now dominating the scene. To put it bluntly, China has invested over USD 50 billion in new solar supply capacity – a staggering ten times more than Europe – and created over 300,000 manufacturing jobs. This huge investment has led to China holding over 80% of all solar panel manufacturing stages, from polysilicon to finished modules. That’s more than double their share of global demand.

This matters in Australia because China’s dominance has been a major driver in bringing down solar panel costs worldwide. This has been fantastic for our clean energy transition, making solar more affordable for Aussie families and businesses. Chinese industrial policies, focused on solar as a strategic sector, have led to economies of scale and continuous innovation, resulting in a cost decline of over 80%. This has helped solar become he most affordable electricity generation technology in many parts of the world, including right here in Australia.

However, this concentration also presents potential challenges. As we’ve seen with recent global events, relying heavily on a single source can create vulnerabilities. For example, the global capacity for wafers, cells, and modules significantly exceeded demand in 2021, while polysilicon production became a bottleneck, leading to price spikes. And with China exporting over USD 30 billion worth of solar PV products in 2021 and with them owning almost 95% of the market in key building blocks for panels through 2025, any disruption there can have a ripple effect on Australian prices.

It’s also important to note that while solar energy is clean, the manufacturing process itself has an environmental footprint. Currently, much of the electricity used in manufacturing is powered by fossil fuels, particularly coal in China. However, the good news is that continuous innovation has halved the emissions intensity of solar PV manufacturing since 2011, and the panels only need to operate for 4-8 months to offset their manufacturing emissions.

As the world ramps up solar deployment to meet net-zero targets, we need to consider the resilience and sustainability of these supply chains. The IEA highlights the need for diversification, de-risking investments, and ensuring environmental and social sustainability. For Aussie consumers and businesses, understanding these global dynamics is crucial to navigating the solar market and making informed decisions.

Factors influencing solar panel prices in Australia

As we’ve established, the global solar panel supply chain is heavily concentrated in China, and this has a direct impact on the prices Aussies pay. However, Australians are now actively looking to diversify its supply and build resilience, primarily through the $1 billion Solar Sunshot program. This initiative, part of the broader “Future Made in Australia” plan, aims to invest in domestic solar manufacturing, recognising the growing global competition in clean energy industries.

Why is this important? Australia’s energy future is increasingly reliant on solar. The national grid will need at least 40 GW of solar installations within the next decade, which translates to over 100 million solar panels. Currently, the country imports 96% of its solar modules from China, making us vulnerable to supply disruptions. The Solar Sunshot program aims to address this vulnerability by fostering domestic manufacturing and diversifying import sources.

However, the question arises: Can Australia effectively compete in a market dominated by China? Manufacturing costs in Australia are significantly higher, and global solar manufacturing capacity already exceeds demand. For instance, some solar factories in China operate at only 50% capacity, and the industry is known for its volatile profit margins.

The Australian government is aware of these challenges. They understand that achieving self-sufficiency across the entire supply chain is unlikely. Therefore, the Solar Sunshot program is designed to contribute to a globally diversified supply chain. This involves:

·  Strategic investments: Focusing on segments of the supply chain where Australia can add value, such as polysilicon or wafers, where global diversification is most needed.