Solar Shines Bright in the Energy Crisis

F covering solar since the very beginning. We're going to talk about what's going on in two with prices which continue to rise for most components, materials and projects across the industry, but at the same time there continues to be strong demand and two is also likely to be a year of record build in Europe, in China as well as a few newer markets where high energy prices

are driving adoption. So let's speak with Jenny about the solar quotable take market outlook and what she's observing across the industry. Hi, Jenny, thank you for joining. Hello Diana, Hello everyone. Well you're back here today, and I don't think I asked this question last time, so I'm gonna ask it as the first question as we start today, which is how long is it that you've been covering

the solar industry. It's been seventeen years, okay, so you've got a good amount of time under your belt in a good amount of perspective on some of the highs and lows. And so I'm actually going to quote you back to yourself as we start this show today. So I took a look at the PV market outlook you that you did for the third four two, you and your team, and you say in this report that and they quote the future of solar is more uncertain than ever and even in the present, the picture is one

of blurry but frantic growth. So I want to know what do you mean by this? Oh, dear, Yeah, it sounds very pretentious when you put it like that. I mean I started covering this industry when there was about a gigawatts maybe two giga exactly being installed every year, and this year we think there were two hundred and fifty one gigawatts being built. And as it's scaled up,

the number of countries during solar has expanded massively. So there's there's now about a hundred and forty five currents that we had to maintaining current statistics and forecast for, and solar statistics are really hard. Dana countries very seldom produced timely information on how much older was being installed.

A lot of the time they don't even collect this information if the solar is not grid connected, and so all the data we have on build of solar is quite backward looking, you know, at least six months backward looking, except for Chinese exports, and China is exporting loads of solar this year. We've got exports up up to July and they're really high. Europe has about fifty three giggs what's left China for Europe up to July, and we were expecting the whole European market to be about this year.

So there's a whole load of models in Europe that haven't been installed yet, and sometimes it's just really hard to figure out what's going on. So the statistics are largely unreliable. And as a result, how did that impact

your forecast? We put a big buffer in because we know the modules are going somewhere, and we've got this lock called the buffer where if none of our regional analysts identify where the modules are going, will leave a little bit of headway because we know they're probably wrong, and at least some of them will find all those modules in their geographies and be shocked. So I think,

then let's talk about what's driving the higher costs. And I know that inflation is this word that everybody is mixing into pretty much every conversation right now, and I'm guessing by the time we get to the end of the year, it will be one of those words whereveryone's

just exhausted by it. But if we're thinking about what's happening to solar modules, which have largely seen a decrease in prices for various reasons associated with the different components, what's causing maybe a short term increase in module prices in the near term. So sol is a bit unusual in the whole inflation baskets, and that we do expect it to reverse quite drastically. Because you did say that, yeah, you're saying that you think things are going to come

down by the end of three. I think solar module prices are going to drop, probably start dropping by the end of twenty two, because, first of all, solo modules today cost about twenty six cents or what they were at lower nineteen. So there's this very unusual situation where even in nominal terms, they're higher than they used to be. In real terms, it's actually about flat, but in nominal terms they're more expensive than they used to be, and

that's not a common situation in solar. The prices have been dropping for thirty years, pretty rapidly and pretty steadily. However, what's holding them up right now is a shortage of polystylican Policylican factories are big and expensive and take time to set up, and very simply global demand for solar modules has driven demand for solo polysilicon to be well

ahead of how much is being produced. However, there's a whole bunch of factories coming online in China to make more polysilicon, and we also think there's probably some inventory build up of modules around the world. So we're expecting the crisis to drop back towards about twenty two cents from the current cents. Okay, so prices are coming down.

Prices are not coming down yet. To be fair, the prices of modules could stay high for a long time, but that would mean an awful lot gets built next year, because the only thing that I can see would drive prices just I high all of next year would be if we build more solar next year, which I don't think we can. There were bottlenecks in installation labor in what sites are ready to get permitted to get permission

to build solder on and connect to the grid. And there are also shortages of other components like inverters that help things up well. And so let's talk about solar industry growth because that's definitely something that a lot of people are thinking about right now in terms of high energy prices and you know, potentially countries looking at more

domestically produced energy. And I do understand, and I know that listeners understand that natural gas and the volatility that we're seeing on prices over there, and how important flexible capacity is to the solar industry. It's definitely one of the pieces to the puzzle that you have to see in the big picture when you're thinking about solar. But largely do you see growth in this industry and roll out and if so where kind of in response to

high energy prices? Absolutely. So. One of the biggest and also most difficult the track sectors is rooftop solar in Europe, so solar being built by house owners and business owners literally just to feed into the building that they're on and sometimes to feed into the grid if it's allowed.

So this is one of the said ones where the data is poor nuts, but we're pretty sure from talking to installers and a third party finance companies and other sources that this is going gangbusters installers in Germany, so that they're sold out until next well into next year, simply because people are freaking out about their energy costs. And one of the ways you can deal with that is by putting a solo on your roof and buying less elepricity, which is something because Germany were early adopters

with solar. I mean, they had a boom a decade and a half ago. Germany has a lot of solo, but it's still got some roofs that don't have solo on it, so I guess they're getting it now, better late than never. So solar could potentially help alleviate some

of this volatility. And you mentioned Germany, you also have other parts of the world, so let's say, namely China, and you know in year, which even received a large number of panels earlier this year, do you still see build out of solar in Asia to the a booming space in the future. Oh, definitely. So of the two one gigawatts expect to be installed this year, about gigawats

of that is in China. China has also got high energy prices, and it's also building large amounts of rooftop solar, plus some of the mega energy bases being planned in the desert under construction, and that's that's taking up a lot of a lot of solar modules. India is a little bit different because although the Indian market is much stronger this year than last year, the big reason there was a massive import boom in India is at import tariff coming in April, which meant that anyone planning to

build solar in India brought their modules before April. So potentially this is going to drop off. Now, India is one of the countries that still has a pretty high dependence on what we would consider high carbon fuels, So cool is you know, still definitely thriving in India. Do you see solar you know you mentioned it kind of dropped off because of a change in policy. Do you see it just because of the low l c ELI being of interest in that geography going forward or is

it going to cool? Absolutely, India will keep building solar. It takes a while for solar to really start digging into cold margins just because type changing any system takes a while. But India the Indian solar market is unlikely

to cool. There are companies setting up manufacturing in India and there was a government incentive to do so, and probably, to be honest, even with a fully percent imports habiff, it's still likely to be worse buying some modules for rooftop use and they will continually big auctions that build big projects on open land in India. The future of solo in India is bright despite the import tariffs. That's a great pun too. I like all solar things being right,

I love it boom, you know. And actually we're going to continue our trip around the world and one of the other continent that I actually want to talk about is Africa, and specifically in the run up to CAP twenty seven, which is taking place in November, there's a lot of discussion around alleviating energy poverty and the role that renewables could actually play in some parts of the world,

and Africa definitely being one of them. Given that CAP twenty seven is being hosted in Egypt, there's just a lot of eyes on what renewable energy could look like on that continent. How do you think solar is going to play a role in Africa's energy future. In the long term, it will play a huge role. It should be possible for many, many countries to leap flo over ever, going through the coal and gas plant stage and go straight to fairly distributed energy networks that are pallered largely

on renewables with battery backup. In the short term, things are not quite so bright. A lot of the large projects being built in Africa had power signed in and before, and those were prices assuming that there wouldn't be inflation, certainly not predicting the amount of inflation we've had, so a lot of projects and stuff Africa, for example, and other African countries essentially stalled by the fact that the costs are much higher than they expected when they signed

power contracts. Just going back to the topic that we addressed, you know, ok, I guess a couple of minutes ago around the role that's older could potentially play in grading domestically produced energy and alleviating some of the strain on certain grids around price volatility. How long does it take to get a project, let's not say rooftop solar, but utility scale projects off the ground, let's say, from permitting all the way through the you know, electricity going through

the power lines. Oh goodness. So the longest phase in this is the permit is the permitting almost wherever you are, the longest stage. We'll be getting the permitting and getting access to the grid. Once you've done that, then actually building it can be six weeks. Wow. But of course the permitting cans like a very very long time. Okay. So, I mean this is definitely an issue of whether or not certain countries want to see these projects come online

quite quickly. And you know, the role that it could play in prices in the near term actually has to do with the logistics around the project rather than the project billed itself. And that's including getting some of these panels literally shipped from where they're manufactured to the site. That's probably a bit ambitious at the moment. Six okay, actually, I mean if they're going from China to Europe, that's

probably six weeks for starters. On the other hand, I'm getting some emails offering me a container of modules or two and what a dam So like, if we're willing to use mixed modules, we can probably do it pretty quickly. Okay. So I was recently reading that there were negative power prices in certain parts of the US quite recently, and you know, at a time when high energy prices that we all end up seeing on our home energy bills, and I know that you know companies are seeing as well.

Could you explain a little bit how you know grids and grid rollout may end up being one of the bottlenecks, maybe a very important one for the solar industry. I mean, I know it's space that we at B and e F have recently dedicated a team too, because we understand just how critically important grid infrastructure is to the entire web of renewables and you know, the energy system as a whole. They certainly are. The thing about solar power plants is that all the solar power plants in one

region generated power roughly the same time. And if you have a lot of solar power plants in one small region connected to one bit of grid and there isn't a large amount of local load that runs in the daytime, you are quite like to get grid congestion, which just means that not all the power being produced can go down the grid and you can get zero prices or even sometimes negative prices if there were some perverse local incentives, which could be fixed either by maybe putting in a

battery to save some of that local power for later when the solar production drops, or just by building morgrid. In a lot of places, the battery is actually cheaper and easier than solve the problem for now, but grids are a huge part of the solution to take power being generated in one place to another place where it's more valuable. Now for a very short break, stay with us. So in short, there are well, there's more than one solution to the grid question. One of them definitely is batteries.

So we'll have to be very creative thinking about the future and how all of this is interconnected. Well, and while we're on the topic of the US, because that's sort of the case study that I was using there when we let into that topic, how about the Inflation Reduction Act. And I know, you know, those who are in the US at the moment are talking about this a ton and what it means for various parts of you know, the energy system. What does it mean for

solar I think it's super exciting. I very much regret that we don't have a final this is what it means for solar demand number, But I think that we will see some domestic manufacturing in the U s particularly and got some way for US again, and it probably should increase our forecast of US build because it's really

generous for solar. In fact, it's so generous for solo that I'm slightly concerned it's gonna set up a lot of perverse incentives over the next few years that might lead to tweaks along the line that are somewhat disruptive to the industry. Expand on that, what are they proverse incentives?

So as I understand that you'll be able to claim the production tax credit for solar, which means that you should be able to offer very very very low prices for solar, and you'll probably get that regardless of whether it's fed into the grid. So I feel like we could just have an awful lot of solar plants built in not super smart places and very quickly. Then again, maybe they'll never get permission to build anything at all. I mean in the US two there is there are

major bottlenecks. I've seen a lot of in the past. Is huge solar booms like Spains, like Romanias, like the Czech Republic, and those are very often followed by retroactive changes that make it less attractive than originally anticipated. And in the meantime you get developers who overpaid for rights to build a project, and there's all kinds of mess when you have very complex but very lucrative system. SOLO

is not complicated, it's actually quite simple. And when you stack layers and layers of legal and tax, equity and financing complications on top of that and pay all those people, you can end up with a very expensive and somewhat unsustainable industry. And what are some of the things that people are objecting to solar roll out about? Because I'm

thinking is a parallel. We recently recorded a show on nuclear with our colleague Christodomsey, who's been covering that space for an extraordinarily long time, and you know, he talked about just the amount of run up that it takes the just like you were saying, it's that permitting process at the beginning that is critically important but adds to the timeline. And then even with wind, you know there are those groups talking about, well what about the birds?

What is the thing that is that sticking point for solar that causes us opposition? Generally everyone of solo right, I mean, does obviously killed birds. It's not going to say it killed no birds because okay, there are some types of waterfowl that can mistake solar panels for water with disastrous results in the desert. But natural selection has to do something right. So generally speaking, solo you can't see it from a long way off, but it does

cover land that could be used for other things. So a lot of US development is on Bureau of Land Management lands in the US, which is is desert that has been preserved because it has ecological value, and it's probably not right to just say go and build solo all over these places. You know, you have to protect the desert tortoise and the other species that live there,

and you do have to do some basic research. On the other time, there's quite a lot of this land, so maybe some of it is not critically important, and you can build solo on some of it and preserve the rest. Solo versus agriculture is another big talking point that I think it's probably more talking point than a real conflict right now. It's certainly been a feature of the UK recent leadership elections. I don't know why, because

very little of the UK. Agricultural land is used for solar anyway, and there's not a massive boom and solar even planned in the UK, but people are concerned about food versus fuel issues in the long run and making up solutions such as agricavoltaics, which will be combining solar panels with agriculture on the same land, which sometimes probably makes sense but probably also sometimes not. There are some crops that flourish undercover, some ways of tending those crops

that can work under solar panels. My suspecials were going to find a lot of ways that don't work, but there probably are something to okay, So the land use question and ends up coming to the floor. By the way, I love the quote that everyone loves solar, I mean, Jenny Chase. For those who know you well and I think it worked with you for a while, they will know that you are quite pragmatic about the industry. You're not known for putting any sort of sunshine in roses

where they don't belong on anything. So this is by far one of the most optimistic on solar rollout conversations I think I've ever had with you. So it really says something so everyone take take Jenny's optimism. Maybe optimism is not even the word. Maybe you're still equally as pragmatic, and this is just what is happening. I think that is the point that I was trying to make. Yeah, I don't love solar. I hate solar years you would

too if you had. Okay, well, let's talk about the companies that are involved in this space at the moment, because you know some of the things that you're talking about in including domestic manufacturer of solar in the US, or build out of different projects in India, or even just the you know, massive scale that we see growing in China in already robust market. What are some of the companies to watch as you see it at the moment. Oh,

they're there are hundreds of them. I think a big beneficiary of the i m A will be First Solar, the world's last remaining thin film manufacturer of any significance, which does manufacture in the U s. And it's also from its fact threes outside the US is not subject to restrictions in future, and there is the risk that the US will reinstate restrictions on sales and models from Southeast Asia coming into the US, which will make everything more complicated in a year and a half or so.

There's always the big Chinese manufacturers. So long aging go j A Solar, Torna Solar, Canadian solar handword. Solar is working with US silicon maker. Are we see silicon to bring back some of the old silicon factories in the US. That's one to watch. The developers. Every country has its own phalanx of solar developers that are looking to get permits and and get grid connections, and those will probably just benefit from the expanding market, particularly advices dropped for modules,

which will give them a little bit more margin. Yeah, there are lots of solar companies. Alright, let's look under the third a little bit, and let's go really d by one specific part of the data world, and something you don't normally spell out in a market outlook is kind of an explanation of a specific piece of methodology, kind of in the meat of it. In this case, it was the Altmands score, which is something I had not heard of, but I know many of our clients

in the solar industry. You're definitely asking for detail. Line, can you lane with the altman Z scorers? End? Why the solar industry watches it, so I should have looked exactly who Altman was and when he did his research. But Altman was an economist and he produced some academic research while ago of manufacturing companies and manufacturing companies he found you could predict their publicity of bankruptcy by looking at some fairly standard financial ratios that are disclosed by

public companies on stock markets. And this looks at their their assets, their liquid reserves, their market information basically about how well they're performing related to their debt. And he found that an Altman zed score above one point eight meant a manufacturing company was fairly unlike to go bankrupt in the next two years, whereas below one point eight there was actually a pretty reasonable risk, and solar companies

go bankrupt all the time. Historically. This chart of Altman's scores has a lot of companies below one point eight in it, and it still has a few. They didn't all go bankrupt. I mean, being below one point eight

is a risk of bankruptcy, it's certainty. What we've seen in the last year is pretty good profits for the solar industry, particularly for polsilicon makers and glassmakers, and some of the big manufacturers, and so a lot of these companies have moved into quite positive helpment c schools, which suggests their fairly good financial health. So Daco, Shine, Longi, Tongwei, Almonton, First Solar, basically this has improved a bit and most of the companies are in decent financial health, which is

unusual for solar manufacturers. You're mentioning it's a super fragmented market, maybe a reasonably low barrier to entry. I do identify a bunch of those in this research note and kind of throw companies and names of specific projects out there that you know definitely are kind of taking off. So we have some visibility on what's happening in the nearer term.

You mentioned thin film solar, So I think the question that I want to get to, and I think maybe could even be its own podcast, what's in the world of weird and wonderful tech that's happening in the sol their space, Because of course we know over a benaff that the utility grade projects and then of course the rooftop solar projects are where most of the you know,

new installed capacity is coming from. But what about the solar roof tiles that people were talking about there for a bit, or the thin film solar or the solar that ends up going on. You know your windows, what's in the weird and wonderful category that you are watching. You can't see me rolling my eyes, Diana. The whole point of solar is it's not weird and wonderful, it's

just normal. You buy solar panels, you probably don't need to think too much about what sort of solar panels they are, and you put them somewhere which vaguely faces the sun. Yes, there were there were gimmicks like solar roof tiles and solar blinds, and some people will even

buy them. In the past, when you see a thin film company saying that they're going to pivot to bespoke solutions like that, you know they're about to go bankrupt, because that's the last pretense that the product is actually good. They're just going to go for, Oh, we're not good, We're just going to be pretty. A good solo module

generates electricity. What it looks like is relatively unimportant, but hey, there are people who will pay extra for special black modules with a black frame, and probably also for solar blinds and solar roof tiles and if they want to, they should go right ahead. But the point of a solar model is a blue electricity, so it is deeply a function over fashion moment, and Jenny, I could feel you rolling your eyes, so even if I couldn't see it,

I could feel it. On that note, thank you very much for joining us on the show today, and we will have you back to do something more detailed on the solar industry. But it was high time that we had you on the show to just suit a crash course on what is happening at the moment given all of the discussion across the interconnected web of the energy industry and what's happening with price volatility. So thank you

for joining us. Thank you, Dana. Today's episode of s sched On was edited by Rex Warner of gray Stoke Media. Bloomberg an f A is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed as investment advice, investment recommendations, or recommendation as to an investment or other strategy. Bloomberg an e F should not be considered as information sufficient

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