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10 May 2019

Goldman numbers seem to come from funding US deal, not global

Goldman Sachs, which funds many solar deals in the US, says that solar pricing will stabilize during 2019, and that it has only fallen 2.3% in pricing this year compared to the 26% it fell last year.

Prices fall fast when one or both of two things happen – there is a supply glut, or there is a new form factor which improves the economic model. Surely both are true right now in the current quarter, so we think that Goldman is working a few quarters behind the global market, and sees only what is happening in the US.

There has been a lot of talk about declining demand from China for solar, which would indeed create a glut, but really that has been only happening in the past quarter, so presumably panels for any deals signed in Q1 will only be drawn down from inventories and installed in the next quarter or so. Weak orders in China, will create a glut in the next quarter.

Earlier this year Goldman said that it was a great time to be investing in solar, and was telling everyone to pour into funding solar projects, because back in March it already had committed to funding a ton of solar and storage deals across the US, including in California, Nevada, Minnesota, Illinois, Texas, New York, New Jersey, and Massachusetts, mostly for the French firm Engie.

If the lack of orders in China last quarter result in a later glut (China takes about 50% of all solar panels and shipped around 50% of what it shipped last year) that should leave about 25% of manufactured panels in Q1 still unsold – so glut, not price stability on the way.

The Chinese government seems to have done that because it wanted to send a message to solar manufacturers that they needed to get down to Chinese price parity, with other forms of energy so it temporarily withdrew subsidies from the market for a quarter.

This can only happen when one buyer in a global market represents more than 50% of the market. It happened in a very similar way in large flat TV screens over the past ten years. First China wanted to make large flat TVs, and it managed that, then it wanted to sell more of them, so government subsidies were introduced to give everyone in China a nice big flat TV and prices began to fall. Once the market was able to absorb that many without subsidies, supply and demand rules took over again.

Goldman is forecasting just 15% growth in solar this year, while other forecasts such as IHS Markit have forecast as much as 25%. Goldman attributes a lot of the rise to the US, whereas other forecasters have talked up Spain and Vietnam – why just those two? – as being committed to huge Solar installations in 2019 with 43% growth expected there.

So it did not surprise us when IHS Markit said the opposite, that 2018 languished in single digit growth and this year will leap to 129 GW, and it cites falling module prices being the reason for increasing demand, of which 45 GW will be China, with Europe on 19 GW and the US on 12 GW.

Back in March Goldman told investors that utility-scale solar power capacity would grow by double digits through 2020, citing expansions in the US, Europe, Middle East and China.

The other consideration here is that BiFacial panels, which are two sided and which collect light from the sun, as well as bounced light from beneath, and yield an extra 25% of energy from a same sized installation. We have seen about half a dozen orders for these already during 2019, and slowly this is becoming the norm. We would have expected that solar installations would not want to use older solar technologies if these panels are available to use, because the financial equation remains static for 25 years.

There need to be issues like the best tracking algorithms and layout for such BiFacial panels worked out, and also some testing on their outputs, but largely reputable energy firms installing these are likely to have far more energy output for similar sized installations.

Could it be that the emergence of BiFacial in Q1 and Q2 2019 will actually slow the market, while everyone gets familiar with them, but this may have confused Goldman, in that it just signs off on contracts, and perhaps is not aware that the price is being held up because the mix includes the more productive BiFacial panels.

So while Goldman seems to be forecasting based on prices it has seen in contracts that it has funded, and it expects stable pricing until the US tax breaks go out of solar in 2020, it could be that the BiFacial hike in energy productivity will be so welcomed by US financial backers that the ending of tax breaks will barely be noticed. And once every supplier is offering bifacial and when the yields improve, that price falls will begin to look like last year once again.