On 21 August, the majority of EU member states rejected the request for the initiation of expiry reviews with regards to the anti-dumping and anti-subsidy measures for crystalline solar PV modules and cells originated in or consigned from the People’s Republic of China. As such, the undertaking on the minimum import price (MIP) expired on 3 September after almost five years in place.
In retrospect, the actual impact of the controversial MIP in limiting the entry of modules manufactured in China and maintaining higher-module prices in Europe has been rather limited. According to IHS Markit internal data, almost 80% of modules shipped in the first half of 2018 were outside the MIP framework, many of them being imported from manufacturing locations in South East Asia and below MIP prices.
Despite the limited sourcing of modules under the MIP in Europe and its limited effect in protecting local manufacturers, its expiration will still trigger some significant short and mid-term changes to demand and supply dynamics across European markets and it will also have repercussions for global procurement trends. Below are the six most relevant implications of the elimination of the MIP according to IHS Markit:
- Strong increase of shipments from China
The elimination of the MIP opens the European market to the Chinese production of Tier 1 Chinese players that until now could only supply Europe from their factories in South East Asia, and will also open the market to large Tier 2 players that don’t have factories outside China and therefore have not been able to access the market for the last five years. The timing is very important since domestic demand in the local Chinese market is weak in the second half of the year following major cuts to the national incentive scheme in May. Restored access to the European solar market could help such manufacturers to reduce their inventories and increase utilization rates in their China mainland facilities.
The arrival of new manufacturers to the market will intensify price competition in Europe but many will struggle with limited bankability and weaker sales distribution channels compared to existing tier 1 players that have a well-established commercial presence in the region.
2. Module prices in Europe could decline as much as 30% from current MIP levels
Module prices are going to quickly drop in Europe in coming weeks as the MIP was artificially maintaining prices in Europe at higher levels than the global average - the MIP price for multi modules was €0.30/W ($0.35), which is 30-40% above average global prices.
Due to this price gap, and the willingness to accept minimal margins following the slowdown of demand in China, the termination of the MIP will cause module prices in Europe to decline for new contracts by as much as 30%. For project developers and EPCs, such a cut will immediately drive down total project system costs and the corresponding LCOE, and raise project margins for already contracted projects.
From now on, prices in Europe will return to fluctuating in line with supply and demand, as they do in China and in the other markets without trade barriers. The precise level of price decline will depend on how China market demand evolves in the next two to three quarters, and the final decisions on anti-dumping and safeguard measures in India.
- Demand in Europe will increase gradually as lower prices will stimulate growth of non-subsidy PV projects as of 2019.
In IHS Markit’s latest PV Installations Tracker published in June, we had already assumed, as our most-likely scenario, that the MIP would not be extended after September. predicting 12.3GW of installations in 2018 and 16.9GW in 2019, with demand booming next year especially in Spain, France, Germany, and the Netherlands, aided by lower module prices.
The biggest impact of an MIP elimination will be to spur 40% year-on-year growth in new PV installations in Europe in 2019. In particular, the developers of large utility-scale projects in Southern Europe will benefit from the increased competition among suppliers. Across all segments, PV systems will benefit from being competitive with on-grid electricity prices, which will lead to a come-back of new PV installations across the continent. Regulatory barriers will still control the feasibility of PV and steer the development of specific segments in specific markets, but the investment cost will become less of a hurdle.
- Southeast Asia production will move away from Europe and focus on the US market
Chinese manufacturers built manufacturing facilities in South East Asia in the last years to bypass existing trade barriers and be able to continue supplying modules both to Europe and to the United States. However, without the MIP, it will make more sense to ship to Europe directly from China rather than from South East Asia because of the lower cost structure of their Chinese facilities.
In this new scenario, the current capacity in South East Asia now has only a competitive advantage to serve the United States market and potentially India (excluding the 7GW of capacity in Malaysia that is also impacted by the current safeguard duties in India).
For the United States, the biggest impact will be the increasing availability of South East Asian production to serve the market, since cell and modules manufactured in China are still subject to the high AD/CVD duties, in addition to the import taxes added in the 201 case.
- Europe’s small module manufacturing base will face stronger competition but will also benefit from sourcing cheaper Chinese cells.
There is currently around 3 GW of module manufacturing capacity in Europe (excluding Turkey), with diverse manufacturing conditions and utilization rates, and only 400 MW of cell capacity. Local European manufacturers that have higher processing costs than their Chinese counterparts will now face stronger price competition. However, the good news for European module makers is that they will now be able to source cheaper Chinese cells in the market. Cheaper cells could help sustain some competitiveness, in particular, in the rooftop segment where local players have a stronger presence. Criteria on low carbon footprint, as included in French PV tenders, will also benefit some of the local manufacturers to a small extent.
- The share of monocrystalline products will rapidly increase in Europe
The share of monocrystalline PV modules in Europe has significantly dropped since the implementation of differentiated MIP levels pricing for monocrystalline and multicrystalline cells and modules. A much higher minimum price for monocrystalline products made it difficult to compete against multicrystalline products with increasing efficiency rates. However, in recent years, the price gap between monocrystalline and multicrystalline products has closed, making monocrystalline technology highly competitive for both rooftop and ground segments. Thus, IHS Markit anticipates that that the monocrystalline share in Europe will start growing again for both standard and PERC modules, as has occurred in all the other global markets in the last few years.