How are supply constraints impacting the solar industry?

While many COVID-19 pandemic restrictions are starting to be lifted across the United States, pandemic-related supply chain issues continue to be felt across many sectors, including the solar industry. In spring 2020, solar equipment manufacturers experienced significant delays due to workplace and travel restrictions. As the pandemic continued throughout 2020 and into 2021, consumer demand largely shifted away from services, such as dining and travel, towards goods, such as computers and televisions, leading to shortages for key manufacturing components. In this article, we’ll cover some of the supply constraints currently facing the solar industry, and how these constraints are impacting solar shoppers. 

Material shortages 

One primary driver of current supply constraints in the solar industry is material shortages. In 2020, the solar industry experienced record growth in the United States, despite the COVID-19 pandemic; compared to 2019, installations increased by 43 percent, according to the Solar Energy Industries Association (SEIA). This record demand, coupled with decreased supply, has impacted many key materials throughout the solar supply chain, including polysilicon, solar glass, and semiconductor chips. 

Polysilicon

Polycrystalline silicon, commonly referred to as polysilicon, is a key raw material used in many solar cells, which are responsible for capturing the energy from the sun and turning it into electricity in solar systems. Polysilicon is largely produced in China, but factory shutdowns related to the COVID-19 pandemic caused the price of the raw material to spike. 

Some solar panel companies, in particular those that outsource manufacturing, cut purchases of solar cells as a result. As demand for solar panels recovered and began increasing in 2020, these companies were left with a small supply of polysilicon solar cells; now, manufacturers of polysilicon solar cells are unable to keep up with the demand for solar panels, causing prices of polysilicon to continue skyrocketing. 

To meet demand, one of the largest producers of polysilicon, Xinte Energy Co, will expand one of its polysilicon plants in China by 20,000 metric tons, which is anticipated to take about a year to complete. However, the supply of polysilicon will likely stay constrained through 2021.

Solar glass

Solar panels also include glass casing at the front of the panel, which protects the solar cells. Recently, there has been growing demand for bifacial solar panels, which produce energy from both sides of the panel, requiring glass on both sides of the solar panel, as opposed to just on the front. In 2018, China, the largest producer of solar glass, imposed restrictions on glass production due to concerns about the required energy consumption. With increasing demand for solar panels, and for solar glass specifically, the restricted production of glass has been unable to meet the demand, causing the cost of solar glass to soar. 

In December 2020, China’s Ministry of Industry and Information Technology (MIIT) indicated that it would ease restrictions on the production of solar glass. While solar glass supply is expected to remain constrained short-term, increased capacity due to these eased restrictions should expand supply later this year and reduce prices. 

Semiconductor chips

Semiconductor chips are a key component of inverters, which convert the direct current (DC) energy produced by solar panels into usable alternating current (AC) energy. Inverters are also used for battery storage systems to convert storable DC energy to usable AC energy and vice versa. The use of semiconductor chips is not isolated to the solar industry; they are also crucial components of many other technologies, including cars, computers, and smartphones. 

Due to COVID-19 related factory shutdowns, manufacturing of semiconductor chips decreased in early 2020. As factories began to reopen, demand for semiconductor chips surged with people capitalizing on low interest rates to purchase cars in hopes of avoiding public transportation, and with people increasing other pandemic-related purchases, such as computers, smartphones, and game consoles.

While inverter companies haven’t been hit as hard as automakers, Enphase Energy, a major producer of microinverters, cited constraints due to the semiconductor shortage, coupled with record demand for the company’s products. As a result, shares of the company dropped by over 14 percent in April. 

Shipping constraints

In addition to material shortages, the solar industry has also faced constraints related to shipping. Pandemic-related spending on goods increased global shipping, leading to shortages in containers and port congestion in the United States, impacting virtually every sector, including the solar industry. 

Container shortages 

At the start of the COVID-19 pandemic, national lockdowns restricted both manufacturing and shipping. As a result, many shipping containers–like those used to hold goods such as solar panels–became stranded and started to pile up in the United States. While China began to lift restrictions due to the pandemic, the United States largely remained shutdown and could not send containers back to China. This caused a container shortage in China where they were needed to continue exporting goods. Production of containers also decreased in 2020, further contributing to the shortage and causing prices of shipping containers to escalate. 

Port congestion

Increased imports due to pandemic spending has also driven port congestion in the United States. The congestion is further exacerbated by significant increases in the size of container ships over the past decade or so, leading to longer unloading times–each ship can now carry tens of thousands of shipping containers. 

Approximately one-third of all imports, and the majority of imports from China, enter the United States through two ports in California: Los Angeles and Long Beach. In January 2021, port congestion reached a record high when 38 container ships were waiting in Southern California. In April 2021, 21 ships were waiting, some for weeks. Ocean freight prices have more than doubled over the past few months and the port congestion is creating significant supply chain delays in many sectors, including the solar industry. 

Will these constraints impact you?

As of May 2021, the price of solar panels has increased by about 18 percent globally since the start of 2021. However, these cost increases are largely impacting large-scale solar projects, as opposed to residential solar. According to our latest Intel Report, the EnergySage Marketplace saw the lowest prices of solar in history in the second half of 2020, so if you’re looking to go solar, you shouldn’t be dissuaded by solar supply constraints. 

It’s possible that you could see longer wait times for your installation due to the supply chain bottlenecks. However, as production of polysilicon and solar glass increases and as consumers shift spending from goods to services throughout 2021, the shortages and shipping constraints should ease. 

Get started on your solar installation process today

Looking to install solar panels on your property? Visit the EnergySage Marketplace to compare multiple quotes from local installers. You can make easy side-by-side comparisons of solar equipment and installers to find the right option at the right price. If you’re interested in the benefits of solar, but don’t want a system installed on your property, visit our community solar marketplace to check for project openings near you.