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What’s Behind The Solar Price Increase?

While the solar industry has long enjoyed somewhat stable pricing during its massive growth this is all set to change in the coming months. As the ramifications of both COVID and trade wars with China begin to take hold we are expecting to see solar panels increasing in price across the board alongside many other goods that we import.

Before we see the biggest price hike in the industry to date we thought it best to take a look at the reasons why this is happening. It is not a straightforward scenario but rather a buildup of several factors that have all accumulated to create a perfect storm of sorts and the resulting fallout is both unfortunate and unavoidable.

Shipping Containers And Increasing Shipping Costs

A key factor in the price increase of solar panels is the humble shipping container. While this might seem surprising the reality is world trade is built on the back of these steel boxes being lugged around by mammoth shipping vessels. In a normal trade scenario containers are delivered to a port where they are emptied and then filled again with goods to be exported.

This balance of import and export is key to keeping containers and therefore goods moving across the seas. As the world begins to emerge from the COVID-19 crisis we see a massive demand for products and shipping as industries look to make up for lost time and consumers find themselves with more money than usual due to lockdown living.

solar price increase shipping

All of this has led to massive congestion at ports across the world and this interrupts the previously smooth to and fro that shipping vessels enjoyed. Some shipments are redirected or simply cancelled as the cost of waiting around for an open dock far exceeds the profit of delivery. When goods do make it in the shipping containers are simply being left in ports rather than sent back across the ocean with exports from Australian businesses.

Delays have been further exacerbated by incidents such as the grounding of the shipping vessel Ever Given in the Suez Canal. The blocking of such a key waterway in international freight meant goods and containers were left sitting on boats waiting to pass through and while the incident only lasted just over 6 days the impact had a knock-on effect that is still being felt today.

Tension And Trade Wars With China

Further compounding this issue and adding to the empty shipping containers stacking up in Australian ports is the trade war with China. Australia has traditionally exported a wealth of goods to China including resources such as coal as well as wine and many other products. With major tariffs being placed on Aussie products by China the shipping lanes have become more of a one way street.

A shipping vessel is quite expensive to run and if they are not hauling products they might as well not run at all. They will simply not wait to have empty containers loaded on for the sake of moving them back to China and more often than not the simplest solution is to drop off the shipment and return to collect more goods.

solar price increase china

This means more and more containers need to be fabricated and therein lies the second factor. Raw resources such as iron ore have also seen a price hike during covid and with less being imported into China from Australia the cost of construction for a shipping container has risen dramatically.

A Perfect Storm For Price Increases

Australian ports are working to resolve the issue and get containers out of the country and this means having shipping vessels carry out shipments of completely empty shipping containers. As you might imagine this is quite costly and there is nothing coming back in terms of profit for the delivery of empty boxes.

All of these factors culminate in a massive cost increase for shipping across the world. From May 2020 to May 2021 the price of shipping a 20ft container from Australia to China has risen 40% to nearly $1500. Coming back the other way a 40ft container from Shanghai to Sydney has seen a 100% price increase making the cost somewhere around the $5500 mark. Since then we have seen an eye watering increase of up to $15000 for shipping costs per container.

While this is staggering there are routes that have been hit just as hard with the cost of shipping a container from Shanghai to Rotterdam increasing a whopping 518% from June last year. These price increases are set to hit Australian consumers across the board and not just with solar products. As businesses start to pass along these price increases to consumers we can expect to see the cost of canned foods, computers and clothes rise.

Raw Materials Are Also Rising In Cost

We touched on the price of iron making shipping containers more expensive to manufacture and this is also the reason for the coming solar panel price increases. The construction of solar PV products relies on materials such as aluminum, silicon, steel, and glass as well as small amounts of silver and copper.

All of these materials need to be shipped to China and other locations across the world for manufacture and the increase in shipping means the base price for constructing a solar panel has increased. Not owing the price increase solely to shipping costs alone, the suppliers of key raw materials have also increased base prices as demand has surged. One variable that has an impact on this decision is the US dollar.

US Currency Devaluation & Solar Price Increase

The economic impact of COVID is something that will be felt for years to come and perhaps no other country is feeling it more than America. With millions waiting at home with no ability to work the need for stimulus handouts has meant increasing the amount of currency available without any real backing.

This has led to a dramatic decrease in the value of the US Dollar which has a global impact due to it being the key currency for trade. As the US government prints more money it in turn devalues and this would increase the cost of goods without any additional complications such as shipping and raw materials.

Talking with one of Queensland’s leading distributors of solar systems, we got an insight into how this devaluation is not only causing prices to increase but also leads to further trade tensions between the US and its allies with China.

“Their currency has dropped in value but they still want to pay the same price for goods as they were before. This means they are asking for manufacturers in China to run at a loss in some cases in order to keep up with demand. Obviously when it comes to business running at a loss is not acceptable to we are expecting to see China scale back its production of solar panels and other solar components in order to minimise loss”

Coal Shortages Shutting Down Key Manufacturing Plants In China

China is the world’s factory and as time has passed more and more countries have shut down their own manufacturing in favour of moving it offshore for more profit. As a result of this China has become the most coal dependent country on earth. Recent coal shortages however have resulted in power being shut off to both residential and commercial provinces and this means less product is available.

The reasons for the coal shortages are varied with one being China’s attempt to reduce its carbon emissions alongside its push to be carbon neutral by 2060. Earlier this year China shut down hundreds of coal mines to help push this agenda along but what complicated this environmentally positive decision was the aforementioned trade war with Australia.

solar price increase coal

We are a key supplier of coal to China and the placement of tariffs and restrictions on the import of Aussie coal has further impacted their coal reserves. With less coal being produced in their own country and less being imported from Australia they have been left with no other decision than to ramp up production of coal mines within Inner Mongolia, China’s second largest coal producing province.

This is unfortunate for not only manufacturers and consumers but also the environment. With more and more coal needed to fuel the fires of industry we are expecting to see a spike in global carbon dioxide emissions especially compared to the recent reduction due to COVID leaving many at home. While we have recently covered record breaking renewable energy figures in Australia the 2 biggest emerging markets, China and India, are still heavily geared towards coal.

It’s a tough situation for China to be in, on one hand they want to make moves towards a more sustainable power source but on the other they are expected to produce a massive amount of the world’s consumer goods. It feels like everyone has had a part to play in this current situation with trade tensions between China and Australia, US and other leading economies leading to an awkward standoff.

This all results in less solar products being manufactured while the demand is still high. When the demand exceeds the supply we can always expect to see a price increase, this is basic economics and with the USD value dropping it is simply not feasible for the current pricing to stay the same regardless of material prices increasing as well.

Solar Rebate Reductions Coming In 2021

Australians have enjoyed a variety of solar rebates over the past few years depending on what state they live in. However no matter where you live the SRES, or Small-scale Renewable Energy Scheme, has been available for everyone taking up solar. Under this scheme customers are awarded Small-scale Technology Certificates, or STCs, depending on how large their solar system is and what year it was installed.

The STC’s awarded after installation are then sold to fossil fuel generators and other large polluters with the resulting payout coming back to you to help offset the cost of going solar. The scheme is set to end in 2030 and each year we get closer to that date the less STC’s are awarded. This means in January of 2022 we will see a slight reduction in the “rebate” one can expect to get from STC’s.

While this is not an increase in the cost of production for solar panels it does still affect how much they cost you at the end of the day. The SRES has and will continue to be an incredibly vital tool for getting people to go solar. The reality is less STC’s means more money out of your pocket for solar panels and solar systems as a whole.

The Many Factors Of The Solar Price Increase

Looking back on it there is a tangled web of reasoning with many different variables aligning to create the solar price increase to come. A combination of the impacts of COVID alongside trade tensions and shipping costs have all conspired to leave consumers footing the bill. The resulting situation leaves no one as the winner with businesses having to pass along some of the increasing cost in order to avoid running at a loss.

While Global Solar is committed to raising the price of our products as little as possible, it will start to happen sometime soon and will be the biggest price increase the solar industry has seen to date. Our aim during this time is to improve other facets of our business such as customer service and support in order to provide more value where we can to help offset this rising cost.

If you would like to know more about the upcoming solar price increase or would like to know if you can get in before it happens get in touch with us on 1800 255 474 and talk to one of our expert solar consultants. They can run you through how the increase will affect you and if we have any spots left for install using the current pricing model. You can also contact us online to arrange a time that suits you for a callback.

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