Supply constraints impacting the solar industry in 2021

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 the spring of 2020, solar equipment manufacturers experienced significant delays due to workplace and travel restrictions. As the pandemic continued throughout 2020 and into 2021, consumer demand shifted away from services, such as dining and travel, towards goods, such as computers and televisions, leading to shortages of crucial 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 are the primary driver of current supply constraints in the solar industry. 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 and decreased supply have impacted many critical materials throughout the solar supply chain, including polysilicon, solar glass, and semiconductor chips.

Polysilicon

Polycrystalline silicon, commonly called polysilicon, is a critical 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 produced mainly in China, but factory shutdowns related to the COVID-19 pandemic caused the raw material price to spike.

Some solar panel companies, particularly 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.

The supply of polysilicon will likely stay constrained through 2021.

Solar glass

Solar panels also include a glass casing at the front, protecting the solar cells. Recently, there has been a growing demand for bifacial solar panels, which produce energy from both sides of the panel, requiring glass on both sides instead of just on the front. In 2018, China, the largest solar glass producer, imposed restrictions on glass production due to concerns about the required energy consumption. With the 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 solar glass production. 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 solar panels' direct current (DC) energy 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. Semiconductor chips are 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 microinverter producer, cited constraints due to the semiconductor shortage and record demand for the company's products. As a result, shares of the company dropped by over 14% in April.

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 container shortages 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 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 shut down 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 have 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, leading to longer unloading times–each vessel can now carry tens of thousands of shipping containers.

Approximately one-third of all imports, and most 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.

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 primarily impact large-scale solar projects instead of residential solar. According to our latest Intel Report, the EnergySage Marketplace saw the lowest solar prices 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 supply chain bottlenecks. However, as polysilicon and solar glass production increases and consumers shift spending from goods to services throughout 2021, the shortages and shipping constraints should ease.

Are you looking to install solar panels on your property? Visit the EnergySage Marketplace to compare multiple quotes from local installers. You can easily compare 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.