Why does China's production issues mean you should buy solar now?

October 20, 2022

China is known to be the world’s factory, dominating the manufacturing process for numerous industries - including solar. China contributes to almost 30% of the world’s total global production alone so it comes to no surprise that they’re Australia’s biggest trade partner, accounting for 90% of our country's imports.

This past year has caused a lot of disruption between the two countries, Australia and China have been battling it out with an ongoing trade war and, combined with the COVID-19 pandemic, international trade has felt the pressure.

As a solar retailer and installer, we and many others have seen and felt the impact of the pandemic, and the implications that the China trade issues are having on our stock, pricing and booking availability. But, what does this mean for Australian homeowners looking to install solar?

So, what is happening?

Trade agreements between China and Australia are uncertain, making import costs uncertain. As a result, the Australian solar industry is seeing a few consequences including; 

  1. The stock of solar system components, including panels, is uncertain and becoming less available
  2. Component and logistics pricing is becoming unpredictable, causing retail prices to fluctuate as retailers can’t guarantee their usual pricing anymore, and
  3. Installation availabilities are in short supply due to increased demand, so customers are finding it harder to get their solar installed while these prices and stock are available

So, why is this happening?

There are 3 main factors contributing to the current Australian solar climate that are leading to difficulties in supply, ultimately causing an increase in the price of solar.

China's energy crisis is impacting production

China’s production issues are coming from the disrupted activity throughout the supply chain. Shortages of commodities required for power production are causing many parts of China, including some of the largest production provinces, to be without power for long periods of time. 

The coal supply shortage is partly due to the rebound in global economic activity following the pandemic. Coal and oil are now in high-demand with countries coming out of lockdown and people moving around again.

With these shortages, Chinese authorities are required to conserve the power that they have, leading to sporadic power outages and rationing. 

As you can imagine, when factories are having their power shut off for extended periods of time, this severely impacts their production capabilities. And with many factories shut down, even if a certain province isn’t shut down, they are unable to access the components required to produce their products.

When supply doesn’t match demand, this is where we can see solar prices start to rise.

Increased global demand for consumer goods is placing pressure on the supply chain

The second issue contributing to a volatile solar market is complications in the international logistics and shipping industry - impacting the solar supply chain

There are several contributing factors, the first of which being that global demand for shipping containers is at an all-time high, and the supply is failing to meet this.

General demand for consumer goods has increased as a response to the pandemic. Reason being that many people have received Government stimulus’, while restricted overseas travel has created higher than usual disposable income with people spending more time at home. When consumer demand increases, so too does global trade. This is heavily facilitated by shipping for transport of goods, hence the increased demand for shipping containers.

Low supply of containers can be attributed to not only this unprecedented demand, but also to the fact that COVID-19 has forced countries into lockdowns, which has reduced workforces as people are restricted from going to work. For the shipping industry, this means that the amount of labour in the ports is not at the capacity it normally is. This has caused build ups of ships in ports while the reduced workforce struggles to manage the demand. The disrupted flow of ships   means containers are getting stuck overseas and even halting movement altogether.

Secondly, suppliers are getting more money to ship their goods elsewhere, like the USA or Europe, with less incentive to ship to Australia. This is reducing our ability to receive deliveries, driving our wait times up and making it harder for stock to reach us.

Shipping costs have skyrocketed

Finally, the cost of shipping goods has skyrocketed. Due to the supply and demand issues with shipping containers, paired with the aforementioned shortages of fuel, there has been a huge spike in the cost of transportation. This cost is constantly varying, and retailers need to cover these costs in the price of the products. This increase is affecting products from all over the world, not just China.

What does this mean for Aussie businesses and consumers?

As a result of the fast-changing trade market, quotes are volatile as businesses can no longer confidently guarantee their usual quote validity period. Businesses have been dropping their quote validity from 7 to 2 days to counteract these changes and give them a safety net for these unpredictable shipping costs.

Businesses also can no longer guarantee stock. When there is more stability in the industry, it is much easier to estimate the stock required and their lead times. This is not the case at the moment. Pricing being volatile is causing consumers to snap up stock faster. The logistical issues are making stock harder to attain, and the production issues in China are making general availability of stock much lower than we are used to.

Installation spots at this time of year are notoriously hard to come by, with summer approaching as well as falling small-scale technology certificates (STCs) in the new year. And with these supply issues causing consumers to act quicker and reserve their stock, installation spots are tighter than ever.

The main takeaway from all of this is that if you are considering solar, now is the time to buy - don't wait until stock, rebates and install dates are gone.

While there are uncertainties in the market, you can trust the team at NRG Solar to tailor a quality cost-effective solar solution for your home or business.

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