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ARRAY TECHNOLOGIES, INC.

(ARRY)
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Global supply chain squeeze, soaring costs threaten solar energy boom

06/09/2021 | 01:19am EDT
FILE PHOTO: Container ships are seen at Qingdao port

LOS ANGELES/SHANGHAI/BEIJING (Reuters) - Global solar power developers are slowing down project installations because of a surge in costs for components, labor, and freight as the world economy bounces back from the coronavirus pandemic, according to industry executives and analysts interviewed by Reuters.

The situation suggests slower growth for the zero-emissions solar energy industry at a time world governments are trying to ramp up their efforts to fight climate change, and marks a reversal for the sector after a decade of falling costs.

It also reflects yet another industry shaken up by the supply chain bottlenecks that have developed in the recovery from the coronavirus health crisis, which has businesses from electronics manufacturers to home improvement retailers experiencing huge delays in shipping along with soaring costs.

"The narrative is shifting," S&P Global Platts clean energy analyst Bruno Brunetti said in an interview, citing the costs inflation.


Graphic: Global solar capacity by region MW):

Among the biggest headwinds for solar is a tripling in prices for steel, a key component in racks that hold solar panels, and polysilicon, the raw material used in panels.

Soaring shipping freight rates along with higher costs for fuel, copper and labor are also pinching project costs, company executives said.

Research firm IHS Markit warned last week that its global solar installation forecast for the year could slide to 156 gigawatts from a current projection of 181 GW if price pressures do not ease.

Wall Street has also punished the sector in recent weeks, sending the MAC Global Solar index down 24% this year after it tripled in 2020.

'STILL WAITING'

Project developers in the United States, the No. 2 solar market behind China, told Reuters they are struggling to price projects for 2022 given the lack of clarity on how long price spikes will last.

Solar engineering, procurement and construction firm Swinerton Renewable Energy said some of its customers have also put "soft holds" on projects slated to start later this year while they wait to see if prices trend down.

Graphic: Container rates from China to major markets are all at or new all-time highs:

"We've just become accustomed to such a low cost energy source," said George Hershman, Swinerton's president. "Like anything it's hard to accept that you're going to start to pay more."

Contract prices for solar were already up 15% in the United States in the first quarter compared with last year due to higher interconnection and permitting costs, according to a quarterly index by LevelTen Energy.

U.S. panel manufacturer First Solar Inc told investors in April that congestion at American ports was holding up its module shipments from Asia.

And a U.S. maker of solar mounting systems, Array Technologies Inc, withdrew its forecast for the year last month due to steel and freight costs.

In Europe, some projects that do not have strict timelines for when they need to begin delivering power are being delayed, according to executives and analysts.

"The situation has not resolved itself because prices have stayed high, so those who have capacity to wait are still waiting," said Jose Nunez, chief financial officer of Spanish solar tracker maker Soltec Power Holdings SA. Nunez said Soltec was seeing project delays in all of the markets it serves.

Supply constraints could put upward pressure on relatively stable European solar prices later this year as companies seek to preserve profit margins that are already razor thin, according to LevelTen.

In China, the world's top solar product maker, producers are already raising prices to protect margins, leading to slower orders.

According to three solar panel makers in China polled by Reuters, prices for panels are up 20-40% in the past year, following the surge in costs for polysilicon, the raw material for solar cells and panels.


Graphic: China's solar cell exports in units):

"We have to manufacture the product, but on the other hand, if the price is too high, the project developers want to wait," Jack Xiao, marketing director at BeyondSun Holdings, a panel maker that exports 60% of its products, said.

A state-backed solar cell factory manager who asked not to be named told Reuters that output has dropped because customers are reluctant to fulfill orders at current prices.

China's Canadian Solar Inc, a top panel producer, said last month that its product prices were up 10% in the first quarter from the previous three month period, an increase it plans to pass on to customers.

"We will continue to take price up, and we're willing to give up some volume in order to protect margins," Yan Zhuang, president of the company's module making division, said on a conference call with investors last month.

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Global solar capacity by region MW)

Conta
iner rates from China to major markets are all at or new all-time highs


China's solar cell exports in units)

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(Additional reporting by Isla Binnie in Madrid and Emily Chow in Shanghai; Editing by Richard Valdmanis and Marguerita Choy)

By Nichola Groom, Emily Chow and Muyu Xu


ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
ARRAY TECHNOLOGIES, INC. -4.01% 15.56 Delayed Quote.-63.93%
CANADIAN SOLAR INC. -2.67% 38.34 Delayed Quote.-25.18%
FIRST SOLAR, INC. 1.59% 78.19 Delayed Quote.-20.96%
SOLTEC POWER HOLDINGS, S.A. -1.99% 7.15 Delayed Quote.-44.73%
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Financials (USD)
Sales 2021 998 M - -
Net income 2021 6,66 M - -
Net Debt 2021 378 M - -
P/E ratio 2021 177x
Yield 2021 -
Capitalization 1 976 M 1 976 M -
EV / Sales 2021 2,36x
EV / Sales 2022 1,96x
Nbr of Employees 387
Free-Float 99,2%
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Number of Analysts 12
Average target price 30,64 $
Last Close Price 15,56 $
Spread / Highest target 228%
Spread / Average Target 96,9%
Spread / Lowest Target -3,60%
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NameTitle
James M. Fusaro Chief Executive Officer & Director
Nipul M. Patel Chief Financial Officer
J. Bradford Forth Chairman
Jovan Kangrga Chief Information Officer
Lucas D. Creasy Chief Technology Officer
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