High interest rates, excess warehouse inventory, and falling component prices have created a perfect storm for solar distributors since October 2023. BayWa re Solar Trade CEO Frank Jessel explains how the industry can embrace true digitalization to better navigate this volatility.
From pv magazine 10/24
Normalized solar demand after June 2023, following previous bumper years, meant solar equipment distributors had to deal with high stock levels as prices fell.
While the solar industry is expected to annually grow 7.31% through 2029, module prices have continued to tumble. New ways must be found of dealing with fluctuating prices and inventory.
BayWa re’s Solar Trade team sold more than 10 GW of modules and inverters in 2023. But we must also ask, what does the market look like for the second half of 2024, and what lessons have we learned from these rapidly falling prices?
Moving parts
Forecasting how module prices will develop is a tricky task for wholesalers. Differing solar cell and module technologies mean that there are multiple price fluctuations to manage and monitor. Negatively-doped, “n-type” solar panels, for example, have become more popular due to their longer lifespan and resistance to light-induced degradation, compared to the previous generation of positively-doped, “p-type” products. N-type solar module prices have stabilized at a higher level as a result.
P-type modules have a lower price point. Companies are trying to reduce excess stock on the market, leading to distress sales. This poses a challenge when prices can hardly be reduced any further if a profit is to be made. For example, with module prices down by up to 50%, this means we have to sell twice as much to make the same gross profit.
Prices for inverters and energy storage systems have begun to fall in the meantime. Excessive demand has seen some installers build up their stock when inverters were scarce. Again, distributors will have to wait patiently until these stockpiles have been reduced. Only then will the normal rhythm of the market return. Inverter manufacturers will make offers to stimulate sales, which includes cashback and promotional deals but the true market opportunity will only be clear when the installers are ready to purchase again.
Companies would be wise to look for ways to manage their inventory – and therefore their capital – more efficiently. Digitalization is one method.
Efficiency gains
In solar distribution, every process that can be made digital, should be. Compared to the automotive industry, our sector has much more room for improvement. In a survey conducted by professional services provider EY, some 89% of energy professionals identified skills gaps as the main challenge to accelerating the adoption of digital technology. It was encouraging that the Large-scale Skills Partnership was launched by the European Union in December 2023 to help tackle this issue but more efforts will be needed to unlock true digitalization.
The kind of digitalization required goes far beyond e-commerce. It affects all our internal processes and our connections with suppliers. For example, if orders and deliveries are automated, we can use our warehouses – and therefore our capital –much more efficiently. In turn, manufacturers can better plan their production. Selling more goods requires more hands but digitalization can ensure those hands are doing high-level work and we’re hiring people for optimum impact.
At BayWa re Solar Trade, more than half of all transactions in 2023 were processed digitally. In Switzerland, the figure was beyond 80%, which is the benchmark for us internally. I anticipate that this percentage will rise in the future and that our Swiss distribution business will digitally map around 90% of its internal company processes across sales, processing, and planning. This is vital as it will free up the sales team to focus on more important tasks such as maintaining customer relationships, selling new products, and scouting promising future markets. The latter strategy is critical as more and more regions worldwide become interested in PV.
Ultimately, digitalizing not only benefits workflows but also the bottom line. Investment in this area is enabling us to reduce our solar module inventory to just 60 days. This means that we completely turn over our module warehouses six times per year, helping to compensate for any drop in prices and make the best possible use of capital. We can only achieve this high level of efficiency through a combination of first-class talent and investments in digitalization.
Optimistic outlook
There is no denying that high interest rates and falling prices for components are having a significant impact on global markets, affecting distributors of different sizes in different ways. A solid digital foundation can help organizations to stay agile amid global market challenges and continue to meet demand without major changes to their business model structure.
The market recovery hoped for in the second half of 2024 has not yet materialized but with agility, smart problem solving, and the deployment of new technology, the challenges of 2024 and the “perfect storm” of solar pricing problems it has brought can be navigated, setting the stage for a robust beginning to an optimistic 2025.
About the author: Frank Jessel, based in Tübingen, Germany, became CEO of BayWa r.e. Solar Trade Holding in 2024, after serving eight years as director of the division. He has been with BayWa re for almost 20 years.
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