Manufacturers of mounting structures for solar modules have been facing a severe shortage in a critical raw material – steel. The price volatility of this essential metal and the disruption in supply have created a challenge for the manufacturers to supply the mounting structures to solar projects within the scheduled timeline.

The global steel prices surged in the first four months of 2021. But, steel producers struggled to supply as the production was low due to a shortage of iron ore, the raw material used to produce steel.

Mercom spoke to several mounting structure manufacturers to understand their challenges in procuring the raw material, balancing demand with supply, and meeting deadlines.

Procurement of raw material

According to the data released by the Ministry of Steel, in April 2021, the export of steel increased by 121.6%, and imports declined by 10.7%.

In the first quarter (Q1) of the financial year (FY) 2021-22, the export of steel increased 43.9% compared to Q4 FY 2020-21, and the import declined by 4.5% during the same period.

Harshal Akhouri, Chief Executive Officer at Strolar, said, “Due to the uncertainty in the market, the steel manufacturers have been offering rates with weekly validity to the mounting structure suppliers. .”

Mounting structure manufacturers take six to eight weeks to supply structures against an order. The price is decided with solar developers at the time of placing the order. However, steel manufacturers offer the price rate to mounting structure manufacturers weekly. Since structure manufacturers procure steel in tranches, they have faced losses due to the volatile steel prices.

“In addition, the solar project work order does not come with a price escalation clause from the developer. With no backing on price validity from the steel manufacturers, the mounting structure suppliers find it difficult to manage uncertainties in prices to procure steel,” Akhouri added.

Samir Agarwal, Sales Officer, Man Structurals, said the government focused on exporting steel to maintain the gross domestic product (GDP) and raise funds that created a shortage of steel in the domestic market. In addition, fluctuation in the supply of steel and transport delays disrupted supply. We also have to bear losses in some projects due to the hurdles in procuring raw materials.

However, a senior executive of a steel manufacturing company said these issues faced by mounting structure manufacturers are things of the past. Currently, there is enough steel production to meet the demand. However, there was a shortage in steel supply until last month due to a scarcity of iron ore to produce steel.

Animesh Damani, Managing Partner, Artha Energy Resources, said, “The price of mounting structures increased by 25% to 28% in between March and June 2021 as the price of base metal (steel) had risen during the same period. Therefore, the cost of solar projects increased by around 2%, and developers have been forced to reduce their profit margin. However, we did not face any delay in the procurement of mounting structure that forced us to delay any projects beyond scheduled commissioning date or leading to  losses.”

Echoing similar thoughts, a senior executive of a multinational renewable energy company said commodities are at an all-time high, and steel prices increased to around ₹96 (~$1.29)/kilogram from ₹56 (~$0.76)/kilogram. Consequently, the cost of mounting structures and solar projects increased. There were issues in the procurement of mounting structures due to lockdown and unavailability of labor. However, solar developers did not miss the scheduled commissioning date because the government has provided adequate timeline extension to complete projects.

Domestic demand for mounting structures 

Despite the Covid-19 and volatility in the global steel prices, the demand for mounting structures is high as the construction of solar projects continued post lockdown. 

According to Mercom India Research’s Q1 2021 India Solar Market Update, India added 2,056 MW of solar capacity in the first quarter of 2021, a 37% increase quarter-over-quarter, compared to 1,505 MW installed in the fourth quarter of 2020.

Akhouri said, “The demand for mounting structures is high despite radical changes in the global steel prices. However, the apprehensions regarding the prices have left a dent in the minds of the mounting systems’ suppliers, but this will slowly heal as we move towards a new normal.”

However, Agarwal disagreed with this thought and said the demand is relatively low due to the pandemic. And higher prices of steel and zinc increased the price of raw materials by approximately 20-25%, leading to a fall in the overall demand for mounting structures.

A senior executive of a steel manufacturing company said, “The steel demand is higher from mounting structure manufacturers as several solar projects are being constructed simultaneously. In addition, the solar industry has aggressive installation targets due to which the steel demand will remain high.” 

Pricing challenges

The Indian solar market has always been price sensitive. Mounting structure manufacturers are adopting new strategies and business approaches to survive in these unusual times.

Akhouri said the uncertainty in the global steel market added to the woes of domestic mounting structure manufacturers and negatively impacted the financial health of solar project developers. With this, steelmakers also hiked booking amounts up to five times from the current amount. This has affected the availability of working capital for mounting structure manufacturers.

However, a senior executive of a steel manufacturing company said there are no specific challenges for steel companies. Until last month, there was a shortage of steel. However, the market has stabilized, and the industry is expected to come back to normalcy soon.

Mercom recently reported the rising price trends in commodities, including steel, aluminum, and copper, taking a toll and increasing the burden of solar developers. With solar tariffs remaining low in the recent auctions, the pressure on component suppliers keeps building up.