A record heatwave in China could lead to a sharp increase in the cost of solar panels and EV batteries, with factories in the key Sichuan region agreeing to shut down to conserve electricity.
Sichuan is an important region in China for the solar panel and electric vehicle battery industries, with it accounting for nearly 15% of Chinese polysilicon output. Polysilicon is a key ingredient in the manufacture of solar panels, meaning any disruption to the supply chain could have a significant impact on global prices.
In fact, according to the China Silicon Industry Association, the price of polysilicon had already increased as of Wednesday. With analysts also expecting that the price of lithium to increase, which is a key ingredient in electric vehicle batteries, and another important export for the Sichuan region.
Chinese authorities have ordered the shutdown of all factories across the Sichuan region until August 20 due to constraints on the local power grid caused by China’s worst heatwave in 60 years. This has led to increased air conditioning use, while supply is constrained due to the region’s reliance on hydropower, which has faced dried up reservoirs.
It’s not yet known what the impact of the shutdown will have on the solar or EV industries, and whether the price increases will be a temporary bump in the road, although it comes at an inconvenient time. Rising energy costs has led to an increase in demand for solar panels, so any disruption in the manufacture of new panels is likely to have an outsized impact.