Rystad: Soaring costs could threaten adoption of solar power

The adoption of solar power could be hindered by surging material and shipping costs, with much as 50GW, or 56%, of the 90GW of global utility photovoltaic (PV) developments facing delays or shortages, a recent report from Rystad suggests.

Supply chain bottlenecks and commodity priced inflation could see the postponement or even cancellation of further projects, which could have a significant impact on both demand and consumer pricing for solar installations.

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Manufacturing costs for PV modules have seen a 50% increase in a little over a year, rising from $0.2 per watt to between $0.26 to $0.28 per watt in the second half of 2021. A primary driving factor for this is the more than 300% price hike for polysilicon, a major ingredient in the manufacturing of PV panels which is estimated to have, by itself, accounted for around a 30% increase to solar projects.

In addition, the price of other raw materials such as silver, copper, aluminium and glass have also crept up in price gradually since January 2020, further putting pressure on module prices.

This news comes just ahead of the COP26, set to convene in Glasgow from October 31, in which tackling the climate crisis, as well as plans for renewable energy infrastructure, will be on major players' lips.

"The utility solar industry is facing one of its toughest challenges just days ahead of COP26", according to Sam Dickson, an analyst at Rystad.

"The current bottlenecks are not expected to be relieved within the next 12 months, meaning developers and off-takers will have to decide whether to reduce their margins, delay projects or increase offtake prices to get projects to financial close", he added.

Outside of materiel costs, the rising costs of shipping have presented considerable challenges for developers and suppliers.

Rising costs continue to cut into PV manufacturers' capital expenditure (capex). Before 2021, the costs of shipping had minimal impact on overall production costs, but bottlenecks attributed to the Covid-19 pandemic have resulted in astronomical price increases.

Rystad estimates the price of shipping has increased by at least 500% since mid-2020.

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Modules and shipping costs typically comprise somewhere between one-quarter and one-third of the total project capex and together represent the single largest cost, the company claims. An increase in these prices can significantly dig into project costs, which could threaten not only future manufacturing efforts, but have negative impacts on market demand.

Current estimates suggest shipping prices will remain high for at least the rest of 2021. However, even as shipping prices steadily drop, mineral scarcity and material pricing could still negatively affect solar module production.

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