More than half of global utility solar projects planned in 2022 threatened by supply chain issues
Rising costs of production materials and shipping could threaten 50 GW – as much as 56% – of the 90 GW of global utility PV developments planned for 2022, a Rystad Energy analysis shows. Raw material price inflation and supply chain bottlenecks could lead to the delay or even cancellation of some of these projects, impacting demand and consumer prices for solar energy.
Driven by the price inflation of the core components, PV module production costs have increased from less than $0.20 per peak watt (Wp) in 2020 to between $0.26 and $0.28 per Wp in the second half of 2021 – a increase of almost 50% in one year.
A major driver of this increase is an increase of more than 300% in the cost of polysilicon, a core component in PV production. In addition, other commodities – silver, copper, aluminum and glass – have been rising steadily since January 2020, increasing pressure on module prices.
“The utility solar sector faces one of its toughest challenges just days before COP26. Current bottlenecks are not expected to be resolved within the next 12 months, meaning developers and buyers will have to decide whether to reduce margins, delay projects or increase purchase prices to complete projects financially,” said David Dixon , senior renewable energy analyst. at Rystad Energy.
Additional module rates are also at stake in the United States. The International Trade Commission is preparing to hold a public hearing next week on the prospect of extending the Section 201 exemption for crystalline silicon photovoltaic cells and modules (CSPV), while the Commerce Dept. is conducting a separate investigation into Chinese silicon solar cell panel manufacturers operating in Malaysia, Thailand and Vietnam as a possible way to avoid AD/CV obligations.
In addition to material cost inflation, shipping is another element in the supply chain that poses significant challenges for developers and module suppliers. Shipping costs continue to rise and play a larger role in total manufacturing capital expenditure. Before 2021, the cost of PV transmission had minimal impact on the total cost of production. However, shipping delays and bottlenecks during the pandemic have led to a price increase of nearly 500%, from $0.005 per Wp in September 2019 to $0.03 per Wp in October 2021.
Modules and their associated shipping costs typically comprise between a quarter and a third of the total project investment and together represent the largest cost of a project. When the costs of modules – and shipping – increase, it can significantly affect the project economy.
Rystad Energy conducted a sensitivity analysis to determine the levelized cost of electric (LCOE) for various plant sizes, comparing last year’s module and shipping costs to current costs. The results show that the LCOE of new projects has increased by between 10% and 15%, a major cost increase for most projects planned for 2022. As their projects are at risk, developers may have to resort to negotiating higher power purchase agreements (PPA) or absorbing some of the cost inflation, accepting higher project costs and lower margins.
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