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News Article

Solar’s Rising Supply Chain Costs Threaten Project Development

By Cas Biekmann | Mon, 06/28/2021 - 12:38

Solar industry insiders and analysts highlight that a hike in costs associated with the solar energy supply chain has begun to slow down project developments, including in Mexico’s growing distributed generation sector. Rising labor costs, materials and shipping costs have increased to the point that they could threaten new developments. However, an end in the price hike may already be in sight.

The increase in costs stands in sharp contrast with a trend established over the past decade, in which solar’s supply chain costs dropped sharply while technology greatly expanded the possibilities of solar energy. he main drivers for this change to the status quo are costs for polysilicon, a key raw material in photovoltaic modules and steel, used in structures that rack the modules in their construction. Copper, another important component, saw higher prices in recent months as well. Furthermore, freight shipping costs have increased due to the pandemic, which featured a notable incident that blocked the Suez Canal for an extended period. As a result, solar manufacturers have increased their prices ranging from 10 to as high as 40 percent, to guarantee their margins as well as to ensure orders can be completed.  

“The narrative in the solar industry has shifted,” said Analyst at S&P,Bruno Brunetti. “We have seen steep declines in costs over the past decade, but we are seeing that stabilize now and even increase in some cases,” he continued.

Despite the price hike, research from IHS Markit suggests global installed solar capacity would still increase by 156GW in 2021 if the current situation persists. This is significantly less than the previously predicted 181GW if prices had remained at their usual low level.

Fortunately, market prices suggest that an end to parts of the hike is already in sight. Analysis group Bernreuter Research saw polysilicon prices go from US$11/kg in early 2021 to past US$28.50/kg in early June. The latest spot price as of June 23 has already dropped the smallest amount to US$28.25/kg, spurred on by a drop in demand due to many utility-scale developers deciding to hold off developments until 2022. Bernreuter highlights that fears over a lack of supply can still flare up prices toward the future.

Pressure on the solar supply chain has been bad news for publicly listed companies as well, with shares dropping globally. The MAC Global Solar Energy Index shows a drop of 18 percent in 2021, after strong increases in previous years.

The data used in this article was sourced from:  
Reuters, Bernreuter Research, Financial Times, S&P
Cas Biekmann Cas Biekmann Journalist and Industry Analyst