56% of solar projects planned for 2022 are threatened due to rising manufacturing costs: Rystad

The first estimates on the impact of price volatility and rising costs on solar projects around the world are finally released, and the news is not good. Soaring costs of manufacturing materials and shipping could threaten 50 gigawatts (GW) – a staggering 56% – of the 90 GW of global utility PV developments slated for 2022, according to an analysis by Rystad Energy. For markets like India which is barely out of 2020 and started off on a good note in 2021, the signs are ominous.

Inflation in commodity prices and supply chain bottlenecks could cause some of these projects to be postponed or even canceled, impacting demand and consumer prices for solar energy.

Overcoming a perfect storm of supply disruptions, power shortages and natural disasters, and increasing transportation costs this year, manufacturing costs for PV modules have fallen from less than $ 0.20 per peak watt ( Wp) in 2020 at between $ 0.26 and $ 0.28 per Wp – almost 50% increase in one year.

A major driver of this increase is a more than 300% increase in the cost of polysilicon, a critical component in photovoltaic manufacturing, made primarily in China. In addition, other raw materials – silver, copper, aluminum and glass – have also increased steadily since January 2020, increasing the pressure on module prices.

“The solar utility industry faces one of its most difficult challenges a few days away from COP26. Current bottlenecks are not expected to diminish anytime over the next 12 months, meaning developers and buyers will have to decide whether to reduce margins, delay projects, or increase purchase prices. to complete the projects, ”said David Dixon, senior renewable energy analyst. at Rystad Énergie.

Major suppliers in China have already asked major buyers to defer or delay the start of new projects to avoid order cancellations and problems.

Even marginal costs such as shipping costs have reached a level where they have a significant impact, representing almost 3% of the final cost, compared to barely 1% previously. From $ 0.005 per Wp in September 2019 to $ 0.03 per Wp in October 2021.

Modules and their associated shipping costs typically represent between a quarter and a third of total project capital expenditure and together represent the largest component of a project’s cost. When the cost of modules – and shipping – increases, it can have a significant impact on the economics of the project.

Rystad Energy performed a sensitivity analysis to determine the Actualized Cost of Electricity (LCOE) for different plant sizes by comparing last year’s module and shipping costs with current costs. The results show that the LCOE of new projects has increased by 10 to 15%, a significant cost increase for most projects planned for 2022. Seeing their projects at risk, developers may have to resort to negotiating contracts for development. ‘buying higher horsepower (PPA) or absorbing some of the cost inflation, accepting higher project costs and lower margins.

In India, where it is planned to impose a tariff of 40% on module imports and 25% on cells from the new fiscal year, some developers are already calling for an extension of the date. Something that is equally strongly rejected by domestic manufacturers. With tenders having been awarded at very competitive costs until a few months ago, the situation, when ordering modules for these projects, could indeed be very interesting.