Half of world’s planned solar projects in 2022 at risk due to rising costs

A total of 50 gigawatts of utility scale solar projects – more than half the world’s 2022 pipeline – face delays or even cancellation due to the surging cost of manufacturing materials and shipping, a new analysis predicts.

Rystad Energy says that 56 per cent of around 90GW of global utility solar PV developments planned for next year are at risk because of supply chain bottlenecks and commodity price inflation.

This has also impacted other industries, but solar has been particularly hard hit by a 300 per cent hike in the cost of polysilicion, and smaller rises in silver, copper, aluminium and glass.

This has caused manufacturing costs of solar PV modules to surge from  $US0.20 per watt peak (Wp) in 2020 to between $US0.26 and $US0.28 per Wp in the second half of 2021 – the highest levels since 2017 (see graph below).

“The utility solar industry is facing one of its toughest challenges just days ahead of COP26,” says David Dixon, an Australian-based senior renewables analyst at Rystad Energy.

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

Dixon told RenewEconomy that Australian developers are facing other headwinds as well, notably the increase in negative pricing events – driven by the surge in rooftop solar, where demand seems to be untouched by price rises – and growing grid constraints.

Dixon says Rystad has cut its forecast construction starts for large scale solar in Australia to just 1GW, down from 2GW in 2021.

“It’s going to be a tough two years for utility PV,” Dixon said.

In Australia, the problems may be addressed by more transmission, and more storage, but that won’t happen in a big rush.

New transmission, even the $2.3 billion Project EnergyConnect linking NSW and South Australia, will take at least three years to build, and most storage is focusing on the frequency control and grid services markets rather than time shifting renewables.

Rystad Energy notes that the cost of shipping continues to rise, with a near 500 per cent increase in prices 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 capex and together represent the single-largest item of a project’s cost,” Rystad says. “When the cost of modules – and shipping – increases, it can significantly impact project economics.”

Rystad Energy said the price increases meant that the levelized cost of electricity (LCOE) for different plant sizes had jumped by between 10 and 15 per cent, meaning that project developers will need to either seek an increase in power purchase agreement, or absorb the added costs themselves.

The price jumps may only be short-lived. Over the longer term, solar PV is expected to continue its downward price spiral, with even Australia’s federal government assuming “ultra-low cost” solar to be the main driving force towards a decarbonised grid and green energy industries such as steel and aluminium.

The assumed price of around $15/MWh is less than one third of current LCOEs in the industry (before the recent price jumps).

However, getting to the new benchmark will require not just a fall in commodity costs, but also a lowering in risk and the cost of capital, something unlikely to be solved unless grid constraints and national policy issues are addressed.