• Wyatt Gould

Soaring Prices Threaten Near-Term Solar Progress

Solar energy consumers have been enjoying the nearly continuous drop in prices in energy storage and production for more than a decade. However, due to continued supply constraints, shortages in labor and work force, and the most recent aggressive incentives favoring green energy, this may change. The price increase of commodity items like wire, conduit, and hardware have in turn raised the prices of batteries, solar modules, and other major solar energy production and storage components threatening the first price increase solar energy consumers have seen in a decade. This change in prices will affect the future of solar energy across the globe in the short-term, but the downward trends of the decade will be back in the long-term.

Lowest Prices of the Decade

Over the last ten years, technology has improved significantly and has resulted in much cheaper components for the renewable energy industry - particularly batteries and solar modules. Lithium-ion batteries are used in many renewable energy applications to mitigate the intermittency of solar and wind energy, as well as power electric vehicles. With the increasing popularity of alternative energy systems and electric vehicles, the economies of scale have improved and the average cost of a lithium ion battery pack has fallen 88% to $137 per kWh in 2020 compared to $1,191 per kWh in 2010.

In parallel, solar modules, commonly referred to as solar panels, have seen a 90% drop in prices since 2010. Multi-silicon solar modules that cost $2 per watt in 2010 now cost just over $0.20 per watt in Q3 of 2019. This cost decrease has propelled the global solar industry and annual solar installations have grown more than sixfold during the decade.

Solar projects are increasingly paired with storage options for more reliability and flexibility. Such low costs for modules and batteries improve the overall ROI of solar investments and allow for wider adoption of the technology. With more solar energy in use, there is higher demand for system components and improves the economies of scale, helping to bring prices down further in a virtuous cycle.

Supply Chain Imbalance

The low prices and pressure to incorporate more sustainable energy into national energy policies have dramatically increased demand for renewable energy system components. However, the COVID-19 pandemic and associated shutdowns have constricted available supply. This imbalance is being felt in the soaring prices of raw materials and the components that use them.

Prices for aluminum used in frames have gone up; prices for polysilicon, the key material of solar modules, have shot up; and the prices for copper have skyrocketed. Copper is particularly troublesome because it is used in all types of electronics including wires and batteries. In just the last 18 months, the price of copper has gone from $2.80/pound at the end of December 2019 to $4.65/pound at the beginning of June 2021. Price fluctuations over the past decade can be seen in the graph below. (The gray sections indicate economic recessions.)

There are a couple reasons why copper is so expensive. First, is the supply disruption from Chile - the largest exporter of copper. They are facing vast labor shortages due to miners falling ill to COVID-19 and labor union strikes. Other smaller exporters are also experiencing high rates of infection and a shortage of available workers. Second, is the ambitious renewable energy initiatives made by high-profile countries. The US, China, and many European countries have dedicated to more sustainable energy use within the next 30 to 40 years and have subsequently increased demand for components that require copper. Additionally, since copper is such a versatile material, the renewable energy industry is competing with other industries for access to the metal. With high demand and low supply, the price of copper is climbing to levels we haven’t seen since 2011.

In tandem with the raw material price increases, labor shortages from illness, pandemic shutdowns, availability of vaccines, favorable unemployment benefits, and other factors affecting people’s ability and/or willingness to work are also making it difficult for the supply to keep up with demand. Furthermore, changes in consumer behavior during the pandemic have led to a shortage in shipping containers across the board and resulted in dramatically high freight costs and lengthened shipping times. These costs are often passed on to the end user, increasing prices yet again and delaying project timelines.

The Future of Renewable Energy

The elevated prices of renewable energy systems will likely result in fewer renewable energy projects completed and delay the achievement of sustainability goals. Projects that are currently in the works may face sourcing challenges, increased costs, and see delayed timelines. It may be difficult to convince skeptical decision makers to bite the bullet on new contracts and a few might even cancel or postpone planned projects.

However, these hurdles will only affect near-term projects; as the global economic situation improves, the supply chains will improve and material costs will decline again. While costs are very important to renewable energy development, other benefits such as decreased carbon dioxide pollution, better energy diversity, and greater energy independence will continue to encourage renewable development. Furthermore, long-term commitments made by governments and large corporations will remain in effect - providing assured backing for renewable energy projects.

The solar industry is experiencing its first sticker shock in a decade, but as the industry has always proved, it is resilient to various challenges. The short-term disruptions will be resolved as the global economy stabilizes. Paired with financial incentives, favorable legislation, and a strong dedication to sustainable energy, the industry will bounce back to the rapid growth we saw before. Solar will once again be the top contender for energy generation and promote a cleaner, more sustainable energy mix in the future.