As the International Energy Agency (IEA) pushes countries and energy firms away from traditional energy and towards renewables, solar energy production has hit a major hurdle as project prices soar. A surge in costs for components, labor, and freight for solar developments across the globe, as prices begin to stabilize following a year of pandemic-driven economic instability, has caused many companies to halt operations on their solar projects.
While the IEA and governments around the world are fighting for the development of cleaner energy projects, there is still a significant learning curve in the world of renewables. Unforeseen expenses, such as tripling steel prices, higher freight rates - with ocean freight prices increasing by 100 percent in May - and steep polysilicon and fuel costs, have made giant solar installations far more costly.
Many companies are in wait-and-see mode as they hope solar components and transport costs will gradually stabilize at a lower price than the current spike. In the first quarter of 2021, the contract prices for solar projects in the U.S. were up by around 15 percent on 2020, and these expenses have been rising further in quarter two.
Two of the biggest U.S. solar energy producers, First Solar Inc. and Ormat Technologies have seen their stocks fall significantly since the beginning of the year, with a decrease in share prices of 21 percent and 22 percent respectively.
It’s not only in the U.S. that the solar industry is being affected. In Europe, projects are being delayed in the hope costs will drop. And in China, the world’s biggest solar product manufacturer, companies are increasing component prices to ensure their profit margins are maintained, as production costs rise by as much as 20 to 40 percent.
This marks a reversal on the decreasing costs for solar modules seen over the last decade, by around 90 percent, before this year’s increase. Jenny Chase, lead solar analyst with clean energy research group BloombergNEF explains, “The disruption to solar hasn’t been this bad in more than a decade.” Further, “Developers and governments are going to have to stop expecting solar to get much cheaper quickly.”
Experts are predicting that as many as 15 percent of utility-scale solar projects could be delayed this year, in response to the increase in costs, reducing capacity additions by over 2.3 GW in 2021.
Small producers are feeling the pressure as their inability to make bulk purchases of primary materials needed for solar panels mean prices are simply not competitive enough for them to sustain production and installation costs.
It’s all well and good trying to make the shift from traditional energy to renewables as a means of tackling climate change and other environmental issues, but rising costs have meant that the infrastructure simply isn’t there to meet the world’s growing energy demand at present.
While the IEA encourages this shift, it has acknowledged the sharp increase in mineral demand needed for low-carbon power generation. In a report earlier this year, the agency predicted the tripling of mineral demand by 2040 to meet the world’s required energy output.
As renewable energy producers are finally seeing their time to shine, with the White House encouraging greater development in green energies in a move away from fossil fuels, solar energy firms are finding it hard to keep on track as component, shipping, and labor costs continue to soar. Ultimately this could spell a significant delay on the advancement of solar projects over the next few years.
By Felicity Bradstock for Oilprice.com
