L R AS Published on Monday 13 December 2021 - n° 386 - Categories:evolution-stat

The global development of photovoltaic installations is disrupted

In Chile, for example, 1.5 GW of medium-sized projects are at risk of being cancelled because the announced price structures are no longer valid. Developers cannot present

The progress of the work is interrupted. But 60% of the approved projects belong to four or five large groups that have a lot of financial resources. They are losing out on these prices.

In 2021, price increases, delays and disruptions in shipments, and production shortfalls due to force majeure have been commonplace. This has led to requests for construction extensions from EPCs, partners, PPAs and government agencies.

According to BloombergNEF, silicon spot prices have risen from a record low of $6.3 per kilogram in 2020 to $37 per kilogram by the end of 2021 (almost six times higher). Silicon manufacturers locked in the market with long-term contracts. Buyers had little in return and were forced to accept increasingly high prices. Panic buying took place.

Silicon prices are expected to remain high at least until the end of 2022. From the third quarter of 2022 onwards, prices could start to fall. The consensus is that by 2023, they will fall. New production facilities also need to be built outside Xinjiang.

Outside China, there is silicon production capacity but at higher costs. Chinese tariffs are high. China still imports 20% of its silicon, from Wacker (Germany), OCI (Malaysia) and sometimes the US. Factories outside China are struggling to restart because their costs are high. It is not clear whether current prices will persist

Xinjiang provides a large part of the supply of silicon metal (material for producing photovoltaic silicon). However, the price has come down between September and now.

The cost of inputs (the basic product of a panel)

Silver, copper, aluminium, glass are the main inputs of a panel, plus the steel of the follower. The price of all these elements has increased. Manufacturing now accounts for 30% of the cost of a panel, while inputs (commodities) account for 70% of total costs. These are beyond the control of the assemblers. This explains why panel manufacturing costs have risen from $0.20/Wp in 2020 to $0.26/Wp or even $0.28 in 2021, an increase of 30% to 40%.

Energy rationing in China is likely to continue as this is the government's way of avoiding a production ramp-up.

Transport costs (shipping costs) per container are eight times higher between Shanghai and US and European ports in 2021 than in 2020. For panel shipments, Rystad concludes that shipping prices have increased by 500%, from $0.005/Wc in September 2019, to $0.03/Wc in October 2021.

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Bottlenecks at some ports are particularly severe, especially in the US. While analysts expect shipping costs to fall in 2022, there will be a lag before the complex global network begins to normalise.

Delayed projects

Research firm Rystad said in November that large power plant projects of up to 90 GW were at risk due to rising costs or lack of components.

The impact of rising prices is different in different markets. In Australia, India and Latin America, cost increases hit the margins of large plants harder, as installation labour represents a smaller proportion of the project cost, 20%, rather than a third. Therefore, it is better to delay projects rather than cancel them altogether. There can be cost sharing between suppliers, EPCs and developers. Otherwise, developers around the world must bear the increases, renegotiate PPAs, or abandon projects.

In developed countries, the outlook looks less bleak. Panel cost increases of between 12 and 15% have been observed in the US, but logistical delays and political uncertainty are costing more than price increases. For example, discussions about US tax credits have prompted developers to push back construction start dates.

Despite these difficulties, global installed volume is expected to reach 180 GW in 2021 and 200 GW in 2022 according to IHS Markit. Average global PV costs have increased by 4% in 2021.

The decentralised generation segment is experiencing surprising growth, as these installations are less sensitive to panel prices.

Demand for decentralised installations in markets such as the US and Australia remains robust, but growth in China has been remarkable, driven by incentives in the residential segment and an emissions reduction imperative in the industrial segment. IHS forecasts that China will install nearly 25 GW of distributed generation projects in 2021, a 60% increase from 2020 for this segment.

Even in the large power segment, demand is so strong that it is driving delivery. There is always someone to take it on. PV is a victim of its own success. Fortunately, the PV supply chain has proven to be robust.

Editor's note: While PV developers are certain to overcome these price increases over time, the answer is different in the next six to twelve months: They are caught between price increases during the production of panels, with delivery delays on the one hand, and contracts to be respected on the other, which did not include a clause on the increase in supplies and therefore in the cost of installing a plant. Obviously, the situation is different in emerging and developed countries where the cost of labour is expensive, which mitigates (in proportion) the cost of construction

In our view, there is going to be a very unsatisfactory accounting outcome for some developers in the 2022 financial year (unless they spread future losses over 2021 and 2022). The contracts signed by these developers will now include a pass-through clause for future price increases, as they are already aware of the ever-present possibility of a price increase.

One aspect that is not addressed by commentators is the effect of these price increases on the price per kilowatt hour. Will the solar kWh still be cheaper than the kWh obtained from gas-fired power plants after these increases? It seems to be too early to make an opinion, as there is no indication that the input price increases are over. There are still wage increases to be included in the final cost. This situation of not yet assured competitiveness of solar is present in the US where, apart from the future laws favouring RE, the competition between solar kWh and gas-based kWh remains undecided.

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