L R AS Published on Wednesday 8 June 2022 - n° 407 - Categories:PV Watch

A look at solar 2022, chronicle of a disaster foretold

The economic and financial conditions in the photovoltaic field have completely reversed compared to two years ago. Everything has changed. The price of silicon, and therefore of panels, and the price of metals have soared. The freight rate is four times higher than before Covid. Electricity prices are nothing like they were twelve months ago! What does this mean for the industry (developers, builders, manufacturers, subcontractors)?

The text

kiloWattsol whose CEO is the president of SER-Soler, and PV Magazine published a long article stating that the situation in the photovoltaic sector had deteriorated significantly in recent quarters and that the future of solar installations would be more expensive and less easy. The relevance of the arguments and their completeness make it worthwhile to present them in full.

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With more than 2.6 GW connected in 12 months, 2021 is the best year ever for solar PV in France. But given the current economic context, 2022 could be a very different year.

The first consequences of the disruption of the global factory were felt with Covid. The contagion peaks are moving from country to country, starting with China, and the production interruptions imposed by the confinements have had an accordion effect on an industry that is now organised globally on a just-in-time basis.

The buffers that are generally the large logistics hubs (Rotterdam, Antwerp, etc.) were not enough to absorb the unimagined elasticity of the supply chain. Even if it remained very active, the solar sector was no exception, some components started to run out and all prices rose. While Covid was still in the process of disappearing, another phenomenon came into play in this economic crisis. President Xi Jinping's proactive policy to reduce CO2 emissions in China now requires provinces to comply with emission quotas. This has had a twofold effect on the provinces that
went into the red: it has halted electricity production when it is mainly produced from coal, and it has reduced the operating hours of certain activities that emit large amounts of CO2.

Several stages in the design of solar panels have been directly impacted by these measures by suffering the double penalty of consumption and emission. First and foremost, the production of polysilicon, whose manufacture has been halted in several provinces, but also glass and aluminium.

Fluctuation in panel prices (€/Wp).

Image: kiloWattsol

The supply shortages have forced manufacturers to stop some production lines and the final consequence is an acceleration of the upward trend in the price of polysilicon and therefore of panels. This upward trend had begun with Covid.

Fluctuation in panel prices (€/Wp).

Image: kiloWattsol

As a result, the price of panels has returned to its 2018 level. And it will take time to recover from the inexorable downward trend that has characterised the price of photovoltaic modules over the past 15 years. Moreover, raw material inflation has not only impacted the panels but all the components of a solar project: Inverters, structures, cabling are also affected by this price surge as in 18 months the price of steel has almost tripled and the price of copper has more than doubled.

Price fluctuations of copper (red) and steel (blue), in USD.

Image: kiloWattsol

Finally, also as a result of Covid, transport costs from China, where 90% of solar components are produced, have also more than quadrupled. The transport of a 40-foot container (about 12 metres), which cost less than €2,000 in 2020, has risen to more than €8,000 since the end of last year.

Fluctuation of the China-Europe 40″ container FBX index (USD).

Image: kiloWattsol

The financial conditions

To make a solar installation that will produce electricity at very low cost for more than 30 years, you have to pay for the construction and development of the production system. As this type of asset is very capital intensive, developers need to borrow as much as possible to reserve their equity for as many projects as possible.

However, interest rates have also risen since the beginning of the year to their 2015 level!

Evolution of the Euribor over 12 months.

Image: kiloWattsol

The French market

The French solar market has mainly developed around calls for tender by the Commission de Régulation de l'Energie (CRE) and feed-in tariffs for small projects. These two types of economic outlets offer projects protection against the vagaries of the market either through an obliged buyer (EDF-OA) which buys the electricity produced at a fixed price.electricity produced at a fixed price, or via a mechanism of additional remuneration around a fixed value. In both cases, by having the protection of the State's signature over 20 years, the projects can borrow at the lowest rate over a very long period.

While the spot electricity market makes it attractive to sign short-term private contracts (such as PPAs), theWhile the spot electricity market makes it attractive to sign short-term private contracts (PPAs), it should be borne in mind that current price levels are not sustainable in the long term and that off-takers are often companies that do not offer sufficient collateral to back them with a 20-year or longer loan agreement. The AOs therefore remain the best option to deliver in a stable and controlled way all the volume expected by the current EPP (42 GW) and the next one.

But the disadvantage is that the price regulation mechanisms of the AOs (and tariffs) all relied on a permanent decrease in prices by adjusting to the volumes connected. The reversal of the trend due to the global economic crisis significantly undermines this mechanism and has the opposite effect: projects that have already been awarded cannot be built any more, caught up by the increase in investment costs (Capex) and the cost of money. These two effects combine to compromise the profitability of the projects, and the whole French solar machine seizes up. At the same time, the world market continues to grow by nearly 20% per year, as if this inflation could no longer stop the solar wave.

Breaking the deadlock

What characterises all the curves presented above is, firstly, their unpredictability, with levels never reached in the pastThe world will never be the same again. The world will never be the same again! And we may have to wait several years for a return to better fortune. We do not have that time to accelerate the energy transition.

This is why we need to find the means to save the projects that are ready to be built and to rethink the remuneration mechanisms to better take into account, from now on, the fluctuating dimension of market conditions. France, particularly at a time when its nuclear system is being hampered by an investigation into a corrosion problem, must facilitate the deployment of all new capacity.France, particularly at this time when its nuclear system is prevented by an investigation into a corrosion problem, must facilitate the deployment of all the new capacities that can strengthen its energy independence by producing decarbonised electricity.

Solar projects that are at a standstill will not be financed unless they demonstrate new profitability. There are a number of ways to revive the economics of these projects: As Germany proposes, go through a period of sale on the market (PPA) before returning to the shelter of a purchase contract; revalue the prices previously awarded to the utility.Without emergency measures, this year will be catastrophic. The first quarter with 0.5 Gigawatt of new connections is already 20% behind 2021.

But it is not too late to save the 2022 vintage, if the exercise is perilous, the public authorities and the profession must quickly find together a way out of this crisis which could involve the whole solar ecosystem: developers, constructors, manufacturers, subcontractors...

The ecological transition demands it, the energy emergency requires it.

For the text: https://www.pv-magazine.fr/2022/05/31/solaire-2022-chronique-dune-catastrophe-annoncee/

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