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Solar power's supply chain crisis makes 1.5°C climate target a major challenge
Published in The Saudi Gazette on 25 - 09 - 2021

Grid parity, resilient networks and strategic partnerships have spurred growth in the world's solar panel manufacturing capacity in recent years, to 330 gigawatts (GW) in mid-2021.
A Rystad Energy analysis reveals that to meet the 1.5°C 2050 scenario under the Paris Agreement, capacity has to quadruple to 1,200-1,400 GW by 2035 to handle the peak installations needed.
This will be a challenging task, however, as manufacturers now see their utilization plummet due to rising costs and COVID-19 — a turn of events that could discourage the investments needed to expand capacity further.
The aggregated utilization rate for solar modules (the difference between manufacturing capacity and shipments) was 84% in 2018 and has been decreasing since, to 71% in 2019 and to 58% in 2020, when logistics efficiency and transportation was hampered by the pandemic in most parts of the world.
The spread of COVID-19 has created a major economic disruption in the market and is expected to continue to impact utilization rates for most of 2021.
In the short to medium-term it will be challenging to keep solar costs down as prices for some input factors have spiked in the past few months.
The cost of solar projects has declined considerably in recent years, but the cost reductions have now started to taper off and move closer to a floor, currently defined by the price of input factors such as labor, polysilicon, silver, copper, aluminum and steel.
These input factors have seen a clear rise in prices in 2020 and 2021. Mono-polysilicon, the key ingredient in photovoltaic panels, rose from $7.6 per kilogram in 2019 to $9 per kg in 2020, and is likely to average $18 per kg in 2021.
The price of silver, which is important for the connections from the silicon cell to copper wires, has climbed from $550 per kg in 2019 to $850 per kg (on average) in 2021.
The combined effect of all input factors is that global solar panel prices have gone up 16% so far in 2021 from 2020.
The weighted price inflation for solar projects, including labor — from installation and other equipment to construction work, which accounts for an increasing share of overall costs — means that total costs are up 12%, potentially limiting demand growth for the few next years.
"The entire industry is experiencing shortages in the supply of raw and auxiliary materials, especially polysilicon and silver.
"COVID-19-related restrictions have not only created supply shortages of essential raw materials, but have also led to higher prices, resulting in fewer shipments and impacting revenues for industry participants," said Audun Martinsen, head of Energy Service Research at Rystad Energy.
A reduction in the mineral and metal intensities could be key to increasing the production capacity and addressing the supply chain challenge, Martinsen added.
In the longer term, the solar industry must increase capacity and continue to fight cost escalation to meet climate change goals. Rystad Energy estimates that to maintain the global temperature increase below 1.5°C, solar panel manufactures should ideally grow 10% annually to meet the needed module production capacity of 1,200-1,400 GW by 2035.
In the past, module capacity has grown at a similar rate, however, with the current supply shortages in essential raw materials like polysilicon, silver and glass, and the price hike in auxiliary raw materials, 10% growth would be a very ambitious target for solar companies.
In fact, by 2035, the solar PV industry would have to source seven times more silver than what it does today, when it already consumes 10% of global silver production.
Limiting global warming to 1.7°C instead is a more achievable scenario under the current supply constraints. As there is enough capacity for another eight years, this should give solar companies more time to expand production capacity.
To accomplish the 1.7°C scenario, companies should be able to expand production capacity to 1,000-1,200 GW by 2045, while still consuming a large part of silver and polycrystalline, in a time frame that allows supply to adapt. — Rystad Energy


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