The weekend read: Solar PV development disrupted

From pv magazine 12/2021

Some 1.5 GW of mid-sized PV projects in Chile are at risk of cancellation. Carlos Cabrera, president of Chile’s solar industry association, ACESOL, is making the case that construction extensions must be granted by officials or developers will abandon their plans. The projects, which had achieved the green light from Chilean regulators in April 2021, are not going ahead at present because anticipated price structures can no longer be realized.

Cabrera said that developers will not be able to provide government agencies with the documents required to register the projects as going ahead. “Under the current international conditions of inflation and scarcity, not many projects will be able to do so,” he says.

“You have to consider that approximately 60% of the capacity approved … belongs to four or five large groups that have a lot of financial resources, and they themselves have serious difficulties with these prices,” Cabrera explains. “Imagine, then, what small and medium-sized companies are going through.”

The challenge facing Chilean developers is not unique. A series of price and delivery shocks have reverberated along the PV supply chain throughout 2021 – with developers and EPCs often the loudest in voicing their frustrations. Price increases, shipping delays and disruption, and force majeure production shortfalls have been commonplace, leading to requests for construction extensions from EPCs, PPA partners, and government agencies alike.

Price hike

Upward inflationary pressures in 2021 have been economy-wide. It is, however, surprising for an industry where ever-falling prices were long the default setting. And there are multiple drivers of the disruption – a combination of both macro-economic trends and solar-specific factors. This year has seen polysilicon suppliers enjoy somewhat of a “back-to-the-future” moment, with prices having shot up throughout 2021, and ingot and wafer manufacturers happy to lock in longer-term contracts – a dynamic reminiscent of more than a decade ago.

BloombergNEF has tracked polysilicon spot prices as having increased from an all-time low of $6.3/kg in 2020 up to $37/kg as 2021 draws to a close – according to its head of solar insight, Jenny Chase. “There is a fair amount of panic buying that happens sometimes,” she says. “And the poly spot market has got much shallower as wafer makers have locked poly into long term contracts. Polysilicon makers have a massive incentive to make the spot price rise, which is precisely what has occurred.”

There is consensus among much of the analyst community that polysilicon prices will remain high for some time – at least through much of 2022. As of the third quarter of 2022, prices may begin to fall, and the consensus is that by 2023 downward polysilicon prices are likely to eventuate. And while Chinese polysilicon producers are adding capacity, primarily outside of the problematic Xinjiang region, poly facilities are neither quick to build nor straightforward to ramp.

Outside of China, there is polysilicon production capacity available, yet for higher-cost producers to restart facilities, they need longer-term price signals. And duties on U.S. polysilicon from China makes this supply option unattractive to many. “China still imports 20% of its poly, from Wacker [in Germany], from OCI [in Malaysia] and sometimes from the U.S.,” explains Chase. “We haven’t seen the U.S. plants come back online, but REC Silicon plans to bring U.S. capacity back into the market in 2023 despite China’s import tariffs.”

Further upstream, that much of the supply of metal silicon comes from Xinjiang is an additional complication – however, the Bloomberg analysts do not see this polysilicon feedstock as an unmovable supply issue. “The shortage in metal silicon isn’t structural,” says Chase. “The spot price for metal silicon was one of the panic points, but I don’t think it was as much of a problem to the polysilicon makers as they suggest. The prices [of metal silicon] were $10/kg in late September, but have come down to $5/kg, so the situation has become more reasonable.”

Commodity trend

Beyond polysilicon, global commodity price increases are impacting solar, along with much of the global economy. In solar, while polysilicon “still blows everything out of the water,” according to David Dixon, the senior renewables analyst for Rystad Energy, “silver, copper, aluminum, glass really sum up the key inputs on the module, and steel for the tracker” – and prices for all have headed north.

“There has been dramatic decline in [solar component] cost over the past five-to-six years, but we’re now at prices we’ve not seen for years,” says Dixon. Driving these cost reductions, the Sydney-based analyst suggests, is production efficiencies in module assembly, cell processing, and wafer processing – “module suppliers have done an excellent job in reducing their costs, also thrifting with their commodity inputs.

“But we’re now at a stage that manufacturing makes roughly 30% of module costs while [commodity] inputs comprise around 70% of the costs. And those are out of control for the manufacturers,” Dixon concludes. Rystad finds that module manufacturing costs have increased from $0.20/Wp in 2020 to between $0.26 and $0.28 in 2021 – a 40% increase.

What appears to be a shorter-term factor are the module supply shortages because of power rationing, as Chinese officials attempt to wrestle high energy costs and pollution (see pp. 24-27). As China solar industry observer Frank Haugwitz notes, there is not likely to be a reversal to the measures that have seen manufacturing curtailment across China, including of PV components. It appears that a signal is being sent that production ramping at all costs, financial or environmental, is to be avoided.

Shipping costs add further insult to injury. Container shipment costs are eight times higher from Shanghai to ports in the United States and Europe in 2021 than they were in 2020, according to several sources. For module shipments, Rystad concludes that shipping prices have increased 500%, from $0.005/Wp in Sept. 2019 to $0.03/Wp in Oct. 2021.

Bottlenecks at some ports are particularly severe, most notably in the United States, and while analyst expectations are that shipping prices will fall in 2022, there will be some lag before the complex global network begins to normalize.

Projects delayed

In November, Rystad made the somewhat startling claim that some 90 GW of utility scale PV projects were “threatened” by the higher cost structures for PV developers. The analysis noted that some 56% of planned PV power plant projects globally could either be delayed or canceled due to higher costs and bottlenecks.

The impact of higher prices is likely to differ in different markets. Unsurprisingly, where utility-scale project margins are slim the cost increases will hit hardest, such as Australia, India, and Latin America, notes Dixon. He adds that this is also true of locations where installation labor is a smaller proportion of project cost, such as the Middle East, where labor accounts for 20% rather than the more common one-third split.

In these locations, project delays rather than outright cancellations would be preferable, as delivery in late 2022 may be achievable if module prices normalize. Alternatively, sharing of cost between suppliers, EPCs and developers may see a project across the line. “If not, developers across the world must make the decision to bear it and choose to honor contracts with counter parties, or rip them up and try to renegotiate for a higher PPA or go back to auction.”

In the more mature large-scale PV marketplaces of Europe and the United States, the outlook for some projects appears less dire. Wood Mackenzie solar analyst Sagar Chopra says module cost increases between 12% and 15% have been observed in the United States, but that logistics delays and policy uncertainty is biting harder than price hikes.

“There has definitely been some delay for projects, or at least seeing projects pushed out into 2022 especially because they [EPCs] can’t get their hands on modules,” says Chopra. “In the U.S., all this talk of potentially extending the ITC [Investment Tax Credit] and policies that are being discussed right now, a lot of developers have decided to push the dates out and let these resolve themselves before they start building the projects.”

Globally robust

Despite the numerous challenges facing the large-scale segment, 2021 is likely to be another year of market expansion, with 180 GW installed and 2022 to see more than 200 GW installed, according to IHS Markit’s most recent forecast. Noting that the global average PV system costs increased by 4% in 2021, the analysts say that the solar supply chain has not as yet adjusted to a new era of robust demand, in particular polysilicon makers.

“There is amazing growth in the distributed generation (DG) segment,” says Edurne Zoco, executive director, clean energy technology at IHS Markit. DG installations are less sensitive to module prices, she notes. “The total [cost] weight of the module is less on the PV system cost in DG than it is in utility scale,” Zoco explains, with labor, customer acquisition, and other component costs instead playing a larger role.

Demand in established DG markets like the United States and Australia remains robust, but the growth in China is proving remarkable – driven by incentives in the residential segment and an imperative to reduce emissions in the industrial segment. IHS expects China to install close to 25 GW of DG projects in 2021, an increase of 60% on 2020 for the segment.

Even in the utility-scale segment, where many projects are at a standstill, IHS sees sufficiently strong demand to push delivery, if delayed. “Demand is so massive there is always someone to pick it up,” says Zoco. “Everyone has targets, governments, companies, and financial investors. There are parts of the supply chain that cannot ramp up at the same speed, and bottlenecks that need time to adjust, but one of the major reasons for the current disruption is that demand is huge.”

PV is perhaps a victim of its own success on the demand side, but fortunately the PV supply chain has shown robustness. “It’s incredible that we are still forecasting 180 GW for this year despite everything,” says IHS’ Zoco. “I mean, if we installed almost 150 GW [in 2020] with Covid, the industry can do pretty much anything.”

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