Say Goodbye to Clean Energy’s Era of Constantly Falling
Prices
Inflation hits as energy markets grapple with green transition
![](images/images_01_20_2022/pic1.jpg)
A carbon capture pilot facility in Squamish, British Columbia, Canada.
Photographer: James MacDonald/Bloomberg
By Will
Wade,
David R Baker, and
Josh Saul
January 20, 2022
The
era of ever-cheaper clean power is over, giving a fresh jolt of
uncertainty to global energy markets battered by one supply crisis
after another.
Relentless price declines over the past decade made renewables the
cheapest sources of electricity in much of the world. In the past
year, though, prices for solar panels have surged more than 50%. Wind
turbines are up 13%, and battery prices are rising for the first time
ever.
As
pandemic-induced supply delays ensnare everything from cars to salads,
green energy’s price hikes may not come as a surprise. But shipping
backlogs and commodities shortages are coming at a particularly
vulnerable moment for wind and solar. After years of rapid-fire
advances in technology and manufacturing, there
are fewer opportunities left to cut costs without sacrificing profits.
Instead of perpetually falling, prices will now ebb and flow based on
the cost of raw materials and other market forces.
For
energy markets grappling with blackouts and extreme
price volatility in the green transition, clean-power
inflation is another wild card. Policy makers, accused of adding wind
and solar so rapidly that electric grids have become unstable, are
under pressure to ensure the entire system is more reliable — by
pairing solar with batteries, for example, or keeping aging nuclear
plants running for longer.
“From
now on, what’s going to make the difference around the expansion of
solar and wind is not going to be costs — how low can you go? — but
value,” said Edurne Zoco, executive director of clean technology and
renewables at research firm IHS Markit Ltd.
New Pricing Pattern
Onshore wind-turbine prices are leveling off after years of steep
declines
Source: BloombergNEF. Figures after 2021 are forecast
Higher interest rates are also threatening to increase costs for wind
and solar projects as central banks weigh tighter monetary policy to
curb inflation, said Julien Dumoulin-Smith, an analyst with Bank of
America Corp.
“One of the single most important inputs that go into these highly
levered projects are rates,” he said. “Interest rates have only gone
down for a straight decade.”
Climate hawks need not fear renewable-energy inflation, however. Even
with the recent rise in costs, wind and solar have evolved from
expensive, niche sources of electricity to become competitive with
fossil fuels. Renewables remain cheaper on a relative basis than
fossil fuels in much of the world, and prices for oil and natural gas
have surged over the past year. Over the long term, prices for wind
and solar will continue to decline, albeit at a slower pace. That
means clean-energy installations are expected to keep growing rapidly
in the coming years.
Still, the industry is wrestling with the immediate effects of
supply-chain snarls. Burlington, Vermont-based solar developer Encore
Renewable Energy LLC is paying about 35 cents a watt for panels, up
from 30 cents in mid-2020, according to Chief Executive Officer Chad
Farrell.
Raw
materials now account for 70% of the cost of finished modules, leaving
suppliers with almost no room to trim expenses, said David Dixon, a
senior analyst with research firm Rystad Energy. A shortage of
polysilicon, one of the key materials for the photovoltaic cells that
make up solar panels, increased expenses last year, and shipping costs
also rose.
READ: Solar’s Growth Stumbles Just as the
World Needs It Most.
Invenergy, a U.S. developer of wind and solar projects, has
been forced to delay some projects because it can’t get panels, said
Art Fletcher, the company’s executive vice president of construction.
Though shipping expenses are beginning to decline after jumping last
year, the renewables industry as a whole is undergoing a
transformation, he said.
“I
don’t believe we’re ever going back to where we were two years ago,”
Fletcher said.
Price Rebound
Solar panels are costing more to produce and deliver
Source: Rystad Energy
The
Solar Energy Industries Association and Wood Mackenzie Ltd. forecast
last month that U.S. installations will drop
15% in 2022, about 25% below the trade group’s September
forecast.
Supply-chain kinks may ease this year as China
spends billions on new factories to produce polysilicon. That
may cut prices in the short term, but it's less likely to lead to
sustained reductions.
“We’re getting to the tail end of price declines,” said Dixon.
“Commodity prices will be the sole determinant of module prices.”
The
wind industry is going through a similar transition. Prices plunged
48% in the decade through 2020, but are now leveling off and are
expected to slide 14% through 2030, according to BloombergNEF.
“That’s a sign of the industry maturing,” said BNEF wind analyst
Oliver Metcalfe.
Manufacturers will continue to reduce per-megawatt costs with larger
installations. However, these massive turbines — almost as tall as the
Eiffel Tower — require more materials, especially steel, which surged
in 2021 and will likely remain costly for the next several years.
Supply-chain issues boosted prices for onshore wind turbines 9% in the
second half of 2021.
In
some regions, developers have already installed turbines in the best
locations and now are looking at less breezy areas or smaller sites.
That means they may be using turbines designed for slower windspeeds
or placing smaller orders, both of which lead to higher per-megawatt
prices.
The
world’s largest wind turbine maker, Denmark’s Vestas Wind Systems A/S,
had to cut its profit forecast last year as it faced rising costs from
key commodities and persistent supply-chain disruptions. Something
will need to change for the industry to be able to deliver enough wind
power capacity to hit the world's climate goals, the company said.
“We
have to put up a warning flag here,” said Morten Dyrholm, senior vice
president at Vestas. “We need to focus on profitability across the
sector.”
Battery Costs
Batteries have also been hit by inflation. BNEF said late last year
that it expected prices for battery packs to climb this
year for the first time in data going back to 2010. The 2.3% increase
can be blamed on soaring prices for the metals batteries contain,
booming demand worldwide and strained supply chains.
But
compared with wind and solar, batteries are a much newer part of the
clean-energy landscape. Suppliers are still experimenting with new
chemistries and ramping up production capacity, which means there’s
still room for more significant price cuts.
Fluence Energy Inc., a grid-scale storage developer, has seen delays
and increased costs to ship batteries from its contract manufacturing
facility in Vietnam, but the company doesn’t expect that to last.
“This
backlog that has been created is really being worked through,” said
Chief Financial Officer Dennis Fehr.
While
some of the supply-chain issues bedeviling renewables developers are
easing, George Bilicic, head of global power, energy and
infrastructure for Lazard Ltd., said the industry is undergoing
permanent changes. Without any new technological breakthroughs or
major consolidation, prices are stabilizing.
“The story about big cost declines is that large cost declines won't
be the story anymore," Bilicic said.
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