Although some might not have noticed in the midst of Covid-19, 2020 saw some of the lowest solar panel prices ever witnessed. Utilities responded, resulting in record-breaking installations this past year. However, like most other in-demand products, the cost of solar panels has skyrocketed during the pandemic. How will the high prices affect the energy transition?
For the most part, we can attribute the high cost of solar panels to two factors: shipping costs and the cost of a critical rare earth mineral, polysilicon.
As we all know, shipping costs have increased astronomically over the past year. The cost to ship containers from Shanghai, alone, has increased six-fold.
If the obscene increase in shipping costs weren’t bad enough, the price of polysilicon has also increased exponentially. Polysilicon is the main component of solar cells and the cost of this rare earth mineral has risen 300% since July 2020. This high cost is in stark contrast to the price situation before the pandemic when prices were suppressed by a glut of polysilicon. Yet, as with so many other essential fabricating materials, Covid-19 slammed the brakes on production even as demand soared. As a result, polysilicon miners and refiners are still struggling to catch up.
Polysilicon isn’t the only issue. The prices of other commodities used in the panels, including silver, copper, aluminum, and glass, have also seen significant price increases. When considering all these factors in the aggregate, it’s not surprising to learn that solar imports to the U.S. dropped by 27% in the third quarter.
While supply bottlenecks are unlikely to halt the progress of utility-scale solar facilities already under construction, projects in the development pipeline are another story. A recent estimate from energy consultancy firm Rystad Energy found that more than half of the ninety gigawatts of global solar capacity that had been scheduled to come online next year may be postponed or canceled.
“The utility solar industry is facing one of its toughest challenges just days ahead of COP26,” said David Dixon, a senior renewables analyst at Rystad Energy, in a statement last month. “The current bottlenecks are not expected to be relieved within the next 12 months, meaning developers and off takers will have to decide whether to reduce their margins, delay projects or increase offtake prices to get projects to financial close.”
Shortages and high prices are likely to affect President Biden’s goal for solar to produce 47% of U.S. electricity by 2050. As we wrote back in September, the target seemed unrealistic even then, given the operational constraints of solar power. Now, with prices spiraling out of control, the president’s solar targets seem lofty at best and impossible at worst.
While the current cost of solar panels may set our energy goals back a few years, that doesn’t mean solar is done growing. That’s a good thing, as we’ll need all resources on hand – including utility-scale solar – to build the energy economy of the future with an affordable, reliable, and resilient supply of power