The falling cost of solar module technology has been arrested by rising costs for materials and shipping.
For decades the solar PV industry has been lulled by the mantra that technology costs will fall and fall, leading to the easy conclusion that orders will grow and grow. That song is over.
Rising commodity prices and shipping costs are eroding utility PV project margins, a Rystad Energy report reveals. Modules account for the largest single capex item of utility PV projects, which means even modest changes in costs can lead to significant challenges for project economics.
Over the past 10 years, the industry has seen an 80% drop in module prices on a dollar-per-watt basis, from over $1 per watt peak (Wp) in 2011 to less than $0.20/Wp free-on-board (FOB) in 2020. This year, however, module costs FOB from China have already risen to above $0.22/Wp, reversing a seven-year trend. This development was caused by a price hike of key commodities used to make silicon solar cells, including polysilicon, silver, aluminium and glass, as well as higher shipping costs.
One of the key commodities used in solar cell manufacturing is silver, as its electrical properties make it an ideal electrical contact to the front and rear of the cell. Between 2012 and 2016, the industry dramatically reduced the use of silver from over 200 milligrams per cell to around 100mg/cell.
The amount of silver used has declined only moderately since 2016, and currently lies in the range of 80-90mg per cell – contradicting bullish predictions of industry bodies. By using less silver per cell, and also benefiting from the commodity price drop, the PV industry has seen the contribution of silver’s cost per watt reduced from $0.05/Wp in 2012 to $0.015/Wp in 2020.
However, silver’s contribution to total module costs is now on the rise again as silver usage per cell has plateaued while prices are increasing. The PV sector represents 10% of global demand for silver, whereas the expected additional growth brought on by the automotive industry amid the rise of hybrid and electric vehicles could drive silver demand from this sector up by more than 70% between 2020 and 2025, pushing prices even higher.
Not so shiny
On the supply side, mine production of silver has been falling since 2016. If prices climb to over $40 per ounce – a level last seen in 2011 – silver’s contribution to module cost could rise to $0.03/Wp, Rystad says. And silver is just one of several key commodities used in PV module manufacturing, alongside polysilicon, glass and aluminium – all of which have seen price increases over the past 12 months.
Historically, the cost of a shipment transport from China to key markets around the world has been $0.006/Wp, but in 2021, in the aftermath of covid-19, it spiked to $0.02/Wp. This is another significant cost increase for PV developers as shipping now accounts for just under 10% of the cost of the module FOB (prior to shipping). As recently as 2019, this represented only 3%. While this increase could possibly be a short-term effect of the pandemic, Asian-centric module production means shipping cost will remain a key factor to watch for developments on other continents.
The rising costs will impact project economics significantly at high-capacity facilities that benefit from economies of scale. For a typical large-scale 100MW utility PV project, a cost increase on a module from $0.18 to $0.24/Wp represents a 9% hike in project capex on a dollar-per-watt basis.
Furthermore, for modules that previously accounted for 25% of the project capex, their share of costs would climb to about 30%, thus increasing the project’s levelized cost of energy by $3/MWh, Rystad’s research shows. The implication of increased costs will be delays to projects nearing financial close as project margins shrink for developers, engineering, procurement and construction companies and original equipment manufacturers.