If you build it, the innovators will. Solar energy has become a metaphor for how investments can attract development into an expensive renewable technology. Research and development will then cause prices to fall and the good cycle can quickly cause prices to crash.
This variant of Moore’s law is correct in solar development: Since 2000, the price per kilowatt hour has fallen exponentially. Some measurements show a decrease of 89% in ten years. Also since 2016, the median cost of solar cell installations greater than 10MW in the UK has fallen by 25%.
Solar energy is often the cheapest source of power, and analysts expect the price to continue to fall. DNV’s latest Energy transition prospects expects that costs will be halved again by 2050. But now the dramatic fall in prices has begun to subside, with several core materials rising in price.
Over the past year, some modules have become 25% more expensive, with raw material prices pushing up the cost of energy conversion. Supply chains have just begun to show the effects of Covid-19 outages, taking some of the blame. However, some prices have been trending upwards for years and can prevent the decline in solar energy costs as they become higher.
The price of silver fluctuates upwards with the demand for solar energy
Almost all solar panels are dependent on silver components, despite the engineers’ efforts to minimize the use of the precious metal. Silver’s high electrical conductivity makes it an excellent material for electrodes, and silicon wafers coated with silver powder often form the basis of conventional solar cells.
However, these come at a cost. In 2020, when investment in solar energy fell due to the pandemic, solar cell installations still used 3,100 tonnes of silver. This marked an increase of 2% compared to the previous year, and about 10% of the total global silver supply in 2020. After years of slowly rising, expects the Silver Institute Demand for PV silver is rising to its highest level ever this year.
At the same time, newer solar cell models are trying to minimize the use of silver to make manufacturing costs more reliable. In recent years, the price of silver has varied enormously. Last year, prices flew between $ 12 per ounce and $ 30 per ounce within six months as Covid-19 exacerbated price instability. More generally, silver prices have gradually moved upwards, which drives up manufacturing costs with them. From the post-millennium low of less than $ 5 per ounce, silver has rarely fallen below $ 15 since 2007.
Solar drives the polysilicon market and is most exposed to its shortage
As mentioned, the vast majority of solar panels are dependent on polycrystalline silicon, known as polysilicon. The material is a type of semiconductor and is abundant in the earth’s crust, so the price is determined only by the processing capacity. This has grown enormously over the last three decades, mostly to meet the enormous expansion of the solar energy industry.
Other semiconductor innovations have also required more polysilicon over time, but not near as much as solar energy. Between 1995 and 2014, demand for silicon in solar cells increased by more than 160 times. Solar has become the main consumer of polysilicon and drives 90% of the demand from material suppliers. Polysilicon production has grown to cope with this, but suppliers have resorted to unethical measures.
Year 2020, China produced 77% of the world’s polysilicon. Specifically, much of this comes from the Xinjiang region, where the country engages in slavery and other human rights abuses as part of an ethnic cleansing of local Uighur Muslims.
In response, the bodies of the solar energy industry have undertaken to clean up the supply chain. The United States adopted trade sanctions against companies involved in human rights abuses, prompting importers to buy more expensive materials elsewhere. Both of these measures have come into force relatively recently and work still needs to be done to remove slavery from supply chains.
Supply chain reforms have contributed to a global supply shortage, but once again the main cause comes from Covid-19. Interruptions in semiconductor manufacturing lines have caused one “bullwhip effect” of major disturbances further down the supply chain. Since mid-2020, the prices of polysilicon more than tripled. Since September, most of China has experienced power outages due to power outages, which has not helped the situation.
Aluminum feels the bit of a power outage
Aluminum has a high conductivity, which means that it can replace silver in some applications. This has led to some solar producers replace silver components with twice as much aluminum while saving with the cheaper metal.
But even though aluminum is still relatively cheap, its cost has risen rapidly since the pandemic began in April 2020. From the lowest level of $ 1,460 per tonne, prices have doubled to more than $ 3,000 per tonne. The current 13-year high is well above pre-pandemic prices, which have been around $ 2,000 per tonne since 2016.
Interruptions from Covid-19 have had a direct impact on prices, but have also caused several indirect problems in the supply chain.
Aluminum refining requires enormous amounts of power, while many highly industrialized countries face power shortages. This power consumption makes aluminum very emission-intensive, which gives cause for concern in a time of green taxes. The movement to reduce global carbon dioxide emissions has also rapidly increased the demand for aluminum in solar and wind production.
Magnesium deficiency raises the price of steel while semiconductors push in the other direction
The basic frame of many solar panels depends on steel, both for its rigidity and its price. As an industry, steel has struggled with the growth of cheap Chinese products. This has moved a lot of production to China, which makes the market fragile during the pandemic.
Steel comes in many forms, but some have more than tripled since Covid-19 began worldwide. Market experts have said they expect prices to continue to rise into 2022, with implications for steel costs. In the US, massive acquisitions have consolidated the market into a duopoly, exacerbating competition and prices. In India, local steel prices have risen more than 50%, while British Steel has increased prices by more than 40%.
Steel production depends on a steady supply of magnesium, of which 87% comes from factories in China. Industrial disturbances there have driven steel producers all over the world to the edge to shut down production. This has already affected prices, but the biggest effect will come later.
Ironically, the semiconductor shortage has actually helped steel prices by keeping car production down. Once semiconductor production picks up, car manufacturing will also consume more steel and cause new price increases.
“Closing the copper gap will require an investment of 325 billion dollars”
Electricians have been using copper cables since the discovery of electricity due to the large conductivity of the metal. In industrial applications, copper is still the material of choice for transformers, inverters and certain high voltage cables.
This has made it a key material in the construction of solar power plants. An efficiently designed photovoltaic plant could use approximately four tonnes of copper per MW peak capacity. The energy transition as a whole has become the primary global user of copper, with about 60% of deliveries to electric vehicles, transmission infrastructure, wind and solar energy.
Copper’s use makes it a valuable material, but prospectors have found few new deposits to replace depleting mines. The investment bank Citigroup estimates that demand for copper will exceed production by 521,000 tonnes this year. This deficit will continue to grow as the energy transition accelerates, pushing solar prices upwards.
Julian Kettle, Vice President of Metals at Analyst WoodMackenzie, think that: “without further significant investment, production will decline from 2024 onwards. Together with demand growth, this decline in production will lead to a theoretical deficit of around 16 million tonnes by 2040. Closing that gap requires an investment of the order of another 325 billion dollar.”
This production deficit and speculation about the renewable demand for renewable energy sources for copper have driven up price increases this year. While copper prices have risen and fallen since the turn of the millennium, they have done so in 2021 risen much faster than before.
Economic analysts believe that this could mark the beginning of a long-term rise in copper prices. This would only reverse when most of the design and development of the transition to clean energy is complete.