According to a report of global energy consultancy Rystad Energy, rising commodity prices and shipping costs are eroding utility photovoltaic (PV) project margins, potentially leading to delays for developments nearing financial close. Modules account for the largest single capital expenditure for 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 percent 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 in 2020. This year, however, module costs 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 expensive silver from over 200 milligrams per cell to around 100 mg per cell.

The amount of silver used has declined only moderately since 2016, and currently lies in the range of 80-90 mg 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 percent of global demand for silver, while 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, pushing prices even higher.

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. And silver is just one of several key commodities used in PV module manufacturing, alongside polysilicon, glass and aluminum – all of which have seen price increases over the past 12 months.

The cost of a shipments from China to key markets around the world has also spiked in the aftermath of Covid-19, another significant cost increase for PV developers as shipping now accounts for just under 10 percent of the cost of the module. As recently as 2019, this represented only 3 per cent. 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.

It is feared that the rising costs will impact project economics significantly at high-capacity facilities that benefit from economies of scale. For a typical large-scale 100-megawatt (MW) utility PV project, a cost increase on a module from $0.18 to $0.24/Wp represents a 9 percent hike in project capex on a dollar-per-watt basis.

Furthermore, for modules that previously accounted for 25 percent of the project capex, their share of costs would climb to about 30 per cent, thus increasing the project’s cost of energy by $3/MWh. According to the report, 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.

Rystad Energy expects average Chinese wages to increase by over 20 per cent from 2020 to 2023, as growth could also cover some of the slowdown brought on by the pandemic. Assuming the percentage between equipment and labour cost stays constant at today’s levels, this could on its own boost the total cost of building a solar PV project by over 5 percent over the next three years. (IPA Service)