The charts below both support our view that we will see continued inflation in renewable energy costs, rather than the deflation that is baked into all of the forward models. It is easy to forget that some of the early solar installations are coming to the end of their useful lives and are retiring – these are gaps that new solar will need to fill. Wind power has the same issue, as many of the original wind farms need equipment replaced and the introduction of recyclable wind turbine blades has been in recent manufacturers' announcements. When we see analysis of who is going to use which tranche of new renewable power for which new hydrogen project we see major gaps in the power demand analysis, in part related to power demand growth at the domestic consumer – because the more rapid introduction of EVs – and in part because or retirement of facilities and the need to replace them.
Source: EIA – Today in Energy, September 2021
The other major challenge will be coming to terms with higher than expected costs., When we look at the metals in the exhibit below, there is no shareholder support for more investment for any metal except lithium. All are seen as environmentally unfriendly, and like oil and gas, if we do not encourage the production of what we need, prices will rise and forecasts of future power prices will turn out to be too low. In Europe we already see natural gas consumers shutting down because prices are too high – if solar module makers cannot afford their raw materials they will either have no choice but to raise prices or shut down themselves. If they shut down, even temporarily, the rate of renewable power installation will slow. See more in our weekly ESG and Climate work.
Source: Bloomberg, C-MACC Analysis, September 2021