In our ESG and climate piece yesterday we discussed rising costs of climate-related actions, with a focus on some of the likely inflation in renewable power costs. The optimists are looking at the Exhibit below, and what were falling module costs through 2020, and concluding that solar installations can grow and that costs can still fall. While the module shipment growth in 2020 was impressive at 33%, some of the forecasts of what will be needed call for a much more dramatic rate of module growth than we saw in 2020.
Source: EIA – Today In Energy, September 2021
As the Exhibit below shows, module raw material costs are rising in 2021 and this has resulted in a slight increase, so far, in module costs, bucking the ten-year trend. One of the points that we made in the ESG and Climate report was that if module makers need to expand capacity, they will need to be making adequate returns to justify the new capital. In 2021, it appears as if they are absorbing much of their raw material price increase as module prices have not kept pace with input costs. This is unsustainable if further module capacity investment is needed. The other issue to consider is the increased cost of freight to move modules that are mostly made in Asia to regions where the panels are being installed. While we do not expect the peak container rates of 2021 to be sustained, they may settle at a higher rate than we saw pre-Pandemic, and this will add to the delivered cost of modules also versus the history through 2020. We do not believe that module price history, before 2021, is a good proxy/guide for the future.
Source: EIA – Today In Energy, September 2021