By Fitch Solutions
- Strong solar module demand will continue to prop up component prices and place upward pressure on solar capital costs through the near term.
- Upstream polysilicon production will fail to meet strong demand over the near term, pushing up the price of modules and inflating solar CapEx over 2022.
- However, new production capacity additions across the solar module value chain will boost supply in the market, stabilising prices before returning CapEx to a downward trend in 2023.
- While numerous other factors impact on solar module production costs, we expect component and resource availability to remain the most impactful aspects of module pricing throughout the coming years.
Growth in the solar power sector will see strong solar module demand continuing to support high component costs and inflated capital expenditure (CapEx) on solar PV plants through the near term. The global uptake in renewable energy, as markets seek to accelerate the decarbonisation of the power sector, has driven a sharp rise in solar PV investment, vastly expanding demand for solar PV modules. As the graph below highlights, global solar capacity increased by over 180GW of capacity between 2010 and 2015, with a further 483GW coming online between 2015 and 2020. According to our forecasts, we anticipate nearly 630GW to be deployed between 2020 and 2025, with net gains reaching close to 1.2TW over our forecast period from 2022 to 2031. With the vast majority of this capacity coming from solar PV systems, and photovoltaics making up the majority of total polysilicon end-users; we forecast robust demand growth throughout the solar PV module value chain over the next 10 years.
Upstream polysilicon production has, and will remain, a factor heavily influencing module prices globally, as demand far outstrips supply. The price of polysilicon will remain the most significant factor driving the soaring cost of solar modules through the near term, as upstream production in the solar supply chain fails to meet sharp increases in global demand. In June 2020 the price of polysilicon sat at an all-time low of USD6.80/kg. At that time, widespread lockdowns, the interruption of project construction and the disruption of global logistical networks brought on by the Covid-19 pandemic eroded the demand for solar modules and the materials needed for their manufacturing. By the first half of 2021, the global reaction to the pandemic had begun to ease and orders pursuant of solar project construction recovered. This also released pent-up demand for solar modules as developers sought to complete delayed projects as well as start construction on new projects originally planned for that time. As a result, the price of polysilicon rose sharply to nearly USD40/kg by February 2022, with weekly average prices remaining between USD30/kg and USD40/kg through to end-May, at the time of writing. Added to that, the rise in other material prices such as steel and aluminium as well as the global container shortage have exacerbated both upstream pressures and downstream prices on solar modules over recent months, pushing up average utility module costs from roughly USD200/kW in mid-2020 to more than USD300/kW by end-2021 and projections pointing to potential costs nearing USD400/kW in 2022. We expect this upward trend will continue through the coming months until the significant expansion of global polysilicon, wafer, cell and solar module production meets or surpasses demand.
We expect production capacity additions in the solar module value chain to boost component manufacturing, stabilising prices before returning to a downward trend from 2023. Polysilicon production has grown exponentially with demand over recent years, most prominently in China where vertically-integrated corporations dominate the production of materials across the solar module value chain. In 2020, the top six producers alone held roughly 470,000 tonnes in polysilicon production capacity; nearly as much as the global total capacity by the end of 2015. Recognising the rapidly rising demand for polysilicon in the solar power industry, producers have invested significantly in building out their production capacity to capitalise on the global renewable energy drive. In 2021, the same top six producers increased their production capacities by a combined 270,000 tonnes to reach roughly 740,000 tonnes per year.
As new plants take between three and nine months to reach full production output, we note that the lag between capacity additions and increased output will likely see these new polysilicon stocks coming into the market between the first and third quarter of 2022, helping to alleviate upstream supply pressures on solar module manufacturing. Added to that, there are nine new plants currently under development and scheduled to come online in 2022 which, if deployed on time, will add capacity to produce 160,000 tonnes in the first half of 2022 and a further 540,000 tonnes in the second half of the year. In this best-case scenario, total global polysilicon production capacity would surpass 1mn tonnes by the end of 2022. However, given that the new plants will not immediately operate at full production capacity as well as other factors such as maintenance demands and unforeseen production shortfalls; total polysilicon production is expected to reach roughly 700,000 tonnes in 2022; which is enough to produce about 255GW of solar PV modules globally.
Similar growth in silicon wafer, photovoltaic cell and solar PV module production is planned to align with greater polysilicon supply, avoiding bottlenecks downstream in the value chain. With our projection of 136GW coming online in 2022 across the 120 markets for which we generate forecasts, we believe this steep increase in polysilicon production will more than meet global solar PV demand for the year, easing price pressures on solar panels and bringing down solar project CapEx over the near-to-medium term.
However, we note that the cost of PV modules is also made up of several other components, including shipping and other base materials such as steel, aluminium and copper. The pie chart below is an estimation of current material and cost breakdowns in PV module production. As seen here, steel accounts for the largest resource demand in solar PV modules by weight. While less expensive than other metals such as copper or aluminium, the large quantity of steel means that it forms the largest portion of metals costs. However, electricity, labour, logistics, duties and land acquisition costs also form part of solar power CapEx, and price variation in any of these components could tangibly impact on future cost trends. While numerous other factors impact on solar module production costs, we expect component and resource availability to remain the most impactful aspects of module pricing throughout the coming years.
This article has been sourced from Fitch Solutions and can be accessed here