Global PV installations will mushroom by more than 20% in 2022 and defy rising production costs to surpass 200GW, the second consecutive year of double-digit expansion in a high-price environment, according to a new report from IHS Markit.
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Until recently, declining solar power system costs – which decreased by more than 50% on global average from 2013 to 2020 – have been a crucial factor in the exponential growth of the industry, with global installed capacity increasing 275% during that time. IHS Markit forecasts PV capacity at around 180GW at the end of this year.
This year, however, the Paris-headquartered analyst said, PV systems costs have increased by 4% year-on-year, bringing new challenges to the burgeoning market.
“The utility segment has been the most impacted in 2021, with multiple projects delayed or cancelled,” said Josefin Berg, research manager for clean energy technology at the research group.
In contrast, strong growth of corporate, industrial, and residential distribution has been one of the solar PV success stories in 2021, boosted by the fuel crisis and surging electricity rates, particularly in markets across Europe, he said.
Despite the higher-than-anticipated cost environment, installations in key markets are driving expansion this year heading into 2022, led by China followed by Europe, India, and the US.
Rising cost conundrum
The intense logistic and supply chain disruptions over the past year have pushed the cost of PV materials to new highs, according to PV Systems Price Tracker Update, Second Half 2021.
In addition, the announcement of new power restrictions in mainland China in the latter half of 2021 has severely restricted the output of manufacturers in certain provinces, impacting production of key materials such as metal silicon, polysilicon, and solar glass – further increasing prices.
Between October 2020 and October 2021, the price of polysilicon has grown over 200% alongside major price increases in other module materials such as solar glass and copper –forcing module manufacturers to jack-up their prices.
IHS Markit estimates that, since August 2021, average module production costs have increased above 15% and module prices are now back to 2019 levels. Other solar PV components such as inverters and trackers are also being impacted by the shortage of some materials, including semiconductor components, and the high cost of raw materials such as steel.
The research group expects that the current high costs of freight and subsequent shipping delays will continue well into 2022, particularly impacting the economics of international projects.
“There is significant appetite across global markets to invest in and develop solar installations, but the supply chain is just not ready to meet this level of demand, it needs time to adjust,” said Edurne Zoco, executive director for clean energy technology at IHS Markit.
Polysilicon will remain a bottleneck for PV growth into 2022 until new capacity is ramped up from 2023 onwards. He added that “other nodes” of the module supply chain including materials like polymers and solar glass will ease in China, boosting availability and leading to price declines.
Policy uncertainty peril
The wild card for the 2022 forecast is the policy uncertainty in the three major solar PV markets – China, US, and India – that should be resolved by Q1 2022. These announcements will have major consequences: for instance, in China the length and intensity of current power restrictions will determine PV utilisation rates and the volume that is available to the domestic and international markets.
Future configuration of policy decisions and macroeconomic conditions could potentially undermine 20% of utility-scale forecast in the US due to a mix of high costs, a potential extension of the federal investment tax credit, and increasing hurdles to import modules.