Feeling the Heat: The Rising Commodity Price of Solar Energy
After a challenging pandemic-led ride, 2022 has not been a cakewalk for industries as they fight with increasing demand, rising shipping costs, supply chain constraints, overpowering inflation, and increased market volatility. And the solar energy industry seems to be no exception to this case.
However, market experts remark that in the coming years, there will be an increase in the adoption of solar panels owing to their low cost and the sudden interest in safe, clean, and green forms of energy. Yet, even the best solar panel companies cannot control the rocketing prices due to high input and freight costs as well as supply chain issues in China.
Undeniably, solar energy is the future; still, manufacturers are struggling hard to get the price of a solar panel into the affordable bracket for customers. As more and more users incline towards solar, wind, and other renewable forms of energy to run their electricity meters at homes or offices, the price of polysilicon, the primary raw material utilized in manufacturing solar equipment, has surged by 343% since July 2020 and 148% since January 2021, as reported by Economic Times. The rising prices have increased the price of a module by 35%, compromising the 50+ gigawatts of solar projects under the line.
The Rising Solar Commodity Prices around the Globe
While some might find it hard to believe, owing to the sparked interest and indulgence of the general public in solar panel installation. The spike in the overall price of solar energy is bound to happen and will continue for a few years.
The production of polysilicon in China has fallen by a significant margin, creating a supply chain stress worldwide. This shortage of polysilicon raw material has stemmed from the recent explosions in two Chinese polysilicon production facilities leading to its closed doors and the increased safety checks in China post the pandemic.
Not to forget, Covid-19 has had a severe impact on the #1 most populous country in the world, creating a financial disbalance. Polysilicon shortage, coupled with rising commodity prices of aluminum and copper (used for mounting solar panels), have added fuel to the fire.
Another concern for the solar energy market is the price of solar glass. Solar glass is a critical component used in manufacturing solar cells responsible for storing and converting the sun’s rays into electricity. The cost of solar glass has increased by 130% since July 2020.
As India’s current solar capacity is dependent on imports of these raw materials from China, Indonesia, or Malaysia (for solar glass). It has created a strain on the nation’s solar projects.
Reports suggest that despite being the largest aluminum producer in the world, India imports aluminum frames along with silver and other materials, amounting to over 80% of solar equipment required to manufacture solar panels.
Due to the surge in their prices due to the global commodity super cycle and the rising freight and shipping costs since the pandemic, India is currently struggling to achieve its solar power goal and fulfill its commitment around the same.
Industry players postulate that the impact on demand has been around 50%, with the price of solar modules rising by 20-22% since March 2022. Post that, the cost of solar modules increased further in April due to the 40% customs duty being charged on solar module imports and 25% on solar cells imported by the Indian government.
These factors have played a vital role in rising solar panel installation prices, with customers considering it a non-viable and lucrative solution for now. This cost increase discourages many customers who had planned around solar panel installation. Overall, the pace of adoption of solar energy has slowed significantly because of the increasing prices.
How to grapple with the market uncertainty and recharge the sentiment around solar energy in the country?
The price of domestic solar panels has splurged over 50% in the last few months, charging Rs. 30/watt peak due to the 25% import duty and the higher commodity prices caused by China’s struggling production and the Ukraine crisis.
The only solution to satisfy the increasing solar demand of the country is to improve upon its internal manufacturing capacity for all the raw materials currently being imported from China and become a self-sufficient production nation.
Efforts must be made in the direction of the Make in India initiative rather than imposing heavy duty taxes on panels in times when the country finds it challenging to boost the pace of solar adoption. With renewable energy being the need of the hour, the government should focus on empowering the best solar panel company in the country and startups who can manufacture solar modules in a timely and cost-effective manner.