Supply Chain Disruptions Reverse a Long-Term Trend for Solar PV

Renewable electricity had another record-breaking year in 2021. Annual global capacity additions increased to 290 GW, with solar PV accounting for more than half of total deployment. However, rising commodity prices driven by supply chain disruptions and industrial material shortages have caused an uptick in solar price trends over recent quarters, creating short-term implications for equipment manufacturers, project developers, and policymakers. 

Historical Prices Have Been Key to Strong Growth

Rapidly declining costs over the past decade have driven deployment and increased solar PV’s competitiveness with other generation technologies. For example, the cost for residential solar panel systems has dropped more than 60% since 2010, most of which can be attributed to hardware cost declines. Falling costs coupled with regulatory support and module efficiency improvements have prompted wide-scale solar adoption in both residential and utility settings. These factors have also contributed to a robust global market, which Guidehouse Insights expects to exceed 3 TW of installed capacity by 2030.

Supply Chain Disruptions Have Driven Module Prices Up

Industrial material prices and freight costs have been on an increasing trajectory since early 2021, reversing the cost reduction trend to which the solar industry has become accustomed. While PV technology is modern, the intermediate components used in the manufacturing process are traditional. Since the beginning of 2020, the price of PV-grade polysilicon has more than quadrupled while copper and aluminum prices have increased by 50% and 60%, respectively. Meanwhile, freight costs, which account for up to 20% of total module costs, are up 10 times from pre-pandemic levels, triggering a bottleneck in the global supply chain. 

Such events amplify calls to incentivize domestic manufacturing to alleviate future supply chain constraints and improve market resilience. The president of the Italian trade association ITALIA SOLARE has emphasized the need for a national supply to navigate the raw materials crisis. Legislation will be critical to this endeavor. The clean energy provisions in the Biden administration's Build Back Better agenda will target incentives to grow domestic supply chains in solar, wind, and other critical industries in communities on the front lines of the energy transition. 

Solar Demand Will Continue to Grow

Increased prices have had limited impact on demand for new capacity. Material shortages are expected to be temporary because manufacturing capacity will likely increase to meet demand in the coming years. Moreover, with global gas prices driving up wholesale electricity prices, demand for clean energy sources is set to grow as we pivot from fossil-intensive industries. Uncertainty remains as to how long commodity prices will continue to rise, and projects scheduled for 2022 may be affected if supply chain challenges don’t abate. 

For more information on solar price trends, see the Guidehouse Insights report, Analyst Insight: Solar Price Trends. The report provides insights, drivers and barriers, and key market inflection points for regions where the solar energy market is expected to have the greatest influence in the overall energy mix.