Solar power has always had one trump card: it is cheap and getting cheaper. Nothing beats a solar panel in terms of affordability and performance. To reference that overused phrase, nothing gives you more ‘bang for your buck’ than solar energy. While this is not the only selling point of solar energy, it is one of the main points, no doubt. For the past decade, the solar industry has shed 90% of its cost and increased its efficiency more than ever. But the solar heyday may be coming to an end, as solar panel prices around the world have begun to rise.
The Rising Cost of Solar Power
As of October 2021, high-quality silicon in China costs USD29.40 per kilogram, while average-quality silicon goes for USD27.63 per kilogram. With an exchange rate of 0.76 USD to 1 AUD, it’ll take about AUD50 to make one solar panel.
In 2020, average silicon price was around USD9 per kilogram. In one year, the price of solar silicon has increased by AUD37 (AUD37 if you add in GST). Today, a 370-watt solar panel’s power costs 9 cents per watt, and 10 cents per watt after you add in GST. 370-watt panels are rather common these days and serve as a good yardstick for measurement.
Ramifications of the Price Spike
If we include GST, but make no accommodations for any other adjustments, we can ascertain that the silicon price spike will increase the prices of solar panels by the following amounts:
- An 18-panel, 6.6-kilowatt system will see a price jump of AUD666
- A 27-panel, 10-kilowatt system will see a price increase of AUD999
This is not good news. As it stands, solar panels represent humanity’s best and maybe even last hope to preserve our natural environment. Therefore, any slumps in the viability of solar energy should be cause for concern. Overall, solar panel prices have seen an 18% rise across the globe. Business intelligence firms predict that this spike could prompt the delay or even cancellation of up to 56% of the world’s planned solar generation capacity for 2022. These price hikes are not only caused by the increased cost of silicon and other rare earth metals, though they are most certainly exacerbated by them. Global energy shortages and a shortage of shipping containers has compounded the issue. Shipping costs typically make up a third of a solar project’s capital costs, and as companies rush to fulfil resurgent orders in the wake of the receding coronavirus wave, transportation firms have found themselves unable to keep up with demand. As a result of this, shipping costs have risen sixfold. To make matters worse, the prices of essential raw materials have increased to unprecedented levels. The price of polysilicon alone has quadrupled in recent months.
So, what options do solar power project developers have? None are good, but they are as follows:
- Developers could be forced to reduce their profit margins.
- They may decide to pass the buck on in the form of more expensive solar power.
- Or they may postpone or cancel their solar projects altogether.
What Does the Future Hold for Solar Energy?
The foremost thing we need to take into consideration is perspective. Without perspective, we will just end up talking in a vacuum. Some perspective on these price hikes would go a long way. To begin, with a 10 cent per watt increase, Solar power has regressed (in terms of price alone) to the same levels it was in March 2020. What we need to keep in mind is that solar power made sense in March 2020, and so, it makes sense now. The industry had just gotten too used to steady drops in prices, but even with an 18% increase, solar power is still priced very competitively. If silicon prices were to double again, that would push solar panel prices back to what they were in 2019. While that would be tragic, to say the least, but solar would still be a viable form of alternate energy.
The silver lining to all this is that prices are likely to go down again. Though they will not likely return to last year’s low anytime soon, but they will invariably drop down from the current peak. Part of this is because the current price hike is partially a result of extraordinary factors, like the COVID pandemic and its resultant supply chain disruptions. These disruptions are a fleeting thing, and while they may take years to pass, they most certainly will. On the other hand, the solar industry’s steady price reductions are not a fad, given that they have lasted a decade. We can expect an eventual return to normalcy, though none too soon. In the short term, suppliers have been trying to mitigate the effects of the price hike by reducing costs wherever they can.
For Australian households, the picture is not as bleak as it may appear in other parts of the globe. Australian companies and policy makers saw the price spike coming a mile away and had time to make arrangements for it. Many of these arrangements include offsetting the cost by reducing prices in other areas. So, while Australian households will not be totally immune from the price hikes, they will be partially cushioned from them.
Navigating the Minefield of Market Prices
Left to its own devices, the market will eventually sort out this problem. All indicators point to this eventuality. For instance, there is no guarantee that silicon prices will not increase further. If they do, the cost of solar panels will increase, and demand will decrease. This will eventually form a new equilibrium and we will, in all likelihood, see the market revert to the steady decline in prices as before. The only way this will blow out of proportion is if world leaders try and make it, or if the coronavirus makes a resurgence. Though both these scenarios seem unlikely, with growing competition over trade between China and the United States, who can say for certain? Afterall, who in 2018 would have predicted that just next year a massive global lockdown would cause the world’s economies to grind to a halt? The bottom line is that these are hard times for solar energy, but they will pass, unless someone actively works to make them harder.