- Higher commodity and freight prices are driving up solar PV and wind turbine costs, but renewables are still more cost-competitive than fossil fuels.
- In 2021 the rollout of renewables increased by 6%, despite cost increases and supply chain issues linked to the pandemic.
- The demand for renewables is expected to pick up as the EU reduces its dependence on Russia for fossil fuels.
Increasing commodity and freight prices are driving up the costs of solar PV and wind turbines, but these renewable energy generators are still more cost-competitive than fossil fuels like coal and gas, according to the International Energy Agency (IEA).
The IEA on Wednesday released its Renewable Energy Market Update, which also includes an outlook for 2022 and 2023.
The IEA report shows that the rollout of renewable energy generation capacity globally increased by a new record last year, at 6%, to almost 295 GW. Most (46%) renewables were deployed in China, followed by the EU.
The rollout of wind capacity declined by 17%; however, growth in solar PV and hydropower offset this. Growth in renewable energy deployment was achieved despite supply chain issues linked to the pandemic, and "record-level" commodity prices used to manufacture these plants.
The report notes that prices of raw materials and freight costs have been rising since the start of 2021. By March 2022, the steel price increased by 50%, copper increased by 70% and aluminium doubled. Freight costs were five times higher than they were in 2021. This means that the prices of wind turbines and solar PV modules or panels have had to increase - reversing the previous trend of declining prices.
The IEA expects solar PV and wind prices to remain higher than pre-pandemic levels in 2022 and 2023. "Compared to 2020, we estimate that the overall investment costs of new utility-scale PV and onshore wind plants are ... 15% to 25% higher in 2022," the report read.
Rising freight costs are the main driver of higher wind prices, while solar PV increases are evenly split between freight and raw material costs. The report notes that higher prices of fossil fuels - natural gas, oil and coal - used in industrial processes and electricity supply to produce components in renewable energy technologies also drive costs.
Jan Fourie, general manager of Norwegian renewable energy developer Scatec's Sub-Saharan Africa operations, previously told Fin24 that capital costs for renewables are likely to be driven up by higher input costs linked to raw materials.
However, renewable energy prices remain cost-competitive, as fossil fuel prices have risen at a much faster pace than that renewables.
The report also notes that residential and commercial users of solar PV have managed to reduce their electricity bills.
The IEA expects renewable energy capacity to increase by 8% in 2022 and reach almost 320 GW. Solar PV is projected to be the front-running technology, accounting for 60% of global renewable capacity.
The IEA noted the importance of policies in supporting the rollout of utility-scale solar PV projects, particularly in China and the EU. The outlook for renewable energy deployment in 2023 depends heavily on the policy environment. The IEA indicated that government-led procurement processes are key to the expansion of renewables.
In South Africa, the government has recently launched bid window 6 of the Renewable Energy Independent Power Producer Procurement Programme. Bid window 6 is expected to procure 2 600 MW of power, on top of that from bid window 5.
The IEA noted that Russia's invasion of Ukraine had sparked a new urgency among some countries - especially the EU - to secure energy by transitioning clean generation while reducing dependence on fossil fuels from Russia.
Russia supplies nearly half (45%) of the EU's gas used by industry, households, and electricity generation. "With current deployment trends, wind and solar PV expansion in the European Union has the potential to reduce the dependence on Russian gas use in electricity significantly," the report read.
Fourie noted that there is "unprecedented" growth in renewables globally. "Renewable energy has proven to provide energy security in a time of uncertainty. For South Africa, this means the time to act is now," said Fourie.
South Africa is battling a lack of generation capacity, which could potentially be filled through the deployment of renewables. Players in the renewable energy industry, like Scatec are willing to deploy much-needed capacity that will provide energy security and reduce load shedding.