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How inflation could curb the rise of green energy

published on Sunday, June 05, 2022 at 07:00

Weighed down by the increase in freight and vital raw materials, the investment cost to build new solar and onshore wind capacity increased by 15 to 25% between 2020 and 2022, ending a decade of decline, calculated the International Agency. Energy.

Rising prices for fuel, raw materials, everyday food, but also paper… The inflation caused first by the Covid-19 crisis and then by the war in Ukraine is affecting all sectors.

The surge in prices, starting with that of strategic metals, is such that it could well hamper the development of renewable energies, so far driven by exponential gains in competitiveness, warn experts.

Weighed down by the increase in freight and vital raw materials, the investment cost to build new solar and onshore wind capacity increased by 15 to 25% between 2020 and 2022, ending a decade of decline, calculated the International Agency. Energy.

Electricity from renewable sources remains competitive with other energies, adds the IEA, but the expected maintenance over at least 2022 and 2023 of higher installation costs than before Covid could complicate its acceleration.

In one year, the price of cobalt has more than doubled, when, from January 2021 to March 2022, nickel gained 94%, aluminum 76%, copper 34%… Lithium even grew by 738% over this period (compared to an annual average of +13% over the last ten years). Thus the price of photovoltaic modules, divided by four in five years, has increased by 16% last year. The cost of wind power took 9%: offshore in particular suffers from the additional cost of rare metals and copper, which also affects wiring and connections. As for lithium-ion batteries for electric cars, the share of cathode alloys has increased from 3% of the total cost in 2015 to more than 20%, notes the IEA…

“Lithium soared because demand doubled in 2021 and supply couldn’t keep up. It’s a small market, and a smaller increase in demand causes prices to move massively,” explains AFP. Tae-Yoon Kim, analyst for the IEA. As a result, “critical minerals threaten a drop in costs that had lasted for at least 10 years in renewable technologies”, underlines Mr. Kim, with “major consequences on the financing needs of the energy transition in the world”.

“Air pocket”

In France, the industry is sounding the alarm. In the solar sector, projects equivalent to a total of 2.1 GW of electricity production, i.e. the bulk, which theoretically were ready for 2022, have been stopped due to additional costs (metals, transport, steel, interest rates and even soaring margins of aggregators selling power), identified the Renewable Energies Syndicate (SER). The observation applies to wind power, small hydroelectricity and even biogas.

In question, contracts signed before the boom in costs, contractualizing a price of electricity at levels no longer covering the costs. And there is no question of catching up on the rise in market prices, since the operator must return to the State the difference with that recorded in his contract.

While France is expecting 3 GW of additional solar power per year, “we risk an air pocket by losing these projects”, says Alexandre Roesch, general delegate of the SER, who is asking for indexation, with a higher guaranteed price, for example 70 euros/MWh, which would remain well below current market prices of 150 or 200 euros. “It will still benefit the community anyway,” he says.

Renewable energies remain competitive, a fortiori in the midst of a surge in fossil fuels and in the face of “average prices observed over the past six months on the wholesale electricity markets”, also underlines the IEA. However, it calls on States and industrialists to “act seriously” to “diversify their supply of raw materials”, an imperative highlighted by the crisis with Russia, the world’s second largest producer of aluminium, cobalt, platinum…

“There are still margins to reduce costs”says Mr. Kim: “First, invest in new mining projects. Prices will stabilize only when new supply becomes available”.

The IEA recommends updating geological knowledge, particularly in developing countries. “And there is room to develop projects in the United States, Canada, Latin America…”: from 2023, new sites should start producing cobalt in the Democratic Republic of Congo, nickel in Indonesia and in Canada, lithium in Australia, copper in Latin America…

“But it will take more,” notes the expert, who adds that manufacturers will also have to innovate to greatly reduce their metal needs.

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