The energy transition depends on several different technologies to replace fossil fuel generation. Technological advancements have led to significant cost decreases over the last decades, making green technologies increasingly competitive even without subsidies.
However, the first years of the 2020s have seen a temporary halt in this decline. Disrupted value chains due to the covid pandemic and increased energy prices have made many raw materials such as steel, silicon, composites, and others, more expensive. Thus, also prices of the end product increased significantly. In addition, increased inflation has made technologies that heavily depend on upfront investments less competitive. Consequently, projects have been set on hold and auctions have not been able to activate the volumes they were originally designed for. The price increases could be observed across different technologies, from wind turbines and solar panels to batteries and electrolysers.
Solar module stability vs. wind turbine challenges
In 2023 we have seen diverging trends, especially in the solar and wind industries. Prices for solar modules have stabilized and are now racing from one historic low to the other. In fact, they have decreased by almost 50% in 2023 alone. Prices for wind turbines, on the other hand, remain high; a renewed downward trend has yet to kick in. The Norwegian government, for example, looks with some anxiety on the outcome of the auctions of the two main important offshore wind projects later this year, that are supposed to produce the lion share of the additional green energy Norway needs for the electrification of its transport and industry sectors.
This underlines different market drivers in the two technologies:
In solar PV the rising prices were mainly due to a shortage of the critical raw material silicone in 2022. Delayed factory commission and problems with existing facilities in China – the main silicone supplier of the world market – had led to empty inventories in Europe in the end of 2022. However, since then the problems have been resolved and new production capabilities have sparked increased production of solar modules. Newly introduced customs for Chinese modules in India and the US have additionally diverted module volumes to Europe filling up inventories and further putting pressure on prices.
Wind projects on the other hand, continue to suffer from high costs. Rare earth materials leading to higher turbine prices, costs for specialized labor and unfavorable financing conditions are the most important driving forces for this recent development. These factors show a different dynamic and recent price reductions on the raw material market seem to take more time to trickle down the value chain. In the medium to long term, however, increasing installation volumes and maturing of technology and the relevant value chains, will again lead to a reduction of project costs, especially for the offshore segment.
Stay updated – the new issue of Technology Trends and Insights will soon be released
THEMA continues to follow these and other technology developments closely. Stay tuned for the update of our Technology Trends and Insights that will be published at the end of March and in detail examines the market drivers in different technologies relevant to the energy transition.
