The Paris Agreement sets out a global framework to limit global warming to below 2 degrees Celsius, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. The urgency to cut carbon dioxide emissions put energy transition on the forefront. InfoLink’s estimate shows that the world needs to accumulate 3,409 GW and 6,887 GW of installed renewable capacity by 2030 to meet the climate pledges of keeping temperature increase under 2 degrees Celsius and 1.5 degrees Celsius, respectively.
Solar energy will be one major contributor to renewable energy installations due to its fast development process and low cost. The levelized cost of electricity (LCOE) of solar in many countries have reached the level of traditional fossil fuel around 2020. The rapid cost reduction in recent years is mainly ascribed to the development of modules, which account for 30-50% of total system costs. The intense competition in the solar supply chain drives manufacturers to upgrade technology in pursuit of lower costs, helping optimize the cost per wattage of modules and bring advantage to solar power. Over the past few years, techniques that significantly drive down solar costs are as the follows:
Thinner wafers: Trimming down wafer thickness enables a silicon rod to produce more wafers, effectively reducing silicon costs of modules. In 2021, when polysilicon prices started to surge, manufacturers thinned down wafers more aggressively, with the mainstream thickness decreasing from 175µm in 2020-early 2021 to 150-155µm at the end of 2022. Some n-type TOPCon module makers even materialized mass production of 135-140µm.
Larger wafers: Large wafers have bigger surface area, meaning higher power output and lower system installation cost per module. The market share of M6 (166mm) wafer decreased rapidly in 2022, from 2021’s 42% to 15%, whereas large wafers (M10, G12) became prevalence. At present, the M10 (182mm) format dominates the market, followed by G12 (210mm), which alltogether account for 82% of the market share. M10 is expected to remain mainstream for the short term, while the share of G12 will gradually increase.
Higher cell efficiency: The mainstream p-type PERC cell efficiency has increased from 21.9% in early 2020, 22.4-22.5% in early 2021 to today’s 23%. P-type cell efficiency is reaching its bottleneck, while that of n-type TOPCon and HJT is increasing, having exceeded 24% now. TOPCon technology, in particular, is chosen by manufacturers for capacity expansion in 2023 due to its cost benefit. This underpins the market share of n-type and its possibility to become mainstream in the future.
Technology aside, module prices will affect the overall LCOE. Polysilicon prices that have been on the rise since 2021 have kept prices high across the supply chain, with prices reaching as high as USD 0.28/W (RMB 2.1/W). Yet, traditional energy prices have been pushed up since 2020, as economy recovers after Covid-19 as well as the repercussion of Russia-Ukraine war. Therefore, overall cost of solar is still lower than fossil fuel despite high module costs.
Given the possibility of international carbon tax implementation in the future, costs of traditional energy may rise further, while a downward trend is expected for solar energy. Manufacturers are ramping up capacity amid severe competition, with planned capacity far exceeding end user demand. Against these backdrops, module prices are likely to drop when excess supply intensifies, thereby enhancing the cost benefits of solar.
Source: InfoLink Consulting
InfoLink examines the subsidy policy that affects demand and materials prices that affect supply and compare the LCOE in China, the U.S., and Europe from the two perspectives.
In China, the government has terminated the subsidy scheme for solar, meaning that the LCOE is mainly impacted by prices in the supply chain. As China dominates more than 85% of solar manufacturing capacity and is home to most BOM, its economies of scale makes costs of solar power generation the most competitive. In 2022, China’s solar LCOE comes in at around USD 30.5/MWh, according to InfoLink’s calculation.
The U.S., without its own solar supply chain, relies on solar products from Southeast Asia. The prices for domestic made modules are higher than in non-China regions. Moreover, materials and labor costs are also high. Thus, its overall system costs are significantly higher than in China. Having said that, the government provides solar with up to 26% of Investment Tax Credit to boost local demand. Calculating based on the tax credit and local prices, the LCOE in 2022 is around USD 33.97/MWh. When the Inflation Reduction Act takes effect, the LCOE will decrease further owing to higher ITC and the implementation of Production Tax Credit.
Europe also has no its own supply chain; it mainly imports solar products from China. This means that the LCOE is subject to movements in the Chinese supply chain. As skyrocketing energy prices drive up the bloc’s demand for renewables, the region has higher acceptance for module prices compared with China. While many countries set ambitious installation targets, their subsidy policy is weaker than that of the U.S., thus subsidy has smaller impact on the LCOE. Amid surging prices in the supply chain, the LCOE in 2022 sits at around USD 35/MWh based on local module prices.
Clearly, LCOE in these three markets is subject to module prices. While prices across the supply chain have remained high over recent two years, prices may start to decline as new polysilicon capacity came online. By then, overall LCOE will decrease further. In addition, the advancement of technology will help lower LCOE. Solar, with cost benefits, is indeed the key to push toward energy transition.