With high energy prices and supply chain disruptions creating shortages of renewable energy components and materials, emerging markets are reassessing how to build out utility-scale solar power to accelerate their energy transitions. After more than a decade of decline, the cost of solar photovoltaic (PV) panels has risen around the world, due primarily to the increasing cost of solar-grade polysilicon in China. A key component in PV panels, polysilicon spot market prices rose from under $7 per kg in July 2020 to $39 in August 2022. Though a slowdown in sales contributed to a drop to $22.90 in May 2024, sales are expected to revive in 2025.
China is estimated to account for more than 80% of all manufacturing stages of solar panels − including polysilicon, ingots, wafers, cells and modules − while its share of key elements including polysilicon and wafers is expected to exceed 95% by 2025 based on current manufacturing expansion works, according to the International Energy Agency.
Supply & Demand Dynamics
There are reasons to believe that higher costs will not slow the uptake of solar. For one, demand was robust in 2023, with 447 GW of new capacity added worldwide as prices for coal and natural gas reached record highs. Globally, new installations are expected to add 585 GW of capacity in 2024, according to research provider BloombergNEF.
Utility-scale solar and onshore wind are the two cheapest forms of renewable energy generation in the large majority of countries around the world, and the IEA expects global solar PV capacity to rise by nearly 1500 GW in the 2022-27 period, surpassing natural gas by 2026 and coal by 2027. Solar and wind power already overtook natural gas in Europe’s generation mix in 2022, thanks in part to a three-fold increase in rooftop solar applications over the course of the year.
Another reason for optimism is that analysts expect the price of polysilicon to continue to decrease. Though ongoing global supply chain disruptions remain a concern, the price of polysilicon is forecast to reach $10-15 per kg as additional supply comes onto the market, according to BloombergNEF.
For rooftop solar, the decline in price between 2013 and 2020 was driven by an increase in the supply of solar cells and modules on the market, whereas advancements in technology and the growing scale of production caused costs to decline in recent years.
Continued access to critical minerals will be crucial to building enough renewable energy infrastructure to support the energy transition. A January 2023 study in the scientific journal Joule concluded that the supply of 17 key materials should be sufficient to keep warming to less than 1.5°C above pre-industrial levels in even the highest-demand scenarios. Ensuring that these resources are mined without undue environmental damage or exploitative labour practices, however, may pose a more significant global challenge.
GCC Test Case
In some respects, the GCC is an ideal test case for solar in emerging markets, given the region’s high solar yield, abundance of available land and clear government interest in increasing clean energy. In February 2024 Bahrain’s Electricity and Water Authority launched a tender for the construction of a utility-scale PV plant with a capacity of 100 MW located at a waste disposal site near Manama, in efforts to bring 255 MW of solar generation capacity online by 2025. By 2030 the country aims for 700 MW of solar, wind and energy-from-waste generation capacity by 2030.
The expansion of solar depends on steady financing, and Saudi Arabia and the UAE have public-private partnership frameworks to tap into global capital markets and issue green bonds for climate-related projects. Green bond and sukuk (Islamic bond) issuance in the MENA region grew to reach $24bn in 2023, a 155% jump from the year before. The Saudi Public Investment Fund released two green bonds in 2023, worth $3bn and $5.5bn, to raise money for environmental, social and governance-compliant climate initiatives as part of its Green Finance Framework for the 2021-25 period.
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