With high energy prices and supply chain disruptions creating shortages of key 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 less than $7 per kg in July 2020 to $39 in August 2022. Though they fell to as low as $18 in January 2023, by early February prices were back above $30.

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 (IEA).

Supply & Demand Dynamics

There are reasons to believe that rising costs will not slow the uptake of solar. For one, demand was robust in 2022, with 268 GW of new capacity added worldwide as prices for coal and natural gas reached record highs. Globally, installations are expected to reach 315 GW in 2023, 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 are expected to cause costs to decline from 2023.

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 as well as clear government interest − including incentives and investment − in increasing clean energy. Solar power accounted for 97% of the GCC’s installed generation capacity for clean energy as of 2021, with the UAE and Saudi Arabia, respectively, making up 80% and 13% of the total. Both countries generated 100% of their clean energy from solar that year, according to the International Renewable Energy Agency.

The expansion of solar depends on steady financing, and both countries have public-private partnership frameworks to tap into global capital markets and issue green bonds for climate-related projects. Green bond and sukuk (Islamic bonds) issuance in the GCC hit a record $8.5bn in 2022 from 15 deals, while six deals in 2021 totalled $605m. Saudi Arabia’s Public Investment Fund has released two green bonds, worth $3bn and $5.5bn, in order to raise money for environmental, social and governance-compliant climate initiatives as part of its Green Finance Framework for the 2021-25 period.