Green Energy: What Experts Are Saying About Solar Supply Chain Issues and Higher Prices

Solar energy is not a fringe concept anymore. Experts say it's becoming more mainstream, but that supply chain issues are impacting the industry right as it's picking up speed. One reason for the growth of solar is that prices have been dropping, but experts say there's been a recent surge in the cost of components, labor, and freight, similar to what we're seeing in many industries, including construction. And that could cause a major setback for solar. The website oilprice.com is calling it: "The Worst Setback for the Solar Boom in a Decade." (1) With concerns about climate change and an international push toward clean energy, the industry is getting hit with unforeseen expenses. The oilprice blog cites the tripling of steel prices and higher prices for fuel, freight, and polysilicon. It says that many solar companies are in a "wait-and-see mode," hoping that prices for solar components and freight charges will stabilize at a lower level. Solar Panel Prices Spike According to Bloomberg, the solar panel prices are up 15% so far in the second quarter. That's after seven quarters of lower prices, due to the growth of the industry. The report offers some good news about the polysilicon shortage. Bloomberg analyst Yali Jiang says the industry will see a huge increase in the polysilicon supply, mainly from China. Chinese manufacturers are expected to boost their output by about 76%. That kind of output should push prices down, and according to this blog, to levels seen before the pandemic. (2) The Bloomberg opinion piece also cites a threat to that supply chain, due to allegations of forced labor in China's western region among Muslim minorities and a world spotlight on how China is handling that situation. There is legislation in Congress now that would ban all Chinese products produced with the use of forced labor. The solar industry is working on ways to make it easier to determine which manufacturers are using forced labor. The Solar Energy Industries Association released guidelines this year, to help with supply chain traceability. According to Bloomberg columnist David Fickling, "something has to give." He says China's solar industry accounts for 70% of the world's panel production, and that "attempts to set up non-China supply chains, whether in India, the U.S., or Saudi Arabia, have done little except raise the cost of photovoltaic installations and put off the moment when fossil fuels are driven out of business." Solar Demand Is Soaring All this while solar installations are soaring. During the first quarter, the SEIA reports that the U.S. solar market installed over 5 gigawatts of solar capacity. That's a 46% increase from the first quarter of 2020. It's also the largest year-over-year increase on record. The association's 2021 Q2 Solar Market Insight Report also says that "solar accounted for 58% of all new electricity-generating capacity added in the U.S. during the first quarter." (3) It says the U.S. is on track to install another 24.4 gigawatts of solar this year. That's 24% more than in 2020. A good portion of that demand is coming from utilities and corporations that are trying to meet climate change goals. Reuters reports that three quarters of the Q1 installations were done by the bigger customers, and that higher prices for materials and shipping could interfere with that growth curve. Wage issues and a tight labor market are also having an impact. But demand is also being driven by an interest in the federal tax credit for solar before it expires at the end of this year. It's currently at 22% after notching down from 30% and 26% in 2019 and 2020, respectively. (4) The Biden administration would like Congress to extend the tax credit as part of a push toward renewable energy. Warming Up to the Use of Solar In the meantime, more and more people are warming up to the use of solar as "normal." As reported by realtor.com, homeowners are "showing more willingness" to install solar panels on their homes. (5) In California, all new homes must be equipped with solar panels, with only a few exceptions. California is the first state to issue a mandate like that. It became law last year. Senior policy counsel for the U.S. Green Building Council, Elizabeth Beardsley, says: "This mandate normalizes the idea of solar panels as acceptable to regular homeowners." But she says: "It will be a long time before mandates are considered by other states except for the most progressive ones." Underlying those mandates, is the need for clean energy and cost effectiveness. Recent price surges aside, Kevin Wilson of Tri Pointe Homes says that adoption has grown because of an "extreme decline in the cost of installing a solar panel system." High energy costs in places like California also contribute to the desire for cheaper electricity. One thing that has changed, Wilson says that homeowners are not as concerned about the "look" of the solar panels as they used to be. They used to want to hide them in the back of the house, but that's not such a big issue anymore. You'll find links to our sources in the show notes at newsforinvestors.com Click here to join RealWealth now, it's free and only takes a minute! Links: 1 - https://oilprice.com/Energy/Energy-General/The-Worst-Setback-For-The-Solar-Boom-In-A-Decade.html 2 - https://www.bloomberg.com/opinion/articles/2021-06-13/the-coming-solar-panel-crisis-could-be-less-about-price-and-more-about-xinjiang 3 - https://seia.org/research-resources/solar-market-insight-report-2021-q2 4 - https://www.energy.gov/sites/prod/files/2020/01/f70/Guide%20to%20Federal%20Tax%20Credit%20for%20Residential%20Solar%20PV.pdf 5 - https://magazine.realtor/daily-news/2021/06/02/will-solar-panels-become-more-common