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27 July 2022

Corporate funding for solar falls as rooftop surges

Mercom Capital Group has released research which states that corporate funding for solar development has shrunk year-on-year by 11%, from $13.5 billion in the first half of 2021, to $11 billion in the first half of 2022. Mercom CEO Raj Prabhu attributes this to “inflation, higher interest rates, and supply chain issues.” The decline manifested not in Q1, which still had significant growth, but in Q2, as solar module prices rose and as the Department of Commerce interfered with US imports.

Even as the overall solar market grows, high module prices are punishing for the utility-scale sector – and indeed Mercom’s research shows the number of corporate deals rising from 71 to 91, which means the average size of these deals is shrinking. Larger projects are more reliant on economies of scale – but purchase cost of modules is not one of those economies of scale. Residential and Commercial funds are a relative fraction of the total for corporate solar involvement.

As for the growth of the rooftop sector – SolarPower Europe (SPE) has stated that it expects almost 40 GW of photovoltaics to be deployed across Europe this year, up by over a third from 27 GW in 2021. The Association equates 39 GW of solar capacity to 4.6 billion cubic meters of annual natural gas consumption, which is over 1% of European consumption – so the 390 GW to be added by 2027 or so will be around 10%. Europe is now the only major regional market not imposing some kind of tariff or sanctions on Chinese module exports – counting the US with its two-year moratorium. As a result it is Europe and China which will have the most growth in solar deployment this year, or indeed for several years. We shall see if the EU Parliament, or the US, can push Europe into adopting any serious measures against the Chinese solar industry, with sanctions on Xinjiang being the first line of attack.

Chinese exports for the first half of the year are up by 74.3% to 78.6 GW, as compared to 123.6 GW of total production. Exports were also reported as up by 95.4% to 22.6 billion dollars, and up 64.8% to 4.64 million tons – so now we know that solar modules have become 5.5% lighter and 12.1% more expensive in the past year, with the lower weight owed mainly to efforts to reduce polysilicon consumption, and only slightly to efficiency upgrades.

In the first half of this year China’s own rate of PV installations grew by 93% to 31 GW, while investments by the country’s major power generation enterprises into solar farms almost quadrupled to $9.3 billion, guided by new policy schemes. Out of total grid investment of $31.9 billion, wind is not far behind solar, while hydropower is at $5.2 billion, thermal at $5.1 billion, and nuclear at $3.5 billion.

Another cost problem for solar investment is the rising cost of lithium-ion batteries, now up 30% from last year with battery-grade lithium carbonate up by more than 400% – a situation very similar to solar-grade polysilicon’s demand-driven supply crunch. Co-located storage has become the norm for solar plants and in China’s case they are a mandatory part of wind and solar projects, typically to the tune of 10% of total capacity with 2-hour duration – the battery cost increase can help render a planned project financially unviable. Combined with the ongoing solar price increases, it seems unlikely that China can commission all of the 108 GW which the National Energy Administration identified as practical this year. Perhaps “only” 90 GW will be installed – still far higher than the 75 GW expected back in January, or the 55 GW last year. Global installations will rise 25% this year to 200 GW, if not more.