Rising price of aluminium and other commodities steering renewable energy projects costlier: Industry experts, India

The striking rise in prices of the commodities such as aluminium and copper among others, which are heavily used in the renewable energy industry as raw materials are steering the projects to get costlier, as said by the Industry experts in India.

The aluminium has surged 22%, while the copper rates have gone far higher by 25%, as reported by the London Metal Exchange (LME) since the beginning of 2021. Aluminium and copper are used in the manufacturing of solar power components like solar cells, modules, and wafers.

Girishkumar Kadam, Vice-President and Co-Group Head, ICRA said: “The increase in prices of commodities such as polysilicon, aluminium, and copper would lead to an increase in the capital cost for solar PV projects to some extent, given that modules comprise about 55% of the capital cost.”

Gyanesh Chaudhary, Managing Director of Vikram Solar, a Kolkata-based leading solar energy solutions provider specialising in module manufacturing, said: “The sharp rise in raw material cost has caused an overall increase in module costs by about 35%.”

“Solar panel manufacturers are unable to fully absorb the steep rise in upstream cost and additionally, the freight rates have also increased substantially due to a shortage of shipping capacity under COVID-19 regulations, thus increasing module prices further,” said Chaudhary.

Whereas, the International Energy Agency (IEA) had highlighted in its report titled ‘The Role of Critical Minerals in Clean Energy Transitions’ denotes: “Rare earth elements are essential for permanent magnets that are vital for wind turbines. Electricity networks need a huge amount of copper and aluminium, with copper being a cornerstone for all electricity-related technologies.”

Somesh Kumar, Partner and National Leader – Power and Utilities, EY India, said: “Rapid construction and industrial recovery from COVID-19 lockdowns outpaced restart of capacity. Hence, incremental supply was temporarily tight.”

The foremost reason considered behind the soar in prices of aluminium and copper was the rapid revival in demand for these metals globally posts the first wave of the pandemic.

Jayanta Roy, Senior Vice-President and Group Head, ICRA, said: “The revival is especially strong in China, which is the largest consumer of these metals in the world. In the case of copper, the overall situation is exacerbated by supply-side bottlenecks. Consequently, prices of copper have witnessed the sharpest upturn among base metals.

“Apart from fundamental factors, base metal prices are also influenced by financial deals. The excess liquidity in the global financial market might also be playing a role in the current buoyancy in prices”, he added.

IEA in a separate report said that the spike of low-carbon power generation to meet climate goals would also mean a tripling of mineral demand from this sector by 2040.

Input cost of commodities such as glass, back sheets, aluminium frames has drastically climbed high. Since 2020, the solar glass price has gone up between about 100-130%.

Gyanesh Chaudhary of Vikram Solar added: “Currently, a majority of the solar energy capacity in India has been built on imports. One of the world’s largest glassmakers is in India, but we import glass from China, Indonesia or Malaysia. Similarly, even though India is one of the largest aluminium producers in the world we import aluminium frames.”

He said: “The need of the hour is a crystal clear manufacturing policy, which will have a multiplier effect on the economy in terms of creating jobs, increasing exports, and saving about $50 billion worth imports.”