Higher input costs, interest rates raise challenges for green energy transition

UNTIL recently green energy's trajectory seemed unstoppable. In 2020 the cost of production of renewable energy such as solar and wind had dropped below that of coal, after years of decline. This pointed to significant savings should consumers switch to renewables.

According to the International Renewable Energy Agency, between 2010 and 2019, the amount of global solar capacity rose by 14 times from 40 gigawatt (GW) to 580 GW. In that period, prices of photovoltaic (PV) modules used for solar energy fell by 90 per cent. The consensus expectation was for a continued drop in production costs, even as environmental concerns drove capital towards renewable energy and away from fossil fuel extraction and development. But that rosy prognosis has come under fresh scrutiny. A confluence of factors - increased economic activity as Covid-19 waned globally, supply chain snarls, war and sanctions on Russia - has sparked a surge in inflation. Rightly or wrongly, "greenflation" - which refers to the rising cost of green energy - is being added to the inflation blame list. Green technologies need metals and minerals such as copper and lithium. Electric vehicles, for instance, use 6 times more minerals than a conventional car. Since 2020 the price of copper has risen by 60 per cent and steel by 50 per cent. The price of lithium has also skyrocketed.

The International Energy Agency (IEA) noted in a report in end-December that rising commodity prices and freight charges have already raised the cost of producing solar PV modules and wind turbines by 10 to 25 per cent. "While uncertainty remains as to how long commodity prices will continue their upswing, the impact of rising material costs on the profitability of the renewable energy industry could have long-term implications for the cost of clean energy transitions," said IEA.