S&P Commodity Insights Top 10 RE Market Trends in 2023

Commodity Market Solutions Firm S&P Global Commodity Insights released its white paper on ‘The Ten Cleantech Trends in 2023’, focusing on the technologies to reduce emissions and confront climate change.

Following are the main takeaways from the cleantech trends 2023 from S&P Global Commodity Insights-

1. Declining Component Prices--Though the reduction in the component prices directly impacts solar, wind, and energy storage component prices, it does not immediately translate into lower renewable system capex. However, the investment in clean power is now within reach of global upstream oil and gas investments.

Further, land access and grid connections will remain the biggest bottleneck for the industry. Also, another major challenge for renewable power capex is the expensive construction labor cost due to the need for more skilled workers. Moreover, besides these overall cost-influencing factors, each technology impacts capex throughout the year.

The Falling Rates For The Following Components In The Year 2023-

A) Solar photovoltaics (PV)

PV module prices returned at a swift pace toward the pre-pandemic rates. Polysilicon supply witnessed a sharp decline in prices. It will affect the module prices, even if it would be offset by companies seeking to recover margins. At the same time, installers and distributors will raise their margins where possible.

Given the high demand, they were eventually reducing the possibilities of rooftop solar systems getting much cheaper for the end user. Lower module prices will benefit the utility-scale segment, and the paper has projected the demand for large PV systems to escalate globally, including the cost-sensitive emerging markets.

B) Wind Power

The second half of 2021 saw a rise in the average selling prices of ordered turbines as Western original equipment manufacturers (OEMs) passed supply chain cost inflation to customers to recover margins. Capital costs are expected to fall due to the sharp reduction in freight and key raw material costs like steel and a growing threat from lower-cost Chinese OEMs.

C) Energy Storage

Energy storage prices decline modestly in 2023 due to the easy availability of lithium. The prices were stabilized during the second half of 2022 for energy storage. Factors like rising energy costs and aggressive policies increased the installations in 2023. Also, high demand led to the rise in competition to secure the supply of batteries across the energy storage supply chain. Thus, more long-term agreements took place. But the report said that, in many cases, supply had been agreed from factories that are yet to be built, and to out-compete automotive off-takers, prices are elevated.

2. The Rapid Build-Out of Local Manufacturing for Solar & Batteries in the United States & Europe

Due to strong demand and energy security concerns, between 2021 and 2030, Europe and North America will install 2,000 square miles of solar panels ie. nearly the area of Los Angeles.

In 2023, the industry will continue to respond to various policy mechanisms that have been put in place by building close to 500 GW of wind, solar, and battery energy storage globally—over 20% more than the amount installed in 2022. To cut down dependence on China,local manufacturing is increased for goods needed for solar and batteries, particularly in Europe and North America. Inflation Reduction Act (IRA) in the United States is one such instance, which offered generous incentives for local manufacturing for a variety of clean energy technologies in a bid to become more self-sufficient and stimulate the economy.

Following the announcement of REPowerEU,Europe wants to increase its ability to manufacture locally. Self-sufficiency, human rights concerns, local employment, and tax incentives are some of the drivers toward onshoring in these markets. 

The manufacturing of battery cells is more progressed as compared to solar. Thus, several large facilities will become operational in Europe and North America in 2023, with many joint ventures or partnerships between large Asian battery manufacturers and major established automotive OEMs. 

However, imports continue to make up a large proportion of the market, as many of the facilities are in the early stage of development.

3. Expansion of Distributed Generation to New Segments While Business Models Evolve

Shared solar solutions have become available for new types of households and small businesses, further expanding the distributed generation footprint. More PV systems will be paired with storage as policy support for collocated solutions increases, said the report. 2023 the technology is expected to spread to new consumer segments and gain ground in new markets. 

By 2026, the Netherlands will have installed 1 kW of residential PV for each inhabitant, enough to cover the average personal electricity consumption.

Commercial and industrial consumers are set to increasingly deploy third-party financing as liquidity becomes a major concern for many businesses. Companies will go for on-site solar as a viable option. The challenge for third-party financed PV systems providers is to secure contracts with credit-worthy off-takers, given the economic headwinds expected in 2023.

 Solar PV is popular amongst building managers for better energy management and efficiency gain. Different configurations combine solar PV with, for instance, heat pumps or electric vehicles, thus encouraging new usages for distributed solar. The need to manage distributed energy solutions also boosts new software development. 

The report said that the policy and support for solar and storage will spread, creating further consumer flexibility regarding power production and consumption.

4. Big Energy Statements in 2022 Driven by Acute Energy Needs

Denmark, Austria, and Estonia are targeting 100% national renewable electricity targets by 2030, while Germany, Portugal, and Ireland aim for 80% globally, there is a focus on the central role of clean energy technologies (i.e., renewables, energy storage, hydrogen, carbon sequestration) not only as enablers of a low-carbon economy but also as pivotal drivers to increasing energy security, independence, and power systems’ resilience. However, the energy, materials, and logistics crises have raised doubts regarding the current globalised manufacturing approach and established supply chains.

However, there is a need to unblock some of the current hurdles in 2023, if targets want to be achieved by 2030, that includes-permitting processes, grid enhancement, new infrastructure and supply chain and skilled labour shortage

5. Turnaround Strategies of Western Turbine Manufacturers

The report states that the global wind industry is expected to consume more steel annually than France’s economy. However, prices are expected to stabilize this year. However, long-term profitability will be underpinned by a multipronged strategy involving product modularisation, industrialization of manufacturing, and revenue stream diversification.

In line with this, turbine vendors will continue to trim their product portfolios and drive sales of new and more profitable modular platforms. There is a trend toward larger turbines but with slowing down of the future pace of product development. More focus will be on industrializing existing models, evolutionary research and development strategy, and exploring technology and manufacturing synergies between onshore and offshore divisions, further developing product modularity.  

Consolidation of the supply footprint is expected to continue in favor of the Asia Pacific region, mainly for commoditised and easier-to-transport tier-2 components.

The report highlighted the threat from lower-cost Chinese turbine makers to get intensified in 2023. With the high consumption of steel and other raw materials, a growing push exists to ensure that raw materials are sustainably procured.