Transitioning to wind and solar just became much more expensive
Transitioning to wind and solar energy just became a lot more expensive. Due to significant competition and supply-chain constraints throughout the world, the cost for many of the raw materials used in the production of wind, solar, and battery technologies are skyrocketing.
As reported by Bloomberg, the prices of steel, copper, and aluminum have all reached record highs in the past 12 months. These are the three main components of wind and/or solar facilities. Increasing competition for battery-grade lithium-ion is also driving up prices. As Morning Brew reports, spot prices in China for lithium rose from $11,000 per metric ton in 2021 to $50,000 this February.
These developments will increase the cost of building wind and solar facilities, in addition to utility-scale battery storage facilities and batteries for electric vehicles (EVs).
This runs contrary to the narrative that wind, solar, and battery energy sources would continue their steep cost declines for years to come. Indeed, some organizations predicted that costs would be cut in half by 2050.
Cost of “renewable” transition on the rise
Using the term “renewable” for wind and solar facilities can be misleading for a number of reasons. Mainly because it can take away from the fact that both energy sources need an enormous amount of raw materials during production, such as steel, copper, and aluminum.
These materials, just like fossil fuels, are susceptible to competition and supply chain constraints that can increase costs.
According to the National Renewable Energy Laboratory (NREL), steel accounts for anywhere between 66-79 percent of a wind turbine, and copper and aluminum between 1-2 percent each. As NREL notes, “Changes in the price of any of these raw materials—but particularly steel, given its predominance—can impact wind turbine prices.”
That’s exactly what has happened.
Supply chain constraints stemming from economic lockdowns and the ongoing war between Russia and Ukraine have led to skyrocketing steel prices of 262 percent between October 2020 and November 2021, which have yet to come back down. (See chart below)
Leaders in the wind industry are already sounding the alarm. As noted by Sheri Hickok, GE Renewable Energy chief executive for onshore wind, “The state of the supply chain is ultimately unhealthy right now… because we have an inflationary market that is beyond what anybody anticipated even last year. Steel is going up three times.”
Price increases have been impacting the solar industry, too. Copper — which makes up roughly 30 percent of a solar panel — rose 90 percent from April 2020 to November 2021.
While economic lockdowns and the Russia-Ukraine war have added to the increases, Power Technology notes that “some prices have trended upward for years, and could prevent the decline in solar costs as they move ever higher.”
When prices will fall back down remains unclear. Hickok stated in a presentation to WindEurope that “If the government thinks that on a dime, this supply chain is going to be able to turn around and meet two to three times the demand, it is not reasonable.”
Battery technologies also impacted by price increases
Utility-scale battery storage and batteries for EVs — two key technologies in the push to achieve 100 percent clean energy and the “electrification” of the transportation sector — have also been hit hard from recent price increases.
Vanessa Witte, senior energy storage research analyst for Wood Mackenzie, said that there was “an explosion of demand [for lithium] – a lot of that was led by the electric vehicle market.”
Prices for lithium increased by over 350 percent due to the increase in demand, as the chart below shows. The utility-scale battery storage industry has been impacted as well, as 90 percent of large-scale capacity in the U.S. is made with lithium-ion technology.
Immediate relief is likely nowhere in sight, as new lithium mines take “around five years to set up, while a battery manufacturing plant would require at least two years.” Simon Moores, CEO of Benchmark, expects prices to be volatile for the next three years. Additionally, according to Moores, the world will need roughly 15 to 40 new lithium mines to meet an increase of 1 million tonnes of lithium.
Witte continued, saying “These things just take time to catch up, and that’s really been the source of the issue.”
However, it’s not just about “catching up”
The world may already have been caught up to rising demand for lithium if not for the built-up animosity toward mining. Lithium mines are often met with protests — from Europe to America — resulting in postponed and canceled mines in the years leading up to the recent shortages and price increases.
Indeed, part of the problem is that new mines face severe opposition, often from the same people advocating for increased usage of battery technologies as a means of replacing fossil fuels — but who aren’t willing to mine for the required raw materials in their own neighborhoods.
As noted by a resident of Jadar Valley, near the recently canceled Jadar lithium mine project, “I want the western countries to have the green transition… [b]ut that doesn’t mean that we need to destroy our nature.”
Because you see, it’s OK to continue mining in Australia, Chile, China, Argentina, and Zimbabwe — the five leading producers of lithium in 2019. Only when mines are considered in America and European countries, which are often the strongest advocates in the world for wind, solar, and battery storage technologies, do concerns over destroying the environment come up.
Implications in Minnesota
Meanwhile, many utility companies — including Xcel Energy in Minnesota — and state lawmakers have staked the future of Minnesota’s electrical grid on a mixture of wind, solar, and battery storage.
Even under favorable cost assumptions, Xcel’s plan to build thousands of megawatts (MW) of new wind, solar, and battery storage capacity has been found to increase the cost of electricity by nearly $1,200 every single year for every Xcel customer.
The soaring cost of steel, copper, aluminum, and lithium prices will increase the cost of Xcel’s plans even further, which means ratepayers will end up paying even more.