Supply Chain Disruptions Hit by Ukraine Crisis Raise Solar and Wind Power Costs

Rising Production Costs of Eco-Friendly Equipment Raise Concerns Over 'Greenflation'

[Asia Economy Reporter Park Byung-hee] The Wall Street Journal (WSJ) reported on the 27th (local time) that the cost of producing eco-friendly energy such as solar and wind power is rising sharply due to Russia's invasion of Ukraine.

WSJ stated that as production costs increase, many eco-friendly energy projects are facing schedule disruptions, and in the short term, green policies of governments including the United States are also expected to be affected. It added that concerns about greenflation, a general rise in prices caused by increasing eco-friendly energy prices, are also growing.

According to Wood Mackenzie and the U.S. Solar Energy Industries Association, about one-third of solar projects in the U.S. that were scheduled to be completed by the end of last year have been delayed. Additionally, 13% of solar projects planned for completion this year have already been postponed or canceled.

Solar companies are struggling to proceed with projects due to soaring costs. The prices of raw materials such as aluminum have risen, increasing production costs for key eco-friendly equipment like solar panels and wind turbines, and rising oil prices have also pushed up transportation costs.

Over the past two years, costs have been rising due to the COVID-19 pandemic and supply chain disruptions, and the outbreak of war between Russia and Ukraine has further increased the risk of cost hikes. As a result, the long-term downward trend in eco-friendly energy prices has reversed to an upward trend.

According to LevelTen Energy, the cost of long-term purchase agreements for wind and solar energy began to rise in the second half of last year. As of the fourth quarter of last year, the purchase price of solar energy increased by 12.1% year-on-year, and wind energy prices rose by 19.2%.

In particular, concerns about cost increases are greater in the U.S. due to tariffs imposed on Chinese eco-friendly products. China is a major supplier of key eco-friendly equipment parts and solar cells to the U.S.

Dave Carroll, head of North American operations at French renewable energy company Engie, said that predicting renewable energy generation costs has become much more complicated than a year ago. He stated, "It is uncertain how the repercussions of rising raw material prices will conclude."

Denmark's wind power company Orsted mentioned that rising charter fees due to oil price increases are a concern. Because of their size, wind turbine blades can only be transported by ship. When maritime transport became difficult due to COVID-19, wind power companies were particularly hard hit. Recently, rising oil prices have increased charter fees, further burdening wind power companies.

However, Deepa Venkateswaran, senior analyst at Bernstein Research, said that the current issues are short-term and that the long-term outlook for the eco-friendly energy industry is bright. She said, "After Russia invaded Ukraine, the U.S. and European countries decided to reduce their reliance on Russian fossil fuels. As a result, long-term demand for eco-friendly energy will ultimately increase significantly."

Meanwhile, according to S&P estimates, the cost of producing 1 megawatt-hour (MWh) of electricity using solar power fell from $381 in 2010 to $45 last year. The cost of electricity production from wind power also decreased from $89 to $48 during the same period.

The share of eco-friendly energy in electricity production has also increased significantly. As of last year, wind and solar power accounted for 6.4% and 4% of total electricity production, respectively. Five years ago, these shares were 3.8% and 1.4%, increasing two to threefold.

This content was produced with the assistance of AI translation services.