The Pandemic May Break Value Chains, But Solar Energy Can Still Shine
COVID-19 has exposed the vulnerability of energy value chains but solar power could be an indigenous solution to keep the lights on during a crisis.
The outbreak of COVID-19 has impacted the life of hundreds of millions in many countries. It has also severely disrupted the value chains of global businesses. The renewable energy sector is not immune to the virus, and solar photovoltaic (PV) systems are particularly vulnerable.
The pandemic has exposed weaknesses in the solar energy value chain in Asia and the Pacific. But there are ways to strengthen it so the region’s low-carbon energy transition can continue.
Ever since the epidemic started, many solar PV developers in Asia and other parts of the world have experienced protracted delays in importing solar PV modules and other supplies. This was mainly caused by transport restrictions imposed by some countries as the virus spread.
The global solar PV value chain is particularly affected because manufacturing capacity is concentrated. According to International Renewable Energy Agency, 50 leading solar PV panel manufacturers maintain factories in 23 countries, with the People’s Republic of China, in 2018, accounting for about two-thirds of global production.
In 2019, the People’s Republic of China added 30 gigawatts (GWs) of solar capacity and exported 65 GWs of solar PV modules, while the rest of the world added about 90 (GWs) of solar PV capacity. COVID-19 has interrupted the growth of solar in some developing countries, where the implementation of solar projects has been affected because international experts and managers have been unable to report for work due to travel restrictions.
The current interruption is certainly short term until the time COVID-19 is finally brought under control. The world will remain upbeat about the long-term potential of the solar energy.
The long-term view is encouraging. The levelized cost of electricity for solar PV declined by 75.7% between 2010 and 2018, according to the International Renewable Energy Agency. In 2019, the trend of cost reduction continued with significantly lower bid prices in Uzbekistan, India, and Cambodia. These bid prices are significantly lower than the cost of electricity produced by coal-fired power plants. The agency is expecting that the cost of producing electricity from solar facilities will drop further in the years ahead.
As solar power becomes increasingly competitive, the world’s total solar capacity will continue to grow rapidly. Based on International Energy Agency’s (IEA) sustainable development scenario, global solar PV capacity will reach 4814 GWs in 2040 from 495 GWs in 2018, adding 196 GWs per year on average. In Asia and the Pacific, the yearly addition of solar PV will amount to 131 GWs on average during 2018-2040.
However, this scenario can only be met if developing countries fulfill two conditions, one on hardware and another on software.
First, on the hardware side, while developing countries are deploying solar energy as part of their low carbon transition strategy, they should also consider developing local manufacturing capacity and engaging with the solar PV industry value chain. The value chain involves extraction of raw silicon, production of silicon wafers and ingots, solar cells, PV modules, inverters, as well as mounting and tracking systems and electrical components.
Currently, many developing countries in Asia and the Pacific have very limited manufacturing capacity in the solar PV value chain. They are therefore dependent on imported solar modules and other equipment. Solar energy is a natural resource in every country. However, if solar PV equipment and parts have to be sourced abroad, the energy transition of these countries will be incomplete.
Secondly, in addition to manufacturing capacity, the solar value chain also involves technical services such as design, engineering, installation, and operations and maintenance. In this regard, a serious skills gap exists in many developing countries in Asia and the Pacific, making them dependent on foreign consultants and contractors to implement projects. Again, unless developing countries can design, install, operate, and maintain their own solar PV systems, their solar energy systems will not be sustainable.
As solar energy continues to grow, a momentum is slowly building for developing countries to consider PV manufacturing and supporting technical capacity.
Meanwhile, it is also in the interest of the People’s Republic of China and some major solar manufacturing countries to relocate part of their production capacity, given their surplus output, rising labor costs, and tensions owing to trade imbalances. The People’s Republic of China, with about 150 GWs of solar manufacturing capacity — an amount that is more than the current global demand — has already started to relocate some of this capacity in neighboring countries such as Viet Nam and India.
In India, The Energy Research Institute, an influential energy think tank, has recommended that the government develop 15 GWs of the full value chain at competitive prices by 2024.
Other developing countries should also consider similar strategies to join part of the solar PV value chain, at least to assemble solar modules, mounting structures, as well as operations and maintenance. If developing a domestic manufacturing industry for solar PV modules is hindered by a limited local market, several options can be explored. These options include forming a joint venture among neighboring countries that will put up sub-regional manufacturing hubs.
Developing a local solar PV value chain will also offer more job opportunities. Although Asia is already home to almost three million solar PV jobs, of which 2.3 million are in the PRC, other countries still have the potential to create much more jobs.
The COVID-19 outbreak has exposed the vulnerability of value chains. ADB can expand its support to members to play an active role in the solar PV value chain to build manufacturing capacity and human resources.
By doing this, solar energy will be a truly indigenous power source, enabling developing countries in Asia and the Pacific to become both producers and consumers of solar energy for a brighter future.