Report: Falling costs of clean tech commodities offset by high inflation rates in 2023

Clean tech commodity prices are falling fast as global production capabilities improve and supply chain disruptions slow — which could mean decreasing costs of solar and battery deployment. 

But all is not as bright as it seems. According to a new report from BloombergNEF, high inflation rates and volatile steel prices are countervailing factors for the industry, and especially for the already-struggling wind sector.

• The top line: In 2023, prices for key materials used in photovoltaic solar and lithium ion batteries returned to around early-2020 levels, BNEF’s annual Factbook report found. However, interest rates are currently 3.3 times higher than they were four years ago — and have inflated the levelized cost of energy for renewable energy, inhibiting deployment and new investment.   
• The market grounding: High material prices have plagued the clean energy industry since the start of the pandemic and were exacerbated by supply chain disruptions and geopolitical conflicts like the Russia-Ukraine war. But last year represented a real inflection point.‍
• The current take: “At the start of 2023, things were looking very, very bad” for commodity prices, said Tom Rowland-Rees, BloombergNEF’s North America head of research, at a press conference about the report. But, he added, by the end of the year costs for solar and battery components came down tremendously.

After climbing to between 10 and 14 times their pre-pandemic levels in 2022, prices for lithium carbonate and lithium hydroxide — both integral components of lithium-ion batteries —toppled last year. The materials are now trading at approximately double pre-pandemic rates.

Lithium carbonate serves as the first-step material that is ultimately transformed into the cathode and the electrolyte that shifts ions between the cathode and anode. Lithium hydroxide, meanwhile, increases battery performance and is particularly valuable for extending the range of electric vehicle batteries. 

Several factors came together to cause the cost of the compounds to ease. For instance, global mining and processing capacity have grown — global lithium production grew 31.3% in 2023 compared to 2022 — while EV demand has been slower than anticipated. 

(The U.S. EV market still grew 50% year-over-year in 2023, though, so, reliable access to the compounds going forward will be crucial.)

Prices of polysilicon — a key component of solar cells, particularly those used in utility-scale solar projects — also declined steadily over the first half of 2023, as the market reached oversupply from more and more factories coming online. 

Even so, the overall LCOE for fixed-axis PV solar rose to $63 per megawatt-hour, a 27% increase that couldn’t fully be offset by tax credits. High material costs and interest rates were the main culprits: at the end of 2023, federal target interest rates remained at 5.33% compared to the more moderate 1.55% of early 2020.  

Compared to oil and gas projects, where much of the production cost lies in the fuel itself, BNEF’s Rowland-Rees added, renewable energy projects are capex heavy, meaning that they have more long-term costs than day-to-day expenses. Rising project financing costs from high interest rates have eaten into some of the relief brought by falling critical material costs. 

Meanwhile, the steel market was volatile across the board in 2023. As steel makes up a significant material cost for wind energy, those fluctuations have made the sector’s rocky year even rockier. They drove wind’s LCOE up by 20%, to $52 per MWh, according to the report. New build in 2023 hit a record low since 2015. While solar production was also impacted, steel makes up a smaller portion of its material cost than for wind.

International shipping costs also fell back to pre-pandemic levels following 2021 spikes.