News
HOW TO STRIKE A BALANCE
ON FLEXIBLE PRICING
IN RENEWABLE ENERGY PROJECTS
By Megan Jarvis and Tyron Theessen , partners at Webber Wentzel
Volatile input costs pose a threat to the viability of developers of renewable energy projects , which may require offtakers to be more flexible in contract negotiations .
Soaring costs of commodities and energy have resulted in an unprecedented level of cost uncertainty in the inputs needed for developing renewable energy projects . Cost uncertainty is compounded by the logistical woes being faced by developers in South Africa and elsewhere . Even where component parts are available , they may not be at a cost that is recoverable in terms of the contracts in place with buyers or that is sustainable for suppliers .
According to the International Energy Agency ( IEA ), in its Renewable Energy Market Update 2022 released in May 2022 , prices of raw materials and freight costs for renewable energy projects have been rising since the beginning of 2021 . By March 2022 , it said : “ the price of PV-grade polysilicon more than quadrupled , steel increased by 50 %, copper rose by 70 %, aluminium doubled , and freight costs rose almost five-fold . The reversal of the long-term trend of decreasing costs is reflected in the higher prices of wind turbines and PV modules as manufacturers pass through increased equipment costs . Compared with 2020 , we estimate that the overall investment costs of new utility-scale PV and onshore wind plants are from 15 % to 25 % higher in 2022 .”
Other input costs , predominantly energy , have risen substantially because of the Russia / Ukraine conflict . For South African developers with renewable plants which rely on imported
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RACA Journal I October 2022 www . refrigerationandaircon . co . za