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How Metal Shortages are Impacting Renewable PPA Prices

Meghan McIntyre, Energy Analyst at Zeigo.
Meghan is an experienced energy analyst with an MSc in Sustainable Resources from UCL. Zeigo was acquired by Schneider Electric in January of 2022.

Governmental support for a transition to low-carbon solutions has resulted in substantial investment being directed towards the manufacturing and implementation of key technologies including wind turbines and solar PV panels.  Despite the imperative role these technologies have in reducing our emissions, solutions are needed to ensure the supply of the minerals required for their construction can meet demand. Currently, there are two identified processes to meet demand as renewable deployment continues: the mining of raw materials and the recycling of existing technologies.

Recycling is the preferable option for environmental reasons. However, in many regions there is an absence of facilities and existing components to recycle, making mining the most likely source of these minerals in the short-to-medium term.

Learn more about the benefits and challenges with the recyclability of renewables

Mining itself is not without its challenges. Many metals are sourced from regions characterized by governance shortfalls that make supply chain bottlenecks more likely. When supply cannot match rising demand, market dynamics push the price of these minerals and metals up, making end products more expensive. It is therefore likely that supply shortfalls will create a climate of high demand and high commodity prices which will eventually impact opportunities for energy buyers.

Forecasted bottlenecks in metal markets such as nickel and manganese are likely to impact PPA markets, as an increase in power prices has been shown to result in higher PPA prices – as is seen currently with current gas supply shortages increasing power prices. On the Zeigo Platform, as of August, the 2022 average UK offer price was 60% higher than the total 2021 average.  Assuming the market follows a similar price trend if metal market bottlenecks are realized, further upwards price pressure should be expected.

Therefore, corporates looking to secure renewable energy for their operations should prepare now by identifying goals and aligning stakeholders. This will enable you to act quickly once the market is aligned with organizational goals, as delaying engagement may see market conditions worsen in the short term.

While longer-term forecasts are inherently more unpredictable, the emerging impact of climate change on the production of key components in renewable technologies is an important area for consideration. Recent weather events in China combined with water scarcity is a key example here. As the country is enduring the most extreme heatwave since records began, the government has prioritized water and energy for residential purposes, limiting manufacturing output potential due to the water and energy intensity of these processes. As the effects of climate change become more widespread, the manufacturing of renewable technologies is likely to be hit with significant supply chain disruption. Considering this, organizational strategy should consider the longer-term impacts of this predicted disruption on the market and hence PPA prices.

Considering this, how should energy buyers act now? Although hesitancy about entering a long-term agreement during a period of unprecedented instability is understandable, and appropriate, analysis suggests that buyers are unlikely to be disadvantaged by current PPA offer prices compared to the market in the coming decade.

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