From trend to transformation
Jason Smith, sustainable supply and value chain expert at PA Consulting, discusses the solar recycling and supply chain issues.
The article notes that there are three main drivers behind the continuing growth of solar today: the economics of energy, the energy crisis driven by the war in Ukraine, and a growing global focus on green and net zero initiatives. What matters is that these three drivers change the dynamics of investment – there is a growing body of capital looking to align with low-carbon, net-zero initiatives. Yet as the debate rages about operational versus overall sustainability, what is the future of solar for ESG finance?
This August saw ratings giant Moody’s predict that the issue of green, social, sustainability, and sustainability linked (GSSS) bonds will reach $1 trillion in 2022. Bloomberg Intelligence has predicted that global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of all assets under management. When a third of the world’s investments are ESG, or Environmental, Social, and Governance, that’s no longer a trend but a transformation.
For companies that create a product that is already aligned with that direction of travel, such as solar creating a product for low carbon power generation, that seems a perfect match. What we’re beginning to see, however, is a shift towards where operational sustainability is becoming a must have, no matter the product.
Solar is massively appealing as a net zero product, one which generates low carbon power. According to the International Energy Agency’s (IEA’s) recent report on supply chains, domestically produced solar modules, including polysilicon, ingots, wafers, cells, and module assembly, need to operate for just three to five months before they’ve generated enough clean power to cover their manufacturing-related emissions. They are now also lower in price than most alternatives.
Offering a low carbon power generation solution at a low cost may make solar an obvious match for ESG funds. Increasingly, however, the sector is being asked how to address concerns about toxic pollution in production, resource management, slavery in the supply chain, and more.
There are huge opportunities for the solar sector. The demand and scale required in the sector is immense, with expectations that it will provide over 16% of global electricity by 2050. That means demand for chemical elements such as gallium and indium, and metals like silver and copper. Reliance on products, such as aluminum, that are carbon intensive in manufacture, further mean other sectors must decarbonize to lower emissions for solar. All of this will drive demand for new materials and new technologies, as well as innovative ways of using solar.
In terms of increasing land use challenges, new approaches are already in play which are driving market growth and can be used to argue ESG benefit. The EU has projected that 25% of the region’s electricity needs could be met through rooftop solar alone. Floating PV (FPV) symbiotically combines power generation with the shade for bodies of water, limiting evaporation. Meanwhile, bifacial modules are helping drive agri-PV, adding biodiversity and nature protection benefits through shade, cutting water use, as well as protecting crops and livestock from inclement weather.
Recycling is also going to play an important role in meeting demand. Worldwide, the recycling of materials is low. This is compounded by a lack of financial incentives to activate recycling measures. Yet a supportive regulatory framework could transform this, allowing the solar sector to make the most efficient and effective use of depleting resources.
Certainly in the US and Canada there is increasing focus on recycling. Jason says “they’re looking at individual component parts and processes, probably 10% of the market moving forward that can be reused. The challenge is that the PV supply chain is quite complex, involving silicon, copper, glass, and other materials. Recovery is labor intensive.”
There are inevitably going to be trade-offs for ESG and sustainability investors in terms of balancing supply chain concerns with the emissions reduction solar offers. To make such trade-offs there needs to be far greater understanding of, and transparency around, what is going on across the sector. That means traceability is going to be critical moving forward. This is an increasing demand across many sectors as buyers want to know what they’re getting.
While there are ratings for the solar sector, there are also many challenges in the ESG landscape due to the number of differing frameworks that are applicable and a lack of standardized reporting requirements.
As the EU sustainability framework comes into play, that single legislative framework will help cut through some of the noise. Jason believes we are facing a massive change in supply and manufacturing, and the solar sector needs to start implementing ESG factors into the supply chain if it wants to be able to access the billions in available capital to fund that shift.