"While it puts manufacturers under pressure, the fall in costs benefits project developers, electricity producers and suppliers, as well as consumers," explains Christian Rom, manager at DNB Asset Management.
The deployment of renewable energy could continue at a sustained pace, even as manufacturers face strong price pressure and see their margins erode. This is already the case in solar: the drop in module prices boosts installations but weighs on manufacturers’ bottom lines.
The International Energy Agency predicts that nearly 4,600 gigawatts of new renewable capacity will be installed between 2025 and 2030, about 80% of which will be solar. At the same time, solar panel manufacturers are seeing their margins squeezed by an oversupply. According to the IEA, those of the main producers are about 10% lower on average.
This situation shows that the growth of a technology does not necessarily translate into value creation for certain industries and their shareholders. For revenue growth to eventually lead to an increase in earnings per share, companies must indeed have sustainable competitive advantages.
The decline in the cost of solar modules and batteries should primarily benefit renewable energy project developers as well as independent power producers who have a strong project portfolio and benefit from favorable financing conditions.
Potential beneficiaries include electricity suppliers that develop new generation capacity, data centers, industrial companies seeking cheaper electricity, operators and integrators of storage solutions, providers of solutions for power grids and flexibility, and, ultimately, electricity consumers. The share of these savings passed on to them will, however, depend on the organization of the electricity market and the level of network costs.
Conversely, undifferentiated solar panel manufacturers, battery cell producers without cost advantages, and suppliers whose products quickly become interchangeable are likely to be penalized. The risk of overinvestment and overcapacity is particularly high in the solar panel industry, especially in China.
Chinese supply chains in clean technologies illustrate both sides of this development. Their scale helps reduce costs for project developers and consumers. But their high concentration increases risks related to trade tensions and dependence on these supply chains. It also heightens price pressure and the risk of overcapacity.
The decline in the cost of clean technologies therefore accelerates the energy transition, but it does not benefit all players equally. For investors, the challenge will be to distinguish companies able to turn this growth into sustainable profits from those that price pressure weakens.
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