An increase in shipping times and freight rates due to violence in the Red Sea may have implications for renewables and solar products destined for Europe and the United States.
According to information released (Feb. 1) through the U. S. Energy Information Administration (EIA), the U. S. Department of Energy and Energy has announced that the U. S. Department of Energy has been released on February 1. In the U. S. , many ships carrying oil and fuel are taking longer east-west directions to avoid the Red Sea, particularly extending their travel times. For example, as shown in As shown in the table below, a direction from Rotterdam to the Middle East via the Suez Canal (and then the Red Sea) takes approximately 19 days. The chosen direction, past the Cape of Good Hope at the southern tip of Africa, takes 34 days.
In addition, the EIA said that in recent months, shipments to and from the U. S. have been increasing their yields. UU. se have been forced to head east (via the Red Sea) and not west through the Panama Canal due to drought in the latter country and water conservation efforts that have limited movement. . .
These longer routes have driven up fuel prices and shipping fees. For context, the EIA reported that a very large fuel carrier (VLGC) consumes between $30,000 and $35,000 worth of fuel per day, at average 2023 prices.
Houthi rebels based in Yemen have been attacking ships in the Red Sea since November. The group initially said it was targeting vessels with connection to Israel, in response to the Israel-Hamas conflict in Gaza, but have more recently struck ships linked with US and UK interests after the powers began air strikes against Houthi positions to protect commercial shipping.
The violence has led shipping companies to seek alternative routes.
These considerations can only be applied to the renewable and solar energy supply chain.
China’s dominance in the production of polysilicon, solar components, and critical minerals is strong and is expected to remain so for the foreseeable future. The market dynamics in the solar industry, which has led to a large expansion of production capacity in China and a traditionally low module. Costs (and made it very difficult to manufacture abroad from China and Southeast Asia) make the sector vulnerable to disruption.
A blog post on our sister site, Current±, raises the option that tensions in the Red Sea may simply cause a new energy crisis. The article quotes Chinese lithium-ion battery manufacturer Ace Battery, stating, “Ace Battery says choice in the African direction nearly triples the price of transporting boxes from China to Rotterdam. “
US solar tracker producer Nextracker referenced the ongoing situation in its Q3 FY24 earnings call, indicating the pressures that ongoing tensions could put on the whole solar value chain. Howard Wenger, president at Nextracker said: “While we don’t see a material impact today, we are closely monitoring the situation and we continue to make the adjustments needed to minimise the impact to our customers.”
This is because the costs of the solar source chain have not yet been particularly affected. The sector has been experiencing low module costs for months, a scenario that has favored some developers but has led to situations of deep demands for parts of the production sector. especially in Europe.
Once again, the scenario highlights calls from industry associations, industry players, and political teams for a more varied local supply chain.
In addition to the current angst in the European production sector and the ESMC’s recent attempts to bring it to life (which you can read about here), an organization of U. S. senators has been pressuring the Biden administration to draw up price lists for Chinese sol imports to the U. S. U. S. Electrical Safety. The U. S. already has a broad set of tax incentives for blank power generation under the Inflation Reduction Act (IRA), which solar industry advocates like the Solar Energy Industries Association (SEIA) say deserves to be the precedent for security of supply in the U. S. instead of punitive measures.
In its Solar PV Global Supply Chains report, the International Energy Agency (IEA) cites the impact that seismic global events like the COVID-19 pandemic and the Russian invasion of Ukraine have had in sharpening focus on global energy supply chains. An ongoing or worsening situation in the Red Sea could lead to similar considerations, though the solution to such an issue – namely the expansion of manufacturing capacity elsewhere – is easier (and quicker) said than done.
Prices and supply are yet to be significantly affected and any concrete impacts are, at this point, theoretical. Either way, a continuation or escalation of tensions in the Red Sea is something to which solar importers will need to pay close attention.
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