Civil Engineering October 2022 | Vol 30 No 9

S oaring costs of commodities and energy have resulted in an unprec- edented level of cost uncertainty in the inputs needed for developing renew- able 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, “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 manufac- turers 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 war. For South African developers of renewable plants that rely on imported components, these cost increases will be magnified by the depreciation of the rand against the dollar, from ZAR15.95/USD in January to ZAR16.70/USD by mid-August – espe- cially where the power purchase arrange- ments are dominated in local currency. These cost increases have further compounded difficulties, initially arising Energy Megan Jarvis Partner Webber Wentzel megan.jarvis@webberwentzel.com Tyron Theessen Partner Webber Wentzel tyron.theessen@webberwentzel.com Flexible pricing in renewable energy projects: how to strike a balance 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. 44 October 2022  Civil Engineering