Global solar PV costs will continue to decline in 2021 as supply chain challenges and rising commodity prices have yet to fully impact project costs.

That's the conclusion of a new report from the International Renewable Energy Agency (IRENA). The report shows that the global weighted average levelized cost of electricity (LCOE) of new large-scale ground-mounted PV projects commissioned in 2021 fell by 13% year-on-year to US$0.048/kWh.

According to the report, the rapid decline in total installed cost, the increase in capacity factor, and the decline in operation and maintenance costs have driven the cost of solar energy power generation to decline significantly, and economic competitiveness has continued to improve.

However, solar panel prices climbed in 2021 after a decade of steady declines due to rising material costs and insufficient supply due to supply chain disruptions. According to the report, crystalline silicon PV module prices in Europe will increase by 4-7% in 2021 compared to 2020.

A systemic factor for this increase is the rise in polysilicon prices. Polysilicon prices have jumped sharply in recent weeks.

Not all material cost increases translate into equipment prices and project costs, IRENA said. Average solar panels prices could be a fifth higher than in 2020, given material prices and other supply chain pressures for the rest of the year.

Despite current supply chain issues, solar and wind projects have relatively short lead times, IRENA said. Solar and wind projects are a "critical link" in countries' efforts to rapidly reduce and eventually phase out fossil fuel use, limit the macroeconomic disruption of fossil fuels, and achieve net-zero emissions.

Francesco La Camera, Director General of IRENA, said: "2022 is a stark example of the economic viability of new renewable energy generation. Renewable energy frees economies from the price volatility of fossil fuels and imports. , restraining energy costs and increasing market resilience. This is especially true if today's energy crisis continues."

High coal and fossil natural gas prices in 2021 and 2022 will also severely reduce the competitiveness of fossil fuels, making solar and wind more attractive, the study found.

On average, the fuel and CO2 costs of existing gas-fired power plants in Europe in 2022 are four to six times the life-cycle cost of new solar PV and onshore wind projects commissioned in 2021.

A report by energy giant bp earlier this year predicted that the global LCOE of solar energy could fall by 55% by 2030.