The US installed 5.4GW of solar power plant on a direct-current basis to set a third quarter record but escalating supply chain constraints and costs across all market segments will depress installations by 25% over the next 12 months, according to the Solar Energy Industries Association (SEIA).
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New capacity was 33% above a year earlier when the industry began recovering from Covid-19 dislocations that most affected residential as well as utility PV, the main drivers of solar growth in the country.
The US installed 15.7GW through three quarters, “on pace to easily exceed 20GW” this year, which would surpass the record 19.2GW in 2019, wrote the authors of US Solar Market Insight, jointly released by SEIA and research group Wood Mackenzie.
During this period, solar accounted for 54% of all new electricity generating capacity versus 44% for calendar year 2020, followed by wind (35%), natural gas (10%) and other technologies (1%).
“The US solar market has never experienced this many opposing dynamics,” said Michelle Davis, lead author and principal solar analyst at WoodMac. “On the one hand, supply chain constraints continue to escalate, putting gigawatts of projects at risk.”
“On the other, the Build Back Better Act would be a major market stimulant for this industry, establishing long-term certainty of continued growth,” she added.
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The report cites solar industry veterans asserting that equipment procurement and pricing for projects currently under development are “by far the most challenging they’ve ever experienced”, as US inflation in November rose 6.8% from the same month a year ago, the fastest pace in 39 years.
The industry’s long-running overreliance on component imports from Asia has been fully laid bare this year. Utility PV is suffering most as only 20% of modules used in projects are manufactured in the US. This segment accounted for 64% of third quarter installations.
“I can verify that it is not only us, but other developers have numerous projects out there that have racking in place with no solar panels that are sitting on top,” Art Fletcher, executive vice president construction and head of procurement at Invenergy, a leading US solar and wind developer, stated at American Cleanpower’s annual conference last week.
“Supply chain issues extend from one end of the portfolio to the other,” he said, noting that Invenergy is creating more jobs than at any time in its history given strong demand for clean energy. “It becomes a challenge. It has strained our resources to a whole new level than what we have seen in the past.”
To get panels from Asian points of origin to job sites, developers must run a gauntlet of obstacles and are paying three or four times as much in shipping costs versus 2019 before the pandemic.
These include the worst congestion in years at major US ports handling containers. Those at Long Beach and Los Angeles, the nation’s busiest and key entry points for solar components, have as many as 30 container ships within sight waiting weeks for berths to unload and 50 or more in the queue further out in the Pacific Ocean.
Once unloaded, shipping containers are sitting in nearby holding areas sometimes for additional weeks due to railroad congestion, and shortages of trucking equipment and workers. This slowdown in handling is causing bottlenecks throughout the US logistics chain. When they eventually arrive at crowded inland distribution hubs, additional handling delays are likely before delivery to final destinations.
Trade issues add to supply woes
Trade-related issues are also making the supply situation worse. US Customs and Border Protection is detaining modules suspected of having polysilicon processed from metallurgical silicon made by Hoshine Silicon Industry and its subsidiaries, who allegedly are using forced labour against Muslim minority groups in China’s Xinjing Uyghur Autonomous Region.
While the agency’s Withhold Release Order (WRO) allows importers to demonstrate that the polysilicon in their products came from outside of Xinjing, project developers say the review process is cumbersome and decisions are taking too long to render.
“The stuff is just sitting there when some of these importers in good faith feel that they have met the threshold. We need to do better there. We need to get that stuff moving,” Ray Long, senior vice president of policy and external affairs at Clearway Energy, told the conference.
“We know in 2022 with all the projects being built that if things stay the way they are, panels will not make to those projects on time and they will be delayed substantially,” he added. Clearway has more than a 17GW solar, wind and battery storage pipeline.
The industry has been using more components from Malaysia, Thailand, and Vietnam in lieu of those from China which face US anti-dumping and countervailing duties (which have been stepping down) imposed by former President Donald Trump. SEIA and developers oppose them as they raise solar costs and have largely failed to encourage more domestic production.
The Department of Commerce last month dismissed petitions from an anonymous group of solar manufacturers here who alleged that Chinese panel producers were circumventing those duties by finishing processing in a minor capacity in the southeast Asia nations.
While the ruling was good news for developers here, “the threat of the petitions stalled shipments of equipment from those countries due to the unbounded risk, further exacerbating supply chain constraints,” wrote the authors of US Solar Market Insight.
The threat of a favourable ruling on the petitions also led some suppliers there to shelve plans to expand manufacturing capacity.
Upside from Build Back Better
The $2trn Build Back Better Act in the Senate, which passed the House of Representatives last month, presents significant upside for long-term solar growth, according to the report. It includes about $555bn in clean energy funding over 10 years,
The House version includes extensions and changes to clean energy tax credits such as allowing project sponsors to elect direct payment of them, depending on whether a project meets domestic content and union labour requirements.
WoodMac estimates extension of the federal investment tax credit (ITC) would result in an additional 43.5GW of solar capacity from 2022 to 2026, most of which would come from utility solar.
While utility-scale projects will face supply chain constraints in the near-term, an ITC extension would continue the segment’s economic competitiveness, and partially compensate for price increases resulting from them, according to the report.
It noted that solar would also be eligible for the production tax credit (PTC), now used by onshore wind projects, “which can be a richer incentive than the ITC for project with particularly high capacity factors.”
Utility solar which factors large in President Joe Biden’s energy transition plans through 2035, his target for achieving a carbon-free electric grid. The White House considers PV the cheapest source of clean energy that could provide at least 37% of the nation’s electricity within 15 years versus 3.5% today.
The report cautioned that more than tax credits will be necessary to help achieve Biden’s goals of an 80% clean grid by 2030 and US economy-wide net-zero carbon by 2050.
It cites transmission and distribution constraints that are an “increasingly stubborn challenge” for solar projects across all segments (the others are community PV and residential PV).
“While an ITC extension can help developers pay for interconnection upgrade costs, increased grid hosting capacity and improved grid integration are still desperately needed,” said the authors. “Fortunately, the bill also contains provisions to incentivise transmission buildout.”
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