City Electric Supply on renewable energy & COVID-19
The massive, two-decade-long growth behind renewable energy looks to level off in 2020 due to the COVID-19 pandemic, but that doesn’t mean it’s going to be flat for long. Here’s what we know.
In mid-January, the Energy Information Administration (EIA) forecasted an addition of 13.5 GW to the total solar capacity in the U.S., almost doubling the previous single year high in 2016 of 8 GW. Projects in Texas, California, Florida, and South Carolina made up more than half of utility-scale solar capacity additions. Residential and commercial renewable projects were also set to see new highs with more affordable, more efficient solar PV and rooftop systems hitting the market. All of these predictions, despite inaccurate in 20/20 hindsight, is actually good news. The strong outlook at the beginning of the year is a remarkable indicator that renewable energy is growing in the U.S., which shouldn’t come as a surprise. Will we see this much renewable expansion in 2020? Probably not.
But let’s face it. This is an unprecedented time.
As the COVID-19 pandemic continues to run its course, its true effect on the globe has not yet been realized. There are still too many variables to say for certain how long the pandemic will last. But, when it comes to the future of renewable energy, it doesn’t look as though it will be impacted too negatively during such a critical moment in our history. Much like the initial 2020 outlook by the EIA, it doesn’t look bad. Here’s what has happened so far, and what we might expect in the coming months.
Delayed until further notice
As the U.S. ramps up its preventive measures, most construction starts have been paused indefinitely. Among them, many renewable energy developments. Although 2020 was thought to be a booming year for renewable energy, the recent outbreak is infecting the energy industry with uncertain skepticism.
Robbie McNamara, the National Renewable Business Development Manager at City Electric Supply, said, “People in the industry are exercising caution right now. Investors are holding onto cash, projects are being delayed, and that’s having a ripple effect all the way down to the subcontractors.”
Disrupted supply chains, paused procurement phases, halted production, delayed projects, the list goes on — and for good reason. If this is not taken seriously, millions of people could be affected by this outbreak. Delaying these projects is a healthier tradeoff. But what does this mean in the long term?
“Although renewables are seeing a lot of delays right now, there’s still contracted work to be completed,” said McNamara. “As soon as it’s reasonably possible, the industry will pick back up right where it left off and keep moving forward. Many companies are mindful of tax credits that are set to reduce at year-end. No one can say for certain if the ITC will get an extension at the higher rate through year-end, so, when work can resume normally, we’ll probably see a big push to get these projects completed.”
McNamara brings up a good point. With these delays, some renewable projects may not reach completion until 2021, which threatens their eligibility for the Investment Tax Credit (ITC) for solar and Production Tax Credit (PTC) for wind. Even though these federal tax credits have not been extended in the latest $2 trillion aid package, this may change in the coming months as solar and wind advocates lobby for extension. But at a time like this, most are erring on the side of caution.
According to Wood Mackenzie Power & Renewables, the U.S. was predicted to install nearly 20 GW of renewable energy, which would make up an annual growth rate of 47% this year alone. Although it’s safe to say that these predictions are now off-track, COVID-19 shouldn’t influence the trajectory of renewable energy over a longer time span.
Whether or not completed projects will qualify for the federal tax credits remain to be seen.
COVID-19, although a very serious pandemic that should receive attention to slow its progression around the world, won’t bring an end to renewable energy.
Even though this pandemic will undoubtedly influence the market, and the 100% clean energy goals of many countries in the immediate future, demand for renewable is still up.
Investors and banks still see renewable energy as a AAA investment.
Clean energy goals are still in place.
This doesn’t change the inevitable that more companies, more countries, and more consumers support renewable energy as a primary source of new energy generation.
And with all of this in mind, developers in the utility and commercial markets see the writing on the wall. Right now, they’re locking prices in for future projects at very low interest rates. Despite the uncertainty of when new construction in the renewable industry will resume, renewable projects should pick up again later this year or in the year to come.
Colin Smith, a senior analyst at Wood Mackenzie, said, “Even going into a pandemic, the market is well-positioned.”
His cause for optimism isn’t misplaced. There’s over 30.4 GW of new solar already contracted. Whether the delays will last a few weeks or a few months, the demand for renewable is still driving the market.
Sourcing renewable materials
Countries like the U.S. and Australia source a lot of renewable components and raw materials from China. Even though the United States started to procure panels from other countries across Asia such as South Korea and Vietnam in 2012 due to tariffs, the process has been slow moving. And, according to GlobalData Energy, even solar manufacturing plants located outside of China are dependent on Chinese imports for raw materials such as aluminum framing and solar PV glass.
As China slowly brings back production and manufacturing in a limited capacity, prices for renewable materials and components are expected to increase before ultimately declining again by the year’s end.
To better handle any bottlenecks or slowdowns in the supply chain, developers, EPCs, and sub-contractors are requesting long lead time orders or asking to delay current projects if they haven’t been already. Not knowing if they’ll be on-site to take receipt for delivered material or even to install material is contributing to delayed project schedules and shipments.
One benefit of the disrupted supply chain is that it forces the renewable industry’s hand at seeking a more diversified supply chain. Alternative energy sources could bring future stabilization to such critical renewable energy technologies, meaning more independence and more competitive prices.
The uncertain hand of the market
Material deliveries. Install delays. Labor shortages. COVID-19 affects every aspect of renewable energy from the supply chain down to the installers. However, corporate demand coming out of the quarantine will provide more immediate certainty about where the renewable market is headed.
It’s not a surprise that investors in the renewable market are holding cash on hand to weather this current crisis. Given all the global uncertainty, this is causing a downstream cash flow issue for subcontractors who rely on these investments to support their business.
McNamara notes that despite the uncertainty at this time, there are no other long-term solutions on the market that can generate new energy as cheap and as clean as renewable energy.
“As long as capital can be secured for future projects and the interest rates remain at these incredible lows to promote price-locking, it’s not a matter of if renewable energy construction will rebound but of when,” McNamara said. “It may be faster than most expect.”
Renewable Energy Buyers Alliance (REBA) announced in February that 9.33 GW of renewable energy deals has already been signed by large energy buyers. With tech companies such as Facebook, Google, AT&T, and Microsoft coming at the top of the list, their interest in achieving a zero-carbon energy future will be best served by bringing these projects to completion quickly.
Manufacturers focus on supporting hospitals and other essential businesses
With the increased demand for PPE gear and medical equipment for hospitals, medical professionals, and janitorial staff, manufacturers are focusing on the immediate needs of our healthcare industry. This includes major automotive manufacturers such as GM, Ford, and Tesla. At the moment, delaying production of non-essential products in favor of face shields, respirators, and ventilators are clearly a much more critical issue at hand. To see such collective support rallying around the healthcare industry is inspiring, but hopefully it leads to a faster recovery as well.
Residential contractors see rise in cancellations
Because of the contagious nature of COVID-19, homeowners are cancelling or postponing their current solar installations until quarantine orders are lifted. Although the Solar Energy Industries Association (SEIA) considers solar to fall under the category of essential business, it’s much harder for a residential contractor to observe social distancing mandates as opposed to those who work on large, several-hundred-acre utility-scale solar farms.
Additionally, many inspection agencies haven’t been able to operate due to government-mandated shutdowns — no permits and no inspections means no project completions. However, the SEIA is trying to approach this historic moment with innovation in mind. Some jurisdictions are accepting inspections virtually, and the SEIA is currently advocating for a one-page permit application to simplify the approval process.
However, the SEIA isn’t the only one coming up with temporary solutions.Without any homeowner contact, contractors are able to continue working on any jobs that are exterior only. Any jobs that require zero inside access and interconnections are still moving forward and may help small residential installers stay in business during any potential slowdowns on the horizon.
As many Americans and companies work from home as a precaution, “remote selling” is becoming an innovative solution during this shutdown as well. Whether the selling takes place in Zoom, Microsoft Teams, Skype, or FaceTime, leaders in the renewable market are still able to educate potential consumers on the benefits of renewable energy and use the low interest rates as a way to lock them into quotes now and get them installed with solar panels later.
Thanks to remote selling and homeowners’ longer availability at home to focus on these investments, consumer interest could actually prove to be an important windfall for renewable energy in 2020.
It pays to be prepared
Installing solar panels goes further than just helping the environment or lowering utility bills. With such a heavy reliance on the grid, American homeowners are considering solar as a way to gain independence from our energy infrastructure. Even though essential workers are still performing critical maintenance services and our grid continues to operate well, this pandemic and overall uncertainty still weighs on the mind of the average homeowner and may make them more prone to invest in solar in the coming year.