Surviving Another Ride on the Solar Coaster
The effects of mass isolation resulting from the COVID-19 pandemic have been far-reaching, causing a general downturn in the economy and adversely impacting almost all major industries. As the crisis continues, organizations begin to look toward the future, seeking out ways to continue operating and advancing in a world much different than before.
Such is the situation for the utility-scale solar industry. In the months preceding the outbreak of COVID-19, the utility-scale solar market was brimming with activity due to the ramping down of tax credits, which resulted in high demand for solar modules from those attempting to safe-harbor equipment. This activity strained the supply chain, driving up the cost of equipment, causing some to look at creative alternatives for equipment supply.
The disruption to the financial markets we are now seeing has had a trickle-down effect, causing delays for some solar projects. Some of these delayed projects had already allocated equipment — equipment that is now becoming available for deployment on other projects in 2020 and 2021. This reality has created new opportunities for developers and owners who can take advantage of the downturn to deploy this previously unavailable equipment on their own projects at a potential discount to what would have been realized before the COVID-19 pandemic.
But developing new projects requires funding — funding that could potentially come from the new infrastructure stimulus package being discussed on Capitol Hill. Renewables may or may not be included in the deal, but with so many other factors at play — such as tariffs, the development of the U.S. supply chain, and extension of the investment tax credit — navigating the waters to a successful solar project in a post-COVID-19 world is fast becoming more complex than ever.
Stimulating and incentivizing utility-scale solar projects has the potential to take many forms.
- Generation Side Stimulus
In this scenario, utilities and developers of solar projects could be offered stimulus funding to design and construct new sites. If funding is offered to utilities, a certain portion of the stimulus could be mandated toward renewable generation through a type of “green initiative.” While a scenario such as this is unlikely, this could be an option to help accelerate development of utility-self build solar projects.
Prior to the COVID-19 pandemic, there was a robust market for utilizing corporate-funded power purchase agreements to fuel development of solar projects. With many of these corporations now struggling and looking for stimulus packages to get their core business restarted, another route to incentivizing projects could come from tying those potential stimulus packages to the continued procurement of renewable energy from new utility-scale projects.
- Extension of the Solar Investment Tax Credit
Extending the existing investment tax credit (ITC) is another, and more likely, way the federal government could stimulate solar project growth. The ITC has proven to be an effective vehicle for spurring renewable development. An extension of the ITC would be a relatively simple and cost-effective affair, which could be implemented more swiftly than developing new incentives and navigating the approval process.
While the potential extension would be immediate, the benefit could be delayed. Without an incentive to capture the 2020 ITC before the step-down in 2021, some “shovel-ready” projects could see delays. In turn, an extension could result in additional project development and equipment safe harbor to capture the proposed extension.
- Increased Domestic Manufacturing
Tariffs placed by the current administration on solar equipment manufactured outside of the U.S. were intended to drive more manufacturing to the U.S. While tariffs aren’t directly related to any upcoming stimulus program, it is important to note that tariffs generally are intended to create manufacturing jobs in the U.S. Therefore, it is possible that a stimulus for the renewable energy sector could include funding earmarked to further develop solar module manufacturing in the U.S.
Hopefully, the current administration makes moves to stimulate equipment production at home versus penalizing imports as additional tariffs could have the adverse effect of making projects more expensive. While the May 1 executive order banning importation of transmission and electric generating equipment from a “foreign adversary” does not appear to apply to equipment for solar projects, it will be something worth paying attention to as the country starts to reopen for business.
Preparing for Tomorrow, Today
All these potential outcomes for stimulating utility-scale solar projects would give organizations, owners and developers more opportunities to pursue projects in a post-COVID-19 world. Those that can prepare and understand the lay of the land will be better positioned to take advantage of any stimulus funding that becomes available, or be positioned to capture any opportunity that has resulted from the overall slowdown created by COVID-19.
The future is widely unknown, but it will be filled with a labyrinth of such complexities. Preparing for these changes today could mean the difference between project success and failure.