Supply chain availability a bigger snag than cost for renewable growth

Renewable development supply chain challenges are more related to material, component, and installation equipment availability than about cost, experts said during a panel discussion March 10.

“I think in 2022 things that have the potential to slow down are less related to price and more about the availability of product,” said J.C. Sandberg, chief advocacy officer at American Clean Power, during a panel discussion called “Solar and Wind Supply Chain Disruptions: Increasing Costs?”

Nevertheless, the increased costs of components are likely to be reflected in higher power purchase agreement values for renewable projects, said Steve Ryder, CFO of Clearway Energy Group.

Nickel and copper costs, as well as transportation costs, are up, Ryder said.

“I think we’ve already seen some fairly high-cost inflation,” Ryder said, adding that PPAs currently cost about $20/MWh. “You may see some modest increases to that. … I don’t think you are going to see radical change. … I think you are going to see projects slated to come online for 2022 slip to 2023 and maybe 2023 [projects] slip to 2024.”

But these increases are not prompting existing projects’ off-takers to pull out.

“If you are in the [generation interconnection] queue, you are going to fight to the death to stay in the queue,” Sandberg said.

Chinese component delays
Renewable components from China face significant importation restrictions and delays, Sandberg said, because of the federal policy of ensuring such materials have no components provided by forced labor. Once all of the relevant paperwork has been submitted to US Customs officials, investigations typically take three months, which must be done for each shipment, Sandberg said. American Clean Power has recommended that once a source has been certified as not using forced labor, it should not go through this process.

Tariffs on renewable materials from China “have had a real impact on the profitability of [original equipment manufacturers] in the US,” said Abby Watson, senior executive for new markets strategy, North America offshore, at Mainstream Renewable Power.

“The short-term challenges we’re seeing right now for OEMs can have a long-term impact on their ability to establish more capacity supply in the US,” Watson said. “The last couple of years have been really tough for wind turbine OEMs. … They’re really struggling to be profitable right now.”

Watson noted that margins were already tight and made tighter by the coronavirus pandemic, which may cause OEMs to slow their improvement in technologies, which Sandberg said have produced “step changes” of improved efficiency every two years or so.

“Given the size and scope of offshore equipment, I don’t know that that will work,” Sandberg said.

Another issue in the supply chain is transportation, such as vessels for the installation of offshore wind projects, Watson said.

“There’s a global fleet of installation vessels,” Watson said. “Those vessels are going to be very, very busy.”
However, all of those vessels are flagged by foreign countries, Watson said, and under the federal Jones Act, only US vessels can depart and return to US ports without having to make port at a foreign port in between.

A US vessel is under construction, and some are considering repurposing the US fleet that now serves offshore oil and gas facilities to work on offshore wind projects, Watson said.

‘A flurry of activity’
Watson said, however, that the existing installation fleet’s usefulness may be limited, as offshore wind components “are getting bigger.”

“You’re going to see quite a flurry of activity 2023 through 2025,” Watson said, adding that the energy shocks from the Russia-Ukraine conflict are “strengthening the resolve for energy independence.”

Leaders in coastal states, such as Virginia, New York, and Rhode Island, have advocated for establishing offshore wind equipment hubs in their own facilities, “which is a real challenge for the supply chain,” Watson said. Developing such capacity on a regional — i.e., multistate — basis makes more sense at the scales required for gigawatt-scale offshore projects.

American Clean Power’s Sandberg said, “everybody has wanted a factory because everybody wants a ribbon-cutting, especially politicians.”

Clearway Energy’s Ryder said, “not having a long-term federal policy is a big issue.” If the federal government had a 10-year commitment to the effort, companies “are going to build a factory in the US.”
Source: Platts