2 trends are hurting solar companies – and Biden’s big energy goals

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The Biden administration is relying heavily on solar power to generate a much larger share of US electricity in the years to come. The energy department published a study this week this says that up to 40% of America’s electricity could be produced by solar energy in 2035 and 45% by 2050. This would force the United States to quadruple its annual growth in solar capacity in the years to come. . Today, less than 4% of electricity in the United States is produced using solar energy.

The study is not official U.S. policy at this point, but it highlights the administration’s ambitions for the industry.

To get there, the United States will need to overcome hurdles that now threaten to derail solar growth and appear to weigh on industry stocks. After some of the stocks doubled and tripled in 2020, they have stagnated or even declined this year.


Sunrun

(ticker: RUN), the leading residential solar developer and installer, has fallen 33% this year.


First solar

(FSLR), the largest solar power maker in the United States, rose only 3.5%.

The most pressing of these issues is a supply chain issue. The prices of raw materials that go into solar panels, such as steel and polysilicon, have skyrocketed this year. And solar panels are not immune to the other disruptions that have hampered supply chains around the world this year, such as high freight costs and a lack of available container ships.

Global solar panel prices have risen 16% this year from last year’s levels, according to Rystad Energy. The price of mono-polysilicon, the key ingredient in panels, is expected to average $ 18 per kilogram this year, up from $ 9 last year and $ 7.60 in 2019, according to Rystad Energy.

The Paris agreement aims to keep temperature increases at 1.5 degrees Celsius, but to achieve this, the industry will need to get these supply chain issues under control. The United States has already increased its solar capacity at a rapid rate. In 2015, 7.5 gigawatts of capacity were added. This year, energy research and consulting firm Wood Mackenzie predicts the country will add 26 gigawatts. However, it will need to grow a bit more to slow the pace of climate change, according to Dr Xiaojing Sun, solar manager at Wood Mackenzie.

In an interview, Sun said the United States would need to add around 80 gigawatts of solar capacity by the end of 2030 to meet the Paris targets. “It’s a tall order,” she said.

Sun believes the solar supply chain presents a big challenge. Former President Trump and President Biden both tried to revive the industry, and production of solar panels in the United States has tripled since 2018. But the vast majority of panels are still made in Southeast Asia, and the United States is therefore beholden to this supply chain. Additionally, US tariffs have made foreign panels more expensive, and some companies are pushing to expand and expand them – charging up to 200% of the cost of the panel in some cases.

“If that happened, it would effectively reduce 75 to 80 percent of module imports into this country,” Sun said. “It’s no exaggeration to say it’s going to be devastating.”

Tariffs could presumably help US manufacturers compete on price, but would drive up prices overall and could make it more difficult for solar to compete with other energy sources on price.

“I can see that the administration is really playing a difficult balance, to deliver on the promise of domestic jobs, while at the same time fighting climate change,” she said. “Unfortunately, I think it’s in the solar industry that these two goals intersect.”

For now, most US solar manufacturers supply the residential market, where consumers are often less price sensitive. Large-scale solar power – which is expected to make up the bulk of solar capacity in the future – is much more price sensitive and more likely to be purchased overseas.


Array technologies

(ARRY), which builds systems that allow solar panel fields to rotate and follow the sun, overcame some of those challenges by diversifying its supply chain, Marketing Director Erica Brinker said in an interview on Friday. The majority of the company’s supply chain is based in the United States, she said.

“We have a huge customer base in the United States,” Brinker said. “And we’ve been able to deliver through this diverse supply chain based in the United States as well. “

However, other parts of the industry may find it more difficult to achieve this. For the United States to become a hub for solar manufacturing, it would take the kind of industrial hubs that can be found in China, where component manufacturers are often located on the same bases as manufacturers of finished goods, Sun said. Right now, the American system is too decentralized, she said. A bill by Senator Jon Ossoff, the Democrat of Georgia, to provide tax credits for each step of solar energy manufacturing could be a way to expand that manufacturing base, Sun said. Currently, tax credits tend to focus more on end users than on the manufacturers themselves.

Another hurdle is the growing trend from NIMBYism (“not in my garden”) towards solar panels, Sun said.

“Nimbyism is such a big problem,” she said. “People generally like solar power, but if you want to put a big solar farm in their backyard, they say I don’t. It is playing out across the country, as we can see. The siting of solar installations is becoming a very controversial issue at the local level.

A solar developer recently abandoned a project in Nevada it would have been most important in the United States after locals opposed it. To meet Biden’s renewable energy goals, solar panels would have to be placed over thousands of square kilometers of land. In this case, national targets could increasingly collide with local roadblocks.

Write to Avi Salzman at avi.salzman@barrons.com

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