Investors Are Investing in Renewable Energy, but Projects Are Not Being Built

Despite plans for an unprecedented number of grid-scale wind and solar installations, project construction is plummeting across the U.S.

Despite the availability of billions of dollars in federal tax credits and eager investors, the pace of clean energy development has slowed to a crawl. Supply-chain issues, long waits to connect to the grid, and challenging regulatory and political environments are contributing to the slowdown, according to analysts and companies.

New wind installations fell sharply in the third quarter of 2022, according to S&P Global Market Intelligence. New utility-scale solar installations are expected to decline by 40% in 2022 compared to the previous year, according to a report from the Solar Energy Industries Association and research firm Wood Mackenzie.

The decline in renewable energy investment belies the enormous demand for such projects. The industry is ready to launch a building spree after last year's spending and climate law, the Inflation Reduction Act, extended and increased tax credits for wind and solar projects and introduced new incentives for green hydrogen and battery storage for the electric grid. The success of the IRA, the Biden administration's climate targets and many state decarbonization plans hinge on adding massive amounts of renewable energy into the grid.

According to the American Clean Power Association, more than $40 billion in wind, solar and battery projects were announced in three months late last year. This is as much as the total clean-energy investment for all of 2021. Large corporations with climate targets are among the most eager buyers of green power. They contracted for enough wind and solar capacity last year to power more than 1,000 data centers.

In ten years, there will be a significant shift in the landscape of electricity production, with a large portion coming from renewable sources, according to Matt Birchby, president of renewable-project developer and owner Swift Current Energy LLC. However, he notes that the transition from current energy production to this new renewable-based system will be messy and complicated.

Supply-chain and trade issues have made planning more complicated. According to Mr. Birchby, average lead times for securing high voltage equipment have risen from 30 weeks to more than 70.

As companies attempt to avoid violating trade regulations and navigate the risks and complexities of global shipping, sourcing solar panels has become akin to a spy story. "You almost feel like you're in a Tom Clancy novel," said Mr. Birchby. His company, Swift Current Energy, has contracted to purchase nearly $1 billion in American-made solar panels.

It is expected that it will take a few years to create a domestic solar supply chain to meet U.S. project demand. In the meantime, panel imports, 80% of which come from Chinese and other Asian makers, have slowed following U.S. legislation aimed at cracking down on labor abuses in China. According to some estimates, several thousand shipping containers of solar panels have been detained by U.S. Customs near ports such as Los Angeles.

The wind industry has struggled to overcome pandemic-related supply-chain and logistics challenges in delivering its massive equipment. However, uncertainty over the details of federal tax policy has been a significant factor slowing installations. Companies are waiting on Treasury Department guidance to outline the specifics of how a project can qualify for tax credits in the Inflation Reduction Act.

Even in the battery storage industry, which saw more installations in 2022, supply-chain problems have slowed some construction plans by as much as a year, developers say.

The time and cost to get new batteries or solar or wind farms connected to the grid is a bigger unknown. Grid operators and interconnecting utilities must study the projects’ likely impact on the power system and any needed network upgrades before signing off on them.

Caitlin Smith, senior director of regulatory, external affairs and ESG at Jupiter Power, said that she has seen connection estimates stretching out as far as 2032 in some markets. However, for another project, she said that they "just heard crickets for two years" when trying to schedule a first meeting with grid officials.

One of the issues is that more projects enter the interconnection process than will realistically be built, said Rich Hossfeld, co-CEO of SoftBank Group's SB Energy Corp. SB Energy Corp has 1.7 gigawatts of renewable power operating in the U.S. and 1.3 gigawatts under construction this year.

"It's a bit like land speculation, where there are low barriers to entry," Mr. Hossfeld said. "Developers can accumulate large interconnection positions at a low cost."

Grid operators are struggling to keep up with the increasing number of requests for new projects. In 2021, there were around 8,100 projects in line in the U.S., up from 5,600 in 2020. Each project requires a technical review, which is taking longer and longer to complete. Interconnection wait times rose to about 3.7 years for projects delivered between 2011 and 2021, up from around 2.1 years for projects built in the decade prior, according to a study last year by Lawrence Berkeley National Laboratory.

Inflation can have a negative impact on a project's economics if it has to wait a long time for construction to begin. This was the finding of a study by Joe Rand, senior scientific engineering associate at the national lab.

According to the national lab, only 23% of the power-generation projects seeking grid connection from 2000 to 2016 were ultimately built. The completion rates were even lower for wind, at 20%, and solar at 16%. Around 19 gigawatts of wind and more than 60 gigawatts of solar were withdrawn from interconnection processes in 2020 and 2021.

The process of securing local permits for renewable energy projects can vary significantly from one market to the next, even within the same state. This, along with the willingness of a community to welcome large renewable energy projects, can have a big impact on the viability of such projects, according to Mr. Rand.