During the pandemic, renewable energy supply chains have tightened due to equipment stockpiling, obsolete equipment and growing order backlogs.
As baseball-sized hail fell from the sky, West Texas residents took cover. The rock-hard ice dented cars, smashed windows, and damaged property. The unmerciful May 2019 storm hit renewable energy too, damaging 13,000 solar panels and causing $70-$80 million in insured losses.
Approximately 16 weeks later, the solar panels were fixed or replaced and the site was up-and-running again.
If the same storm hit today, thereâs no telling how long the damage might linger. Renewable energy supply chains have become increasingly tight due to a combination of equipment stockpiling, obsolete equipment and manufacturers inundated with new order requests.
Then came a global pandemic.
The supply chain situation has solar and wind companies holding their collective breath, hoping Mother Nature offers a gentle hurricane season and somehow limits lightning, wind, tornados, and hail.
âAnother natural catastrophe or big hailstorm is absolutely the fear right now,â said Fraser McLachlan, CEO of GCube Insurance Services, a specialist provider for utility-scale renewable energy projects.
âEvery three years or so, weâve seen pretty significant claims due to high winds, wind-driven water, or flooding in the lower lying regions. If that happens again this year, it would cause significant problems in replacing a lot of that equipment.â
COVID-19 caused further disruptions, as lockdown measures and construction delays led to fewer wind turbines, solar plants, and other renewable electricity installations, according to the International Energy Agency. As a result, the world is set to add 13% less renewable power in 2020 compared to 2019.
âCountries are continuing to build new wind turbines and solar plants, but at a much slower pace,â said Dr. Fatih Birol, IEA executive director, in a statement.
âEven before the COVID-19 pandemic struck, the world needed to significantly accelerate the deployment of renewables to have a chance of meeting its energy and climate goals.â
Solar, wind and other renewables have been powering the world for years, expanding access to developing nations and reducing pollution. Meanwhile, innovations are reducing costs considerably. As a result, the number of people without access to electricity fell from 1.2 billion in 2010 to 789 million in 2018, the IEA reported. The organization forecasts that the worldâs total renewable-based power capacity will grow by 50% by 2024.
In the United States, renewable power has increased 100% since 2000 and represents the fastest-growing energy source in the United States, according to the Center for Climate and Energy Solutions. Renewables made up more than 17 percent of net U.S. electricity generation in 2018.
âSolar effectively shut down for a period of months in terms of supply chain.â â Fraser McLachlan, CEO, GCube Insurance Services
Then COVID-19 slowed supply chains. For wind, spare parts like blades, gear boxes, and generators have been delayed â ultimately slowing down projects.
âPretty much every offshore wind construction project weâre involved with at the moment has been extended,â said McLachlan.
The pandemic hurt solar too, delaying the production and distribution of panels, inverters, and mounting equipment.
âSolar effectively shut down for a period of months in terms of supply chain,â said McLachlan.
COVID-19 is not the only factor squeezing renewable energy supply chains. Another is the Production Tax Credit, which provides per-kilowatt-hour tax credits for renewable electricity generation. The deadline led to energy companies stockpiling equipment â much like consumers feverishly bought toilet paper and paper towels in the early days of COVID-19.
But that stockpiling should mean that renewable companies can easily replace equipment if a natural catastrophe or other incident caused damage. Right? That depends, said Al Caceres, executive director of the energy practice at Gallagher. He agrees that âthere is a lot of equipment in storage and ready to goâ but says that the equipment goes obsolete quickly as manufacturers consistently refine and upgrade their products.
âThere is a very fine line when it comes to replacing equipment,â said Caceres.
âWhen you buy an iPhone 11 and think youâre going to put an iPhone 9 case on it, it doesnât fit.â
McLachlan agrees, saying that solar panels particularly go obsolete quickly.
âYou almost have to redesign and remanufacture your entire project to suit the latest generation of panels that has come along,â said McLachlan. âThat can happen in a two-to-three-year timeframe.â
If a solar company needs replacement equipment, expect long wait times and high prices. Caceres recalls a client who approached 10 solar panels manufacturers recently.
âEight companies said ânoâ right off the bat. Thatâs unheard of,â he said.
âBecause companies are stockpiling solar equipment, equipment manufacturers were backlogged in trying to meet demands. The two companies that said yes raised prices more than 40%.â
Any supply chain conversation starts with a risk assessment by insurers and renewable energy companies. Ian Robb, head of global risk engineering for Liberty Specialty Markets, helps companies assess whether manufacturers far down the supply chain are reliable.
âThe scale of renewable energy projects is becoming bigger and bigger. Insurers need some reassurance that the capacity to make even larger machines is conducted in a proper and qualified way, whilst maintaining equipment quality and reliabilityâ said Robb.
âWe also examine if theyâve performed contingency planning and identified where they can acquire similar equipment if original equipment manufacturers canât supply them. Itâs part of a whole contingency planning analysis.â
Logistics and transportation are also major concerns. Take wind energy, for example. Turbines can be 40-90 meters long and weigh nearly 100 tons. Getting such massive parts to their destinations takes carefully coordinated shipping logistics, powerful cranes, and heavy load bearing trucks. Then weather can disrupt it all, said Paul Houston, head of risk management, global markets for Allied World.
âJust a couple months ago, we had blades going from China to Australia, and a couple days into the voyage a typhoon hit, so we had to redirect the ship to safe port, stay there for a few days, then send it on its way to Australia,â said Houston
Then it takes several trucks and lots of sophisticated logistical maneuvers to transport wind turbines to their final destination. Houston has worked with teams that reroute electrical wiring, cut down trees, and reinforce bridges to clear a path.
âWind farms are likely to be in quite a remote area, and itâs likely that the bridges and infrastructure leading up to it havenât had anything that long or that heavy travel over them before, so we have to make sure the actual route is properly surveyed from start to finish so it arrives there safely,â said Houston.
From COVID-19 to manufacturing delays to logistics, any supply chain issue in renewable energy underscores the importance of understanding supply chains and possibly bringing them closer to the point of sale.
âCompanies donât always know their supply chain. They donât always know where theyâre getting their goods from. They might think theyâre getting a turbine from Denmark but actually the component parts come from China, Vietnam and Brazil,â said Houston.
âCompanies are now trying to get their supplies closer to the point of sale. So instead of getting all your equipment from China, you might want to diversify it and get it from India and Brazil too, so if something goes wrong you can still keep up your manufacturing process. It might be more expensive, but it makes the supply chain more resilient.âÂ &