Electric utilities remain committed to solar projects impacted by a U.S. Commerce Department probe despite an industry lobbying group’s warning that the investigation threatens nearly half of the solar capacity the U.S. was expected to install in 2022 and 2023.
During first-quarter earnings calls, utility management teams have emphasized their flexibility to push projects further out, secure power purchase agreement terms and pivot capital to wind investment, if necessary.
Xcel Energy Inc. plans to push projects like Sherco Solar later into its five-year plan, CEO, President and Chairman Robert Frenzel said, while NextEra Energy Inc. could shift between 2.1 GW and 2.8 GW of solar and storage projects to 2023.
NextEra recently canceled the 30-MW Chinook Solar Project in New Hampshire after determining it was “not economically feasible,” reportedly citing costs associated with integrating Chinook to the larger power grid as one factor. In April, Xcel Energy utility Northern States Power Co. asked the Minnesota Public Utilities Commission to suspend proceedings for the company’s planned Sherco Solar Project so it can reevaluate pricing and “discuss alternatives with our potential suppliers” in light of the Commerce Department investigation.
NiSource Inc. also shifted anticipated in-service dates for 10 solar projects that could see delays of about six months to 18 months and is postponing the retirement of the last two units at its coal-fired R.M. Schahfer power plant in Jasper County, Ind., to the end of 2025 to account for that generation capacity gap.
“Our focus has been to accelerate savings for our customers to benefit from the renewable transition, and delays resulting from this investigation may ultimately delay the timing of when our customers could begin receiving these benefits, especially in the current energy cost inflationary environment,” said Shawn Anderson, NiSource’s chief strategy and risk officer.
Silicon Valley-based solar panel manufacturer Auxin Solar Inc. requested the probe into whether solar manufacturers used factories in Southeast Asia to evade American tariffs on imports from China. Should the Commerce Department side with Auxin Solar, crystalline silicon solar cells and modules assembled in Cambodia, Malaysia, Thailand and Vietnam could be subject to the same tariffs imposed on Chinese-made components. Those four countries accounted for nearly 84% of solar panel shipments delivered to the U.S. by air and sea in January and February, according to an analysis of U.S. Census Bureau data.
“How can you possibly pull the rug out from under the industry?” NextEra President and CEO John Ketchum said on the company’s April 21 earnings call.
“If you don’t know what the tariff rates are in Southeast Asia, it forces you back to China, where the tariffs are known and have been known for the last 10 years,” Ketchum said. “That’s an unintended consequence that I don’t think anybody wants.”
More than 300 utility-scale projects, totaling 51 GW of solar capacity and 6 GWh of battery storage, have been canceled or delayed because of the probe, putting $52 billion of private investment at risk in a macroeconomic environment already plagued by rising costs, according to the Solar Energy Industries Association.
Manageable impacts
While general cost overruns for the solar projects would likely be borne by the developers, NiSource management said it is unclear who picks up the tab for tariff-related price hikes.
Dominion Energy Inc. President and CEO Robert Blue reassured investors that any new tariffs “may not be as major a cost driver of an overall utility-scale solar installation,” and a potential 50% tariff would only represent “about $120 million of incremental capital or less than 1% of our total capital budget” in 2023.
Although Alliant Energy Corp. expects a potential delay on 500 MW of capacity scheduled to come online during the second half of 2023, CFO Robert Durian said the company is still “very committed to doing these [projects] and moving forward with them.”
Alliant, NextEra and WEC Energy Group Inc. do not anticipate the investigation will impact their medium-term capital plans, but WEC and NextEra executives emphasized that their companies can deploy capital to other projects, such as wind generation, if supply chain constraints and other pressures continue or worsen.
“We could still, if we needed, pivot to wind. We have a lot of flexibility,” WEC Energy Executive Chairman Gale Klappa said during a first-quarter earnings call. NextEra’s Ketchum explained that “we can originate a wind project and have it built in 10 months” to take the place of “some solar activity drop-off.”
Like Alliant, Avangrid Inc. expects all of its wind and solar projects scheduled to come online in 2022 to be completed in 2022, though the company is taking a more cautious approach to power purchase agreements.
“We’ve heard that some of our competitors are entering into [power purchase agreements] before completing development or arranging for supply,” outgoing Avangrid CEO Dennis Arriola said. “We will not pursue growth at any cost, but instead, we’re aligning our [power purchase agreement] execution with supply contract certainty.”
A bipartisan group of U.S. senators in a May 1 letter called on the Biden administration to quickly review the Commerce Department’s investigation and for the agency to issue a preliminary determination on the matter to avoid “massive price hikes” that could be passed on to consumers.
“The damage is happening right now,” Solar Energy Industries Association CEO Abigail Ross Hopper said in a recent interview. “We hope that the Department of Commerce and the Biden administration understand the impact this will have on our industry and on their climate ambition. To us, Commerce’s actions simply do not make sense.”
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