US renewables industry braces for virus disruptions as incentive deadlines loom

Disruptions to trade and manufacturing from the coronavirus are coming at a critical time for the US renewable energy industry as project developers race to take advantage of expiring government incentives.

Wind companies, which grew the country's project pipeline by 24% in 2019, face a year-end deadline to start construction of new facilities they hope to qualify for federal tax credits and to bring online projects that entered construction in 2016 in order to collect the incentives without having to meet strict reporting requirements. The solar market has also boomed as industry tax credits fall in value.

While factories in China have started to reopen, the wind industry is especially vulnerable to bottlenecks and manufacturing delays since "delivery and build schedules are tight and specialized equipment is rented for a limited time," market researcher BloombergNEF said Thursday.

"Those of us in the industry are already seeing deals we've made, commitments we've made, coming under more pressure as the supply chain starts slowing down," Sarah Webster, a vice president at independent power producer Pattern Energy Group, said March 4 at a conference in Washington hosted by the American Council on Renewable Energy.

Contractors and equipment suppliers have started issuing force majeure notices warning of potential delays, leading lenders to think twice about financing projects that could miss tax-credit deadlines, according to lawyers at Norton Rose Fulbright. Keith Martin, co-head of projects at the firm, said officials at the Treasury Department have been alerted that companies may ask for leeway on those deadlines if disruptions from the virus worsen.

LOGISTICAL CHALLENGES

General Electric, a major supplier of wind turbines, already faced logistical challenges meeting soaring demand before the pandemic struck.

"Even on the best days, logistics is challenging" in China, JC Sandberg, managing director and executive counsel for global government affairs and policy at GE Renewable Energy, said at the ACORE conference. "So it's not necessarily even about the factories opening. It's about, how do you get product, finished goods, out over the road if stuff's backed up at factories and things like that."

"The goal is to mitigate permissible delays, and at the moment that's kind of the best that we could say about it," Sandberg added.

In the solar sector, market analysts warned earlier this year that China's efforts to contain the virus would delay equipment deliveries due in March and April and that prices for solar panels could rise in the second half of the year depending on how long strict public health measures remain in place.

However, "nobody is reporting any kind of problems with their suppliers yet," Michael Weinstein, a utilities analyst at Credit Suisse, said in a March 9 interview, adding that most US buyers diversified to suppliers outside of China after tariffs were imposed on Chinese solar products in 2012.

Canadian Solar said on Wednesday that its manufacturing operations and supply chain in China are "back on track to full capacity utilization" after disruptions from the virus during late January and early February.

The company said it "expects that, under current conditions, it can deliver orders on time and in accordance with the latest schedules confirmed with its customers."

FLUID SITUATION

Residential solar company Vivint Solar, which uses components sourced from China, said in an annual report Tuesday that it has not seen "material impacts to our supply chain, but the situation is fluid."

"Supply chain disruptions could reduce the availability of key components, increase prices or both," the company said, adding that it also could be hurt by volatility in US financial markets or by broad economic weakness or widespread work restrictions that "could materially and adversely impact demand for our products."

"We are hopeful the residential solar business in the US avoids significant disruption," Vivint Solar CFO Dana Russell said on an earnings call Tuesday. Vivint Solar does more than a third of its business in California, which as of Thursday had reported 198 positive cases of COVID-19, the disease caused by the virus, and three deaths.

Clean Energy Associates CEO Andy Klump, whose company provides quality assurance, supply chain management and engineering services for the solar and battery industries, said he is more concerned about a potential slowdown in the large-scale utility solar market in the US as a result of the coronavirus.

"If you do have large groups of workers that have to go into a certain area or regions, can they travel around, are there travel bans that are blocking folks from getting from one part of the country to the other? It's crazy to think about, but those are all legitimate concerns if you have a much larger outbreak," Klump, who is based in China, said in an interview Thursday. "Construction may be somewhat limited."