Inflation and supply chain problems blunt efforts to ramp up renewable energy
The costs of mounting solar panels on residential roofs spiked 18 percent in the first three months of this year, compared to the same period last year. The price of steel used to make wind turbines has surged as much as 40 percent in Europe, where many of the components are made, since Russia invaded Ukraine in February.
Meanwhile, the cost of the lithium used in batteries to store energy from such clean power projects has skyrocketed as much as 900 percent since the start of 2021.
As the high costs of fossil fuels and the supply-chain crisis spur inflation, the damage to the economy has spread to renewable energy, blunting the Biden administration’s efforts to promote a source of power that would protect the country from spikes in oil and gas prices and reduce the pollution causing climate change. Ultimately, it could mean higher electricity prices in Massachusetts, slowing the state’s transition from fossil fuels.
At the Major Economies Forum on Energy and Climate, a virtual meeting last month of more than 20 of the world’s largest economies, President Biden said current economic challenges shouldn’t halt the transition to a clean and secure long-term energy future.
“We cannot afford to let the critical goal of limiting global warming to 1.5 degrees Celsius slip out of our reach,” he said. “The science tells us the window for action is rapidly narrowing.”
But a recent report by the American Clean Power Association, the nation’s largest trade group for wind, solar, and storage, suggests that renewable energy has been growing too slowly to meet Biden’s goal of achieving a carbon-free power grid by 2035.
The report estimated that if the same amount of renewable energy is installed in the coming years as was completed last year, it would provide just 35 percent of what’s needed to meet that goal. It also found that about 10 gigawatts of clean energy that was expected to come online last year was delayed, some projects indefinitely. That would be enough to power millions of homes.
Another recent report by the association found a significant falloff in the rate of new clean power coming online in the first three months of this year.
“In the context of our country’s climate targets, we need to be scaling clean energy deployment much faster,” wrote Heather Zichal, the association’s chief executive, in its annual market report for 2021, noting that wind and solar power last year accounted for just 13 percent of the nation’s electricity supply.
Inflation, supply chain challenges, and uncertainty over a range of federal policies are “expected to have a concerning impact on our ability to deliver growth” of renewable energy, she added.
The hit to the solar industry has been particularly acute. In the first quarter of the year, there was 24 percent less solar installed than in the same period of 2021, according to the Solar Energy Industries Association.
The solar industry, battered by rising commodity prices and a trade war with China, has raised concerns about the possibility of new import tariffs being imposed on solar panels.
Biden allayed some of those fears when he promised his administration wouldn’t impose any new tariffs on solar equipment for two years, as the administration probes whether Cambodia, Malaysia, Thailand, and Vietnam have violated tariffs on China’s sales of solar equipment to the United States.
Biden also said he would invoke the Defense Production Act to expand US manufacturing of solar equipment as well as heat pumps, building insulation, and transformers to upgrade regional power grids.
Abigail Ross Hopper, president of the Solar Energy Industries Association, said the Biden administration’s actions could help, but supply chain constraints could still drive up prices. “This is a shame, because solar also helps to stabilize energy prices for consumers.”
The recent economic turbulence is having a similar impact on the wind industry, which is expected to supply a significant amount of power to New England over the coming decade.
New offshore wind turbine capacity is expected to plunge 40 percent below what was built last year, according to a report last month by the International Energy Agency.
But inflation and other economic challenges aren’t likely to stop large-scale projects already in development.
Vineyard Wind, which recently started construction of the nation’s first major offshore wind farm in Vineyard Sound, doesn’t expect inflation to slow completion of its project, which is slated to start generating power late next year, said Andrew Doba, a company spokesman.
Whatever the impact, it won’t affect electricity prices from the 62 turbines expected to generate 800 megawatts of power in 2024. Those rates were set years ago and will be fixed through 2040.
“Offshore wind offers energy price certainty,” said Sam Salustro, a spokesman for the Business Network for Offshore Wind.
For those wind projects yet to complete a contract with a state or utility, the future is less certain. But Salustro said he expects the impact of current events to be “temporary or moderate,” noting that most offshore wind contracts extend for decades. Over the long term, he noted, costs are likely to fall, as the technology matures and the nation builds its own supply chain.
Still, no matter how much the costs of renewable energy increase, fossil fuel prices are likely to spike faster.
In a presentation last month to investors, officials at NextEra Energy, a Florida company that has become the nation’s largest developer of renewable power, estimated their costs for new solar projects increased 16 percent between January 2021 and May 2022, while their costs for new wind projects increased 11 percent. By contrast, they said the costs of running their existing natural gas plants have risen 63 percent during the same period.
“If you buy into the NextEra numbers, then inflation has made wind and solar more, not less, competitive against natural gas,” said Mark Bolinger, an electricity markets researcher at the Lawrence Berkeley National Laboratory. “If one expects natural gas prices to remain elevated for some time, then perhaps that gives renewables a boost, particularly in New England, which has a gas-heavy grid.”
The economic benefits of renewable energy were made clear last month when officials in Maine — which gets most of its electricity from renewable energy, especially hydropower — announced they were lowering the state’s electricity rates. That came after one of the largest utility companies in New Hampshire, which relies more on natural gas, asked state regulators if it could double its rates.
The US Energy Information Administration has projected a substantial increase in wholesale electricity prices this summer across gas-reliant New England — more than three times last summer and more than anywhere else in the country.
“Inflation shouldn’t drive a false narrative that we should remain fossil fuel dependent,” said Joe Curtatone, president of Northeast Clean Energy Council. “Clean energy should be the easy choice. Being able to save on fuel costs is huge.”
Kyle Murray, a senior policy advocate at the Acadia Center, an environmental advocacy group in Boston, added that current volatility of costs underscores the importance of increasing the amount of renewable energy.
“Because renewable energy, once built, runs on no cost fuels, we break out of the cycle and actually reduce electricity prices,” he said. “That’s the only way out of this situation.”
Read the full article in The Boston Globe here.