In the time of the coronavirus pandemic, each day has become a tug-of-war between worst-case and best-case scenarios.
Along with public health experts and all sectors of the economy, the solar industry is continuing to calibrate the impacts of the pandemic on its people and businesses. While U.S. residential solar is grappling with the earliest-felt and most profound impacts thus far, it's clear that no part of the industry will be left unscathed.
Utility-scale solar benefits from long project timelines, engaged investors and spacious work sites that should allow for social distancing. However, the sector still has a long way to fall. Recent analysis from Wood Mackenzie Power & Renewables suggests that even under the most favorable circumstances with minimal slowdowns, 2 gigawatts' worth of large-scale projects could be delayed this year. Under the worst-case scenario, which would mean work stoppages of several weeks in duration, 5 gigawatts' worth of projects would move to the latter half of the year and into 2021.
“It’s hard to quantify exactly what would be possible and impossible in a situation like this,” said Colin Smith, a senior solar analyst at WoodMac. “The worst-case scenario is still [possible].”
Smith describes the potential impacts for large-scale solar as “waves” that will ripple through the sector at different points. Whether the tide will be relatively calm or a full-blown tsunami remains to be seen.
The first wave arrived in the form of shipment and equipment delays, a hangover from the spread of the coronavirus in Asia, which closed factories in production centers for a time.
As many plants got back up and running abroad, the U.S. was just beginning to grapple with a rapid accumulation of reported cases. Though U.S. ports remain open — categorized as essential businesses under shutdown orders — they’re generally operating with smaller crews and constrained processing capacity.
Trade data from research group Panjiva showed a 35.2 percent drop in container volume from February 2019 compared to the same month in 2020 at the ports of Los Angeles, Long Beach and Oakland, according to reporting by the Wall Street Journal. If just one port closes, WoodMac's research suggests, it would prompt shipping delays ranging from a week to a full month.
Developers are now coping with the next wave’s arrival on U.S. shores. As governments shut down segments of the economy and restrict travel by asking residents to stay at home, developers are learning how to do their work online.
That means keeping project milestones moving forward by going digital for community input, zoning meetings and site visits.
“Historically, a lot of this was still being done face-to-face, so the industry is rapidly moving to doing all of this virtually, through screen-sharing, Zoom, [Microsoft] Teams meetings, whatever to make it work,” said Smith.
Even with social distancing measures in place — utility-scale developers have noted that their work can be spread over thousands of acres, offering workers ample space — the next wave will likely include site shutdowns, whether spurred by employee illnesses or state-level restrictions.
New York tightened restrictions on essential businesses last week, only allowing utility-scale power generation with an in-service date of September 1 or sooner to continue construction. New renewable generation associated with health care, affordable housing or homeless shelters can also proceed in the state. The rest of the projects are paused until April 15, and likely longer.
Ultimately, the slowdown will mean delays, not cancellations, for most projects already in the works. But new and future projects face more uncertainty as utilities and corporate and industrial offtakers refocus on personnel and essential business operations over energy goals.
For new large-scale projects, a shaky economy and waning demand could remake the sector over a longer period.
“Interest rates have gone down, but the markets are really in a rough place right now,” said Smith.
The full implications of a deep economic depression remain hazy, but any economic downturn will cause objective damage to large projects that rely on deep-pocketed investors for financing. With the possibility that tax equity will slow to a trickle, big companies able to weather tighter margins and capitalize on a large portfolio will have the edge. That will favor large players such as First Solar, Recurrent, sPower and 8minute Energy.
“As the cost of debt goes up, the margins for these developers are going to get squeezed even more,” said Smith. “It’s going to really put pressure on companies that aren’t able to be as cost-competitive as the bigger ones.”
A lack of new projects coming online could also heat up the acquisitions market for operating projects that have already inked long-term offtake agreements. Even if fewer new projects are getting built, the stable returns from built projects remain an enticing investment.
It’s all relative
Despite the prevailing uncertainty and the overwhelming negative indicators for the overall market, utility-scale solar is relatively well positioned to ride out this particular storm, according to analysts.
“The utility segment right now is in a really good place,” said Smith. The sector logged its second-largest quarter in history in Q4 2019, installing nearly 4.4 gigawatts. Overall procurement in 2019 reached a new peak, with developers signing or announcing a total of 30.6 gigawatts' worth of new projects.
Even with the almost-certain cut to current forecasts for large-scale installations, additions in the next several years will rival those made in 2016, the biggest year on record for utility-scale solar projects, when the industry installed nearly 10.8 gigawatts. WoodMac previously forecast about 14.6 gigawatts of additions in 2020 and 14.7 gigawatts in 2021. If one-quarter of those projects don’t happen, Smith noted, both years would still top 2016.
Still, developers shouldn’t take that success for granted. The coronavirus pandemic is very much an evolving threat.
“It comes down to how long...the coronavirus effect lasts,” said Smith. “What a lot of people I don’t think are considering right now is a double bump. We might get out of quarantine by May, June. Then we could see a resurgence at the end of this next year or in the fall.”
That would hit the economy while it’s down, further hurting demand and appetite for new projects.
Wood Mackenzie's March 27 insight on utility-scale solar and the coronavirus pandemic is available here.