Solar has become a global technology and it is part of an increasingly intertwined global supply chain with China as the largest global producer of solar modules. The outbreak of SARS-CoV-2, the novel coronavirus that started in China, is expected to affect delivery times of solar products needed in the United States if the disease’s spread stalls manufacturing production in China and other affected countries. The price of solar systems could also increase if the coronavirus causes a shortage of manufactured components used in the production of the panels. Because manufacturing facilities responsible for the parts used in solar panel production generally have several months’ worth of inventory, solar system providers may not know for some time what the exact impact on timing or price will be. But, one of the primary concerns of major solar investors in the United States is whether production delays might impact solar tax credits.
At the end of last year, a federal tax incentive for commercial and industrial solar projects declined from 30 percent to 26 percent. While there is a legal process (safe harbor) that allows those buying solar systems to lock into last year’s 30-percent tax credit, owners must have the solar panels delivered and constructed at the site within a specified time frame in order to claim the credit. The fear is that the components will not be available in time to meet the deadline. Some solar investors are exploring the possibility of invoking “force majeure,” a clause that nullifies the regular terms of a contract if an unavoidable catastrophe occurs.
Due to the trade war and resulting tariffs between the United States and China, the manufacturing base for some solar panel components had started migrating away from China before the virus hit internationally. Panels are being imported and assembled outside of China, in places in Asia such as Malaysia, Singapore, Thailand, and South Korea. Despite that migration, however, there are still materials in the supply chain used to create the panels (glass, wafers, and aluminum frames) that come directly from China, sometimes from cities such as Wuhan in the Hubei province of China, where the disease originated.
Regional Examples
The developer of Wisconsin’s first large-scale solar farm warned that the coronavirus outbreak may lead to delays and higher prices. However, it is unclear at this time whether the virus outbreak would affect the final cost to Wisconsin utility ratepayers. As a result, the state Public Service Commission denied the utilities’ requests for pre-approval of up to 10 percent in cost overruns.
India’s government indicated that solar developers who miss deadlines due to coronavirus-related supply disruption can use force majeure clauses to avoid financial penalties. Around 4 gigawatts of solar could be affected by the shortages.
Other Markets
Coronavirus-related production delays may also reduce wind-turbine installations by between 10 percent and 50 percent this year. The U.S. wind industry is already suffering from supply bottlenecks because utilities have been rushing to build wind-power facilities in 2020 to take advantage of expiring tax credits. Wind Production Tax Credit pays owners for each unit of energy produced, irrespective of price or demand. Due to an already tight supply of key components such as turbine blades and main bearings before the virus outbreak, first-quarter production delays have already reduced annual output of those components by about 10 percent.
In the United States, there were 6 gigawatts of installations planned for commercial operation in 2020 that were identified as being “at-risk” before the spread of the virus, needing exemptions from the Internal Revenue Service to maintain access to a 100-percent value of the Production Tax Credit for wind. Due to the virus, the number of those “at-risk” installations is likely to increase.
China is also the world’s leading lithium-ion battery producer. One forecaster estimates that the country’s battery production capacity could drop by 10 percent from earlier forecasts for 2020.
Conclusion
With much of the manufacturing for renewable technologies occurring in China, the outbreak of the coronavirus is causing delays in obtaining needed parts resulting in probable construction delays. As a result many U.S. owners/operators of planned new solar and wind installations are concerned that they will miss important deadlines for federal tax credits. However, the coronavirus problem has focused a light on the issue of U.S. dependence upon foreign sources for an increasing amount of our electrical energy generation.
