The utility-solar market is hugely affected by any change in project costs. We see this today with rising labor and commodity costs, as well as the effects of the ongoing trade dispute over imported solar modules.
With the ITC winding down and facing a sharp reduction in 2016, how will it affect the construction of new solar projects going forward?
The utility-solar market is hugely affected by any change in project costs. We see this today with rising labor and commodity costs, as well as the effects of the ongoing trade dispute over imported solar modules.
With the ITC sunset looming at the end of 2016, it will add to these cost issues and severely affect the utility sector. We already see a number of projects that are on the bubble because of the uncertainty over whether they will be installed in time to ensure that they receive the ITC at its current rate.
Contractors and developers are already planning for the end of 2016, allocating additional resources to handle the ramp-up in capacity needs over the next 18 months to meet demand. During this time, these companies are also working hard to drive efficiencies and squeeze out as much cost as possible to be able to live in a post-ITC environment.
The industry as a whole has done great things over the last five years to bring costs out of the projects and be in a position to meet current pricing demands. The savings in module costs, while significant, have not been the only reason system costs have come down. Every aspect of the project build has seen significant cost reductions. Efficiencies in installation and manufacturing have brought down the balance of system costs by more than 50%. Equipment costs have been reduced by manufacturers scaling to the new demands. Overall, a lot of progress has been made.
Even with all of the great work done to date, the ITC is still a vital part of the business and a needed part of the financial equation. The cost effects seen recently only exaggerate the problem. We are getting a glimpse today of what the future will look like. The tariff rulings have increased the overall build costs by 10 to 12%, and we are seeing how that has affected or stopped projects. A 20% reduction in the ITC would be devastating to the utility market as we know it today.
But there is hope: If the industry can come together and find a solution to the trade issues, open up global manufacturing to free and competitive trade, and embrace the challenges, we can continue to build in a post-ITC environment. The challenges are many — permitting, approvals, land use and access to capital — and will all need to be addressed. Continuing to rely on EPCs and manufacturers to drive out costs is not enough. While I still am a firm believer that construction costs will continue to come down as new efficiencies in modules and advancements in system design are achieved, soft costs must be a major part of the equation. Development and project acquisition costs make up such a large part of the overall project cost that streamlining them will have huge benefits.
I believe strongly that the solar industry has gained too much momentum to not overcome the ITC hurdle when it must. I hope that lawmakers in Washington understand the economic impact that solar has provided the U.S. economy, as well as the significant number of jobs it has created. Recognizing this, as well as the abundant need for clean, reliable power generation, will endeavor them to act and extend the ITC. Extension will allow the industry to address the challenges in today’s market and be in a position in the not-too-distant future to be sustainable post-ITC.
By: George Hershman, V.P., Division Manager, Swinerton Renewable Energy