The Ukraine war is driving up the cost of wind and solar energy

Russia’s invasion of Ukraine is further driving up prices for renewable energy projects, which were already facing pre-war supply chain tensions and a surge in raw materials.

The new pressures, which are causing bottlenecks for wind and solar developers two years after the pandemic, are causing delays in the completion of many projects.

The Biden administration and other governments around the world have called for accelerating the transition to renewable energy sources to avoid dependence on Russia for oil and gas. But project developers say it may be almost impossible to move faster in the near future.

Wind and solar energy development has boomed around the world over the past decade, due to rapidly falling costs that have made the projects more competitive with traditional energy generation sources such as natural gas and nuclear power, and growing government pressure to reduce greenhouse gases reduce emissions to combat climate change.

According to S&P Global Commodity Insights, wind and solar accounted for about 6.4% and 4% of global electricity generation last year, up from 3.8% and 1.4% five years ago, with continued strong growth forecast. The cost of solar power generation fell to $45 per megawatt-hour last year, compared to $381 in 2010, S&P estimates. The cost of generating onshore wind power, meanwhile, fell to $48 per megawatt hour, compared to $89 in 2010.

The consequences of the tough economic sanctions against Russia are already being felt around the world. WSJ’s Greg Ip joins other experts in explaining the significance of what has happened so far and how the conflict could transform the global economy. Photo illustration: Alexander Hotz

But like many other companies, renewable energy projects are now being hit by rising prices for key materials like post-invasion aluminum and steel, as well as higher transportation costs due to higher oil prices, which are up more than 50% a year.

The rising costs are particularly acute in the US, where many projects have already faced hikes in part due to trade tariffs imposed on China, a leading maker of solar cells and other renewable energy components. A third of U.S. utility-scale solar capacity planned for the fourth quarter of 2021 was delayed by at least a quarter, and 13% of projects due for completion this year were delayed by a year or canceled, according to a new report by Wood Mackenzie and the Solar Energy Industries Association.

U.S. projects have also faced long waits to obtain the necessary permits to connect new projects to the grid, as developers rush to bring wind and solar farms online to take advantage of aggressive government regulations to reduce emissions and overwhelm the network operators. These delays increase uncertainty for project investors.

A report by LevelTen Energy, a renewable energy marketplace, found that prices for long-term contracts for the purchase of wind and solar energy used to fund new projects have fallen in almost all competitive power markets in the fourth US quarter over the past year. Market up significantly According to the company’s indexes, prices rose 12.1% year over year for solar and 19.2% for wind in the second quarter.

President Biden with Secretary of Energy Jennifer Granholm at one of the campuses of the National Renewable Energy Laboratory in Colorado. The Biden administration has called for accelerating the transition to renewable energy.


Photo:

Evan Vucci/Associated Press

Engie, French utility and renewable energy developer SA

is closing customer contracts closer to project start dates to get a better view of cost inflation or potential logistics issues, said Dave Carroll, head of the renewable energy company in North America. Cost forecasting has become far more complex than it was a year ago, Mr Carroll said.

“This is sending shockwaves through material prices,” he said. “It is uncertain how this will be settled.”

Denmark’s Ørsted A/S, a major wind power developer, said last month that inflation and permitting delays were putting pressure on its proposed offshore wind projects in the US David Hardy, chief executive of Ørsted Offshore North America. He called the need to contract ships now “a sort of Murphy’s Law.”

Companies that make wind turbines for projects like Ørsted’s have been among the hardest hit since the pandemic began, as the cost and complexity of moving huge rotor blades around the globe doesn’t offer easy solutions. Their costs are expected to rise again, although no critical components are sourced from Russia or Ukraine, said Deepa Venkateswaran, senior renewable energy analyst at Bernstein Research.

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A wind farm in Rio Vista, California. Renewable energy projects have been hit by rising prices for key materials.


Photo:

David Paul Morris / Bloomberg News

Nonetheless, she said the current spate of problems is viewed as a short- to medium-term concern as demand for renewable energy projects increases due to increasing demands to become less dependent on fossil fuels from Russia.

“The larger mid- to long-term positive is the added sense of urgency to get going with renewable energy and address the obstacles like permitting,” Ms Venkateswaran said.

Competitive Power Ventures, a Maryland-based power generation company with several ongoing renewable energy projects, said it is working to stockpile solar panels and other equipment by ordering more than it currently needs in hopes of avoiding future supply shortages. It has also sought development sites that do not require major transmission upgrades to reduce potential grid connection approval delays.

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Sean Finnerty, the company’s Executive Vice President of Renewable Energy, said the number of transmission study projects pending presents a significant challenge for the industry. PJM Interconnection LLC, an electricity market serving 13 states from Virginia to Illinois, recently proposed a two-year waiting period for interconnection applications submitted in the last year because it is processing a backlog of applications, which among other challenges is further lengthening project schedules.

“It’s just going to slow down the PJM market a little bit, which will make it harder for some of these states to meet their near-term renewable energy goals,” Finnerty said.

Some customers of Schneider Electric SE,

which makes electrical products and provides technology and services for managing electricity consumption, are trying to beat inflation and have told the company, “Just build me more and store it,” said Aamir Paul, the US President of the company.

“We didn’t have a practice helping customers decide which storage facility to use because it wasn’t a thing,” said Mr. Paul. “Now it’s one thing.”

write to Jennifer Hiller at jennifer.hiller@wsj.com and Katherine Blunt at Katherine.Blunt@wsj.com

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