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2 Trends Are Hurting Solar Companies — and Biden's Big Energy GoalsAuthor: Salzman, Avi Barron's (Online) ; New York (Sep 10, 2021). The Biden administration is betting big on solar power to generate a much larger portion of U.S. electricity in the years ahead. The Energy Department released a study this week that says as much as 40% of U.S. electricity could be produced by solar in 2035, and 45% by 2050. That would necessitate the U.S. quadrupling its annual solar capacity growth in the years ahead. Today, less than 4% of electricity in the U.S. is produced using solar energy. The study is not official U.S. policy at this point, but it points to the administration's ambitions for the industry. To get there, the U.S. will have to overcome obstacles that now threaten to derail solar's growth and appear to be weighing on stocks in the industry. After some of the stocks doubled and tripled in 2020, they have stalled or even declined this year . Sunrun (ticker: RUN), the leading residential solar developer and installer, has fallen 33% this year. First Solar (FSLR), the largest U.S. solar manufacturer , is up just 3.5%. The most pressing of those issues is a supply-chain problem. Prices of raw materials that go into solar arrays, like steel and polysilicon, have soared this year. And solar panels are not immune to the other disruptions that have snarled supply chains around the world this year, like expensive freight-shipping costs, and a lack of available container ships. Global solar panel prices are up 16% this year from last year's levels, according to Rystad Energy. The price of mono-polysilicon, the key ingredient in the panels, is expected to average $18 per kilogram this year, up from $9 last year and $7.60 in 2019, according to Rystad Energy. The Paris agreement is intended to hold temperature increases to 1.5 degrees Celsius, but to get there the industry will have to get those supply-chain issues under control. Already the U.S. has been growing its solar capacity at a fast rate. In 2015, 7.5 gigawatts of capacity was added. This year, energy research and consulting firm Wood Mackenzie is projecting that the country will add 26 gigawatts. It will have to grow quite a bit more to slow the pace of climate change, however, according to Dr Xiaojing Sun, Wood Mackenzie's head of solar. In an interview, Sun said that the U.S. would need to add about 80 gigawatts of solar capacity by the end of 2030 to achieve the Paris targets. "It's a tall order," she said. Sun thinks that the solar supply chain presents a large challenge. Both former President Trump and President Biden have tried to jump-start the industry, and U.S. solar panel production has tripled since 2018. But the vast majority of panels are still made in Southeast Asia, and so the U.S. is beholden to that supply chain. In addition, U.S. tariffs have made overseas panels more expensive, and some companies are lobbying to extend and expand them — charging as much as 200% of the cost of the panel in some cases. "If it comes to pass, it effectively cuts off 75% to 80% of the module imports to this country," Sun said. "It's not an exaggeration to say it's going to be devastating." Tariffs could presumably help U.S. manufacturers compete on price, but would cause overall prices to rise and could make it harder for solar to compete with other energy sources on price. "I can see the administration is really playing a hard balance, to fulfill the promise of domestic jobs, while at the same time also fight climate change," she said. "Unfortunately, I think the solar industry is where those two goals actually come at a crossfire with each other." For now, most U.S. solar manufacturers supply the residential market, where consumers are often less price-sensitive. Utility-scale solar — which is projected to make up the bulk of solar capacity in the future — is much more price-sensitive and more likely to be bought overseas. Array Technologies (ARRY), which builds systems that allow fields of solar panels to rotate and track the sun, has overcome some of these challenges by diversifying its supply chain, Chief Marketing Officer Erica Brinker said in an interview on Friday. The majority of the company's supply chain is based in the U.S., she said. "We have a huge customer base within the US.," Brinker said. "And we've been able to deliver because of that diversified supply chain based in the U.S. as well." Other parts of the industry, however, might have a harder time getting there. For the U.S. to become a hub of solar manufacturing, it would need the kind of industrial centers that can be found in China, where component-makers are often located on the same grounds as manufacturers of finished goods, Sun said. Right now, the U.S. system is too decentralized, she said. A bill by Sen. Jon Ossoff, the Georgia Democrat, to offer tax credits for every stage of solar manufacturing could be one way to expand that manufacturing base, Sun said. Right now, tax credits tend to focus more on end users than on the manufacturers themselves. Another obstacle is a growing trend of NIMBYism ("not in my backyard") toward solar arrays, Sun said. "Nimbyism is such a big issue," she said. "People generally like solar, but if you want to plop a large solar farm in their backyard, they say I don't want that. That is playing out across the country that we can see. Solar siting is becoming a very contentious issue at the local level." A solar developer recently abandoned a Nevada project that would have been the largest in the U.S. after locals opposed it. To achieve Biden's renewable energy goals, solar panels would have to be placed on thousands of square miles of land. In this case, national goals could increasingly hit local roadblocks. Write to Avi Salzman at avi.salzman@barrons.com 2 Trends Are Hurting Solar Companies — and Biden's Big Energy Goals Credit: Avi Salzman |
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