US solar and wind projects stalled in Q2. What happened?

Renewable energy deployment must occur at an astounding pace to meet net-zero targets by 2050, but policy tangles, supply-chain vulnerabilities and economic uncertainty contributed to a 25% decline in the rate of clean energy installations in the first half of this year.

That’s according to a new report from the American Clean Power Association, which says the drop in installations is more ​“drastic” when comparing quarters year-over-year. In the second quarter of this year, renewable energy projects beginning construction were down 55% compared to the same quarter last year, while projects in the advanced phase of development — those with agreements in place but not yet under construction — were down 43%.

The report says the ​“clean power pipeline” overall is growing at a slower rate than in previous quarters: 3% in the second quarter compared to last year’s 12% per-quarter average. Solar took the largest hit with installations down 53%, while land-based wind installations were down 78%, according to the report.

What stalled installations?

Despite the projected growth in clean energy for the year, several hiccups have led to the slowdown, including vulnerabilities resulting from China’s dominance of the solar supply chain. The solar industry saw a major disruption earlier this year when the small panel manufacturer Auxin Solar petitioned the U.S. Department of Commerce to investigate tariff violations by Chinese companies.

To calm jitters caused by the Commerce investigation, the Biden administration waived any new solar tariffs for two years. Still, project delays ​“continue to mount,” according to the report.

They spread across technologies, but solar took the biggest hit, with 64% of solar capacity projects being delayed. Despite the 24-month suspension of new tariffs on solar modules, the report states, ​“a survey by LevelTen Energy found that developers and financiers still do not feel they have adequate assurance that tariffs will not be retroactively applied.”

“We have been warning about the storm of policy and economic headwinds the clean power industry is facing,” said Heather Zichal, CEO of American Clean Power, in a statement. ​“Congressional inaction and uncertainty on long-term tax policy, tariff and trade restrictions, and transmission constraints all impact the demand for clean energy at a time when we need to be rapidly scaling up development.”

John Reilly, co-director emeritus at MIT’s Joint Program on the Science and Policy of Global Change, said it’s also possible that tax-credit deadlines last year could have incentivized companies to front-load their deployment efforts. In other words, the lull could be in part because previous projects are just now being completed, and companies may soon speed up their efforts again.

“Jigs and jags”

The overall outlook for the clean energy industry is mixed. Some areas continue to prosper amid market turmoil, but regulatory uncertainty still looms.

Battery storage deployment is up by 13% this quarter, according to the American Clean Power report, despite delays that have slowed more than 4.1 gigawatts’ worth of projects, which amounts to 13% of all postponed clean energy projects. The upswing in battery deployment isn’t likely to taper off anytime soon: In the space of one week earlier this month, two separate battery developers raised $235 million in funding, while Generate Capital acquired its first grid-scale battery developer. Several other similarly sized investments took place over the last year as well.

The number of corporate power-purchase agreements (PPAs) increased by 20% this year; Amazon alone accounted for 3.2 gigawatts of the 14.8 GW total, according to the report. Despite this growth, PPAs aren’t immune to industry pressures, inflation and ​“regulatory uncertainty,” the report points out, which is illustrated by the fact that prices for wind and solar PPAs rose almost 30% year-over-year.

Still, total clean energy operating capacity overall increased 2% this year to over 211 GW, according to the report — enough to power 58 million American homes. Meanwhile, 30 companies have at least 1 GW of capacity currently in development. NextEra and Invenergy lead the way with more than 18 GW and 7 GW worth of projects underway, respectively.

“The quarter doesn’t kill us,” Reilly said, as long as some projects are just delayed and installs increase in the second half of the year. ​“If the Biden admin announcement [on waiving solar tariffs] has the reassuring effect they are hoping for, I would expect a rapid bounce back — probably this quarter,” he added in an email.

However, Reilly said production needs to increase considerably to stay on track for net-zero goals, even from last year’s breakneck pace: ​“The clock is ticking on ramping it up.” Reilly was among several authors of a study published in May in the journal Science that analyzed actions the U.S. would need to take to reduce emissions by 50% by the end of the decade. Reilly and his co-authors found that yearly solar and wind additions must increase by at least 29 GW per year, possibly up to 91 GW per year, and that most models show federal policies to be ​“necessary catalysts.”

Congress’ budget reconciliation talks are potentially the biggest source of uncertainty hanging over the industry. Last week, Senator Joe Manchin (D-West Virginia) flipped from blocking progress on a major bill to supporting a revised version called the Inflation Reduction Act of 2022. Despite concessions that favor fossil fuel development, the $370 billion bill includes what may be the largest package of clean energy incentives in U.S. history.

Even with that package on the table, it remains unclear how the market will play out for the rest of the year. ​“We have seen jigs and jags in renewable investments in the past as tax credits were set to expire, only to have them extended at the last minute,” Reilly said. If developers think this bill will go into effect next year, he said, they could hold back on projects to take advantage of funding. ​“But there’s still uncertainty about whether that will go through.”