EVs, supply chains, and infrastructure: 4 renewable energy trends to watch in 2022
Contributed by Zaki Robbins, Moye White LLP
Despite facing industry-wide obstacles ranging from supply chain issues and COVID-19 pandemic-driven workforce shortages to continued mixed signals coming from governmental and business leaders, 2021 was a banner year for renewable energy policy and development. Although 2021’s headwinds are unlikely to subside in the near future, all indications forecast continued momentum in the clean energy industry over the course of 2022. While it is impossible to predict with certainty all that will occur over the year ahead, there are four possible trends that will tell the story of renewable energy in 2022.
1. Continued struggles with supply chains and labor markets
2021 saw unexpected shocks hit the renewable energy industry as a result of supply chain issues and rising commodities prices. Costs of raw materials rose significantly – including silicon (up 60%), photovoltaic-grade glass (up 50%), and steel and copper (up 40%) – and freight shipping costs doubled in some cases. These issues have combined to wipe out nearly all price reductions seen over the prior two years. In addition to price increases, the industry also struggled to attract and retain talent in the wake of the ongoing pandemic. While developers have sought alternative suppliers and substitute materials in order to counteract the effects of these issues, these constraints will continue to drive short time uncertainty in the market.
2. Utility, commercial, and industrial demand fuels transmission investments
As of 2021, more than half of American states have instituted a renewable energy standard (RES) mandating the generation of clean energy by utility companies, and 23 of these RES plans include a specific solar or distributed generation provision. The targets set by these RES plans range from modest to aggressive, but many mandate a significant increase of renewable energy beginning in the year 2030, with several states mandating the transition to 100% renewable energy in the following decade. In addition, commercial and industrial (C&I) customers utilize more than 60% of the electricity generated in the U.S., and many of these companies have set their own aggressive renewable energy targets. For instance, the Clean Energy Buyers Association, an alliance of over 300 commercial and industrial energy buyers, recently announced a goal to create a 90% carbon-free U.S. electricity system by 2030.
Because not all energy buyers have the ability or desire to house generation facilities at the point of use, off-site, utility-scale projects are critical to the achievement of the goals set by regulators and the business community. However, the industry is becoming more and more aware that the success of these projects will require massive investments to upgrade and expand our current electricity transmission infrastructure. Although it may take as few as three years for a solar farm to move from the drawing board to commercial operation, new transmission lines can require up to a decade or more to finalize the land use agreements, regulatory, and permitting approvals. The Infrastructure Investment and Jobs Act (IIJA), signed by President Biden in November 2021 set aside $27.65 billion for grid infrastructure, resiliency, and reliability projects. At least $50 million will be set aside to construct new transmission lines and facilities. In order for the U.S. to have any chance to achieve its renewable energy targets, meaningful progress must be made in 2022 to solve transmission capacity constraints.
3. Strong electric vehicle growth
In addition to demand pressure from the C&I world, utilities will also see increasing pressure from the consumer market as Americans accelerate the adoption of electric vehicles (EVs) over vehicles powered by internal combustion engines. Once an industry dominated by luxury or niche vehicles produced by Tesla and Toyota, the EV market is now seeing the introduction of mass-market cars and trucks produced by Volvo, Ford, GM, and many others, resulting in over 100 different models expected to be available in 2022. While this growth has been driven in large part by consumer demands, federal policy is also fueling these changes, including an executive order signed by President Biden in August 2021 aiming for EVs to account for 50% of all new sales by 2030 and a second executive order in December 2021 mandating that the entire federal fleet transition to zero-emissions vehicles by 2035.
The availability and social acceptability of such a broad array of new EVs have led to predictions that as many as 845,000 EVs will be sold in the U.S. in 2022. This influx of EVs in 2022 and beyond is necessary for the U.S. to achieve its emissions reduction targets; however, the successful changeover will require a coordinated nationwide deployment of the nation’s charging infrastructure. While the Bipartisan Infrastructure Bill reserved $7.5 billion to build out the first-ever national network of EV chargers, additional deployment is required in order to fuel a rapid and reliable transition to widespread EV adoption.
4. Federal policy developments
Although the IIJA took a good first step by reserving billions of dollars for the development and deployment of renewable energy assets, the true catalyst for the American transition is renewable energy will be its ability to pass the Build Back Better (BBB) Act. As currently drafted, the Act includes extensions of the Investment Tax Credit and Production Tax Credit.
Industry analyst Wood Mackenzie predicts that if passed, the BBB would spur the installation of an additional 43.5 gigawatts (GW) of additional solar capacity between 2022 and 2026, bringing total U.S. solar capacity to over 300 GW, triple the amount deployed today. Further, Wood Mackenzie predicts that passing the BBB could result in more than 77 GW of new solar being added each year by 2030, more than double the base case without passing the BBB. While consumer and commercial concerns regarding climate change and the environment ensure that the renewable energy sector will continue its rapid growth with or without the BBB, the passing of this legislation in 2022 is crucial to the nation achieving its Paris and Glasgow greenhouse gas reduction targets and to the realization of our long-term RES and EV goals.
Although 2021 saw an increase in barriers for the renewable energy industry, such as the rising cost of raw materials and a labor shortage, the industry is predicted to have significant growth in 2022. With legislation being passed last year in favor of electric vehicle sales, along with a mirrored consumer demand, EV sales are assumed to take off in the upcoming year and decade. In addition, the Build Back Better Act, should it be passed, will spark a three-fold increase in solar energy capacity.
About the author:
With a focus on the advanced energy industry, Moye White partner Zaki Robbins handles matters involving energy generation and storage, as well as project investment and finance. He can be reached at Zaki.Robbins@MoyeWhite.com or 303.292.7904.