Capital pouring into US renewables market as cost, policy hurdles mount

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The capital flowing into the U.S. renewables sector is resulting in an enormous infrastructure buildout, but some market participants question whether all customers are enjoying the benefits, and how much geopolitical events will affect project development.

Utilities have "had tailwinds for the better part of the last decade and increasing tailwinds leading up to the last year and you saw that ... with the sheer quantum of capital from corporations, private equity, sovereign wealth funds, insurance companies," Raymond Wood, managing director and head of the global natural resources group at Bank of America Securities, said during an April 19 panel at Bloomberg New Energy Finance's New York City summit.

For residential customers, however, that enormous pool of capital funding projects is impacting affordability, according to Catherine Stempien, president and CEO of Avangrid Inc. subsidiary Avangrid Networks Inc.

"I appreciate having the Googles of the world as customers," Stempien said. "But my customers can't afford the over-buildout, they can't afford [for] us not to be efficient because at the end of the day my residential customers who are rural, who are largely below middle class, cannot afford for me to want to build out redundant systems."

Stempien added that utilities are forecast to spend $25 billion per year on transmission projects and that some scenarios predict a total $2.4 trillion of investment.

"Could it be a third of that if you plan that transmission the right way? You could probably build a lot more innovative [high-voltage, direct-current] lines," she said.

Amanda Corio, global head of data center energy at Alphabet Inc.'s Google, agreed that rural customers need to have access to the low cost of renewable energy that corporations enjoy through power purchase agreements with wholesale electricity markets.

"If you had told Google in 2012 that we'd still be doing corporate [power purchase agreements] and it'll be as large as it is in 2022, we'd be like, 'Man we failed somewhere and the system hasn't changed,'" Corio said.

For Siemens Energy AG, supply chain bottlenecks present a substantial barrier to scaling up U.S. renewables, particularly energy transition metals like lithium, cobalt and nickel.

"It just seems when we're trying to get a handle on what's happening, another crisis is happening," Tim Holt, a member of Siemens' executive board, said. "There's only very few [renewable energy materials] suppliers and a number of them sit in Russia and in China ... for some metals there really isn't a [renewables] supply chain outside China, and we just have to face that reality."

Avangrid Networks' Stempien acknowledged that projects will be delayed and developers will shoulder increased costs, which the utility industry is responding to by working "together as opposed to against each other."

"We rely on each other and we almost treat it like a storm," Stempien said, sharing excess supplies of distribution transformers, utility poles and other materials.

Google's Corio expects more supply chain certainty, but policy issues like the Department of Commerce's investigation into whether solar manufacturers used factories in Southeast Asia to circumvent American tariffs on imports from China remain a key concern.

"What keeps me up at night ... is things like anti-circumvention policy where it's just unknown, and so the whole industry on the solar side is at a standstill in the U.S.," Corio told the panel.

Siemens' Holt also mentioned permitting challenges in Europe that the U.S. has similarly experienced with large transmission projects, citing the recently authorized 1,250-MW Champlain Hudson Power Express project under development by Blackstone Inc.-backed Transmission Developers Inc. that would carry power from Hydro-Québec's wind and hydroelectric resources to New York City.

As hurdles to placing renewable energy infrastructure into service get higher, the price of power is also going up. Contract prices for wind and solar power in North America rose by nearly 10% in the first quarter of 2022 as project developers continued to grapple with supply chain disruptions and rising input and labor costs, according to an April 13 report by LevelTen Energy Inc.

"It's not always clear that renewables will be cheaper next year than they were last year, depending on the subsector," Bank of America Securities' Wood said. "It is kind of the best of times and the worst of times."

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