When the California Public Utilities Commission, the state's power regulator, issued a historic mandate in July 2021 for power providers across the state to procure a total 11.5 gigawatts of clean electricity – enough to power 2.5 million homes – by 2026 or face penalties, it sent everyone into the market at the same time, searching for the same exact product: unclaimed renewable energy that could be delivered within the next five years.
Unsurprisingly, the industry has struggled to meet the pressure of this new demand.
In July 2021, the main concern was still a supply chain gummed up by the pandemic. In the 11 months since, the challenges facing the renewable energy industry – especially solar power – in California have only multiplied. In an industry where the price of materials has steadily declined over the years, costs have recently risen, carried by skyrocketing demand following the CPUC mandate, a premium on cobalt and lithium – critical battery materials – triggered by the war in Ukraine, substantially slowed production due to China's zero-Covid lockdowns, and a strangle on solar cells from southeastern Asia following the announcement of a federal investigation involving China circumventing solar tariffs. All of this is occurring against the backdrop of steadily rising inflation.
The issues have had impacts local and statewide. Pete Scudder, owner of Scudder Solar Energy Systems in Marina, says numerous commercial projects he's working on have been delayed by six months or longer.
Amid the industry stress, Central Coast Community Energy, or 3CE, the PG&E alternative that purchases clean power for more than 400,000 customers in the five-county Central Coast region, has had seven contracted developers raise issues over existing power purchase agreements, a situation that threatens to increase costs for 3CE customers and has even led to a lawsuit against one of the developers.
Developer Big Beau Solar LLC signed a 20-year power purchase agreement with 3CE and the Silicon Valley Clean Energy Authority in October 2018 with locked-in rates for a 128-megawatt solar and 40-megawatt battery storage project in Kern County. On March 17, 2022, Big Beau told 3CE and SVCE it wanted to increase the rate for the battery storage service by nearly $77 million – a 233-percent increase over the original terms – according to a complaint filed in the Santa Clara County Superior Court.
After failed negotiations, Big Beau said it was simply terminating the contract, ripping 40 megawatts of battery storage from the power providers' portfolios.
"This is something very unique. It has never happened in the industry, as far as I can remember, that you have a contract, you sign it, you commit to it and then one of the parties comes back and says, 'I cannot live up to the terms of the agreement, we need to renegotiate,'" 3CE CEO Tom Habashi told the utility's Operations Board on May 11. "We are trying to figure out which of these contracts are worth salvaging."
In the Big Beau situation, the battery storage portion of the project was not yet online, despite the sides executing the agreement in 2018 – planning for the project began even earlier. Robert Shaw, COO of 3CE, says that timeline is typical, which is fueling the pressure now squeezing the industry. The CPUC created a runway of only 5 years for power providers to meet their 11.5-gigawatt mandate. That means the rush isn't so much to plan new projects, but to successfully outbid other providers for the power promised by the limited amount of renewable energy projects already underway.
In other words, it's a bull market for renewable energy projects slated to come online before 2026, and Shaw says developers, even if they are already under a contract, "are likely to evaluate that demand increase."
However, a proposal from a developer to renegotiate may not always be triggered by insatiable capitalism. Projects under development are facing substantial obstacles in meeting their deadlines. China's extended and strict lockdown to prevent the spread of Covid stalled production at manufacturing plants in the battery storage industry; lithium and cobalt have been difficult to import from Ukraine amid Russia's invasion, further crippling lithium-ion battery production.
The federal government sent shockwaves through the domestic solar industry when the U.S. Department of Commerce announced on March 28 that it was investigating whether solar modules coming from four southeastern Asia countries – Malaysia, Cambodia, Thailand and Vietnam – were actually Chinese products being pushed through the countries to circumvent American tariffs. About 80 percent of U.S. solar module imports come from the four countries.
The results of the investigation are scheduled to publish in January 2023, and could be coupled with retroactive tariffs on products that violated what are known as anti-dumping laws. The potential for retroactive tariffs essentially halted imports of solar modules from these countries, and exacerbated the pressure of the CPUC mandate.
Then, on June 5, President Joe Biden said he would waive tariffs on solar modules from the four countries for the next 24 months. He also enacted the Defense Production Act for the federal government to help ramp up domestic solar production.