Coronavirus’ initial impact on the solar supply chain
Coronavirus doesn't need much of an introduction. The first case of the novel virus was discovered in late 2019 in Wuhan, China. Since then, we have learned that the virus is spread through human-to-human contact. Both the national and local governments in China implemented strategies such as work stoppages, forced quarantines, and travel restrictions in an attempt to prevent the spread of COVID-19.
With these measures in place, manufacturing in China came to a screeching halt. This meant that the output of materials from China, which happens to be the world’s largest producer of solar panels and solar equipment, was close to zero.
This manufacturing slowdown was anticipated to disrupt the solar supply chain globally, with many countries being forced to delay solar installations due to a lack of panel imports.
Work stoppages and travel bans caused solar panel manufacturing delays in China, which led to a disruption in the global solar supply chain. Image source: China Daily
However, Chinese manufacturing factories are now starting to come back online, which should hopefully put some things back on track.
Initially, the US solar industry wasn’t expected to be hit too hard by the supply chain disruption in China, due to the tariffs placed on solar panels imported from the country. In an effort to dodge these tariffs, many US installers started switching to panels manufactured outside of China back in 2018.
In fact, a recent report released by the US Energy Information Administration revealed that solar panel shipments for January 2020 were nearly four times higher than shipments last January. This suggests that COVID-19 was not having a substantial impact on US solar shipments at the start of the year.
However, as things have progressed, the US solar industry is now starting to feel the heat. Since our last article on coronavirus, which was published in the beginning of March, things have escalated quickly.
The impact of COID-19 on the US solar industry will extend far beyond the solar supply chain.
Tesla succumbs to coronavirus - closes solar panel manufacturing plant
A major concern of the US solar industry right now is that US solar panel manufacturers could be facing work stoppages and quarantines similar to those that took place in China. If this does in fact happen, the same issues that Chinese solar manufacturing plants faced will soon be passed onto US panel manufacturers.
On March 19, Tesla announced the closing of its doors to its Buffalo, New York factory due to coronavirus. The closure comes after an order from New York State requiring all non-essential businesses to cease operations. The factory, also referred to as ‘Gigafactory 2’, produces Tesla solar panels, as well as the company’s Powerwall energy storage products.
Tesla recently announced it will be closing Gigafactory 2 in Buffalo, New York, due to coronavirus concerns. Image source: Tesla
In a statement, Tesla revealed that Gigafactory 2 will halt all activity, except for the “production of parts and supplies necessary for service, infrastructure and critical supply chains”.
The decision to close comes somewhat as a surprise, considering the fact that Tesla’s CEO Elon Musk recently called into question the severity of coronavirus in a slew of tweets.
Tesla CEO Elon Musk has been downplaying the coronavirus outbreak via Twitter, making it all the more surprising that the company voluntarily closed its Gigafactory 2. Image source: Twitter
So far, Tesla and Solaria are the only US solar manufacturers to take this measure. However, it should not come as a surprise if other manufacturers begin to follow their lead, especially as coronavirus continues to spread.
And it won’t stop at manufacturing operations - other sectors of the solar industry may start ramping down as a result of shelter-in-place orders, as well.
Shelter-in-place orders cloud the immediate future for solar installers
Shelter-in-place orders can force more than just solar panel manufacturers to close; solar installers are preparing to halt business, as well. SEIA has provided a list of state business closure rulings.
As of April 2, 2020, the following states have issued some form of state business closure orders (with some issuing a shelter-in-place order):
When it comes to solar installation companies, they seem to fall in a grey area where it is unclear as to whether or not they will be able to remain operating.
As of right now, it seems as though solar installers should be able to continue installation projects in most states. While installation companies would have to cease door-to-door sales, they can continue to make appointments and sales via phone and video calls.
If states begin to implement stricter regulations, solar installers could start to see more severe impacts to their businesses. Many small solar installers won’t be able to stay afloat without being able to conduct business, which could lead to substantial layoffs.
According to one SEIA survey, the solar industry could see a 50% reduction in jobs. That's about 125,000 people suddenly finding themselves out of work.
Luckily, with 75% of solar installers being small businesses, they can qualify for aid or loans from the Small Business Association. Plus, with the recent passing of the coronavirus stimulus package, many installation companies can qualify for government assistance. Not to mention, employees of installation companies that have been laid off, furloughed, or had their hours cut could qualify for unemployment benefits.
Even in areas without work bans, solar installers are feeling the pressure on account of COVID-19. According to SEIA president Abigail Ross Hoper, homeowners are already starting to cancel solar projects for their homes because of the rising fear of coronavirus.
In some solar markets, solar project cancellations were up by 30% due to coronavirus.
Solar installations are already experiencing delays on account of the COVID-19 pandemic. Image source: Power Technology
Project delays could lead to missed tax credit incentives
With US solar manufacturers and solar installers facing possible delays, it’s likely that some projects will be finished later than expected. While this seems like a minor inconvenience, these delays could very well prevent some projects from qualifying for solar incentives.
A survey conducted by SEIA revealed that most solar installers are concerned about construction delays caused by COVID-19. Image source: SEIA
For instance, solar panel system projects must be finished before 2023 in order to receive the federal tax credit. The delays that we are seeing throughout the supply chain and in the workforce could potentially push some projects' completion dates back - especially those that started in 2020 or that will be started in 2021.
During a webinar held on March 20, SEIA representatives confirmed that they are working with their contacts in Washington D.C to push for an extension on ITC deadlines.
Many solar developers are already reaching out to the IRS in regards to extending deadlines for the federal tax credit. It would benefit installers everywhere if the IRS released a blanket statement regarding extensions for solar projects impacted by coronavirus delays.
A blanket statement would provide installers, developers, and system owners a defined set of guidelines for extensions and likely streamline the approval process for the IRS.
So far, the IRS has not responded.
Solar policy to take a back seat to coronavirus legislation
Coronavirus is taking the spotlight from every other legislative proposal in both the federal and state governments. Even local governments have a lot to consider, such as implementing curfews and deciding which businesses should remain open in a pandemic.
Coronavirus, rightly so, is demanding every government official’s attention, so solar and environmental policy is going to get pushed to the side. For instance, bills regarding energy efficiency measures for low income households in Maryland have been put on hold so state legislators can focus on coronavirus.
Not only that, with efforts focused towards public health and COVID-19 responses, permitting processes are also experiencing delays, pushing back projects even further.
Government officials are working around the clock on coronavirus legislation. Image source: LA Times
Despite the setbacks, organizations like SEIA are still pushing for the solar industry’s voice to be heard amid the pandemic. To prevent the economic repercussions of coronavirus from harming the solar industry any further, renewable energy advocates have asked lawmakers to consider the solar and wind industries when developing new coronavirus stimulus packages.
In a letter sent to Congress by SEIA, in alliance with 550 US solar companies, the trade association requested Congress to consider the following:
- Creating a program that allows the direct payment of renewable tax credits to allow projects to continue, as less people will be interested in tax credits
- Passing a multi-year extension of the commercial and residential federal tax credits that will extend placed-in-service deadlines
- Extending the Safe Harbor agreement deadlines to allow equipment delivered by the end of 2020 and 2021 to be covered
18 Senate Democrats put some of these requests into a letter, which was then sent to Senate leaders who decide whether or not to include renewable energy in the stimulus package. Republican Senator Mitch McConnell responded to the inclusion of renewable tax credits by saying “Are you kidding me? This is not a juicy political opportunity. This is a national emergency.”
The renewable energy tax credit extensions, unfortunately, were not included in the final stimulus package approved by the Senate on March 25. However, SEIA is still fighting for the solar industry to be considered in future relief packages.
The industry will struggle, but demand for solar may actually increase
It’s clear that the solar industry has already begun to feel the negative impacts of coronavirus. While the short and medium-term projections look a little bleak, there is a silver lining. A few of the impacts of coronavirus could make an investment in solar look even more attractive than it already is.
For example, shelter-in-place and quarantine orders are forcing many people to stay in their homes, thereby causing an increase in their electricity usage. With higher electric bills, more people might consider switching to solar in order to start seeing some savings.
Plus, solar is a very reliable investment. Even if the stock market crashes, solar panels will continue to produce electricity and provide homeowners with substantial savings, rendering them reliable even in the face of a recession.
Coronavirus is causing the interest rates on loans to drop even lower than they already are, with borrowing costs from the Federal Reserve falling to below 1%. In many cases, monthly loan payments will be cheaper than what homeowners pay for their electric bills. These affordable loan payments, combined with low interest rates, make solar more attainable than ever.
Coronavirus is a passing cloud, the sun will shine on solar again
Coronavirus is already impacting the solar industry and it will continue to as time goes on. In fact, Bloomberg has changed its projections for how much solar will be installed for the year 2020. If the new projections are correct, it will be the first time since the 1980’s that the US has seen a decline in the amount of solar capacity installed.
The good news is that the solar industry is resilient. The American people overwhelmingly support solar, with 92% of people polled by Pew Research in favor of the US in increasing the number of solar installations nationwide. Even with a potential decrease in growth, solar can still bounce back after the pandemic is over.
Bloomberg's newest solar forecast may seem grim, but the industry can still recover in the long term, beyond 2020. Image source: Inside Climate News
The immediate impacts of coronavirus, such as work shutdowns and shelter-in-place rulings will hit small solar installers the hardest. However, the federal government is working on economic stimulus packages to help these small businesses throughout the country.
While state governments are currently focused more on public health concerns, the good news is that when they shift to economic policies, it is likely there will be more aid in place for small businesses.
Solar has the potential to survive, even in times of recession. SEIA has compiled a list of resources that are useful to solar businesses who are struggling due to COVID-19. Solar businesses can also fill out SEIA’s survey to help them understand what is impacting their businesses the most during this pandemic.
The solar industry will come out on the other side of this shining.