Fair days for the solar power industry face a looming trade cyclone in the East.
A U.S. investigation into Asian solar panel exports has stalled two of Entergy Arkansas’ largest sun projects and threatens pricing models behind a multiyear revenue boom by solar developers.
The U.S. Department of Commerce inquiry into whether China is dodging tariffs by funneling panel parts to other Asian countries for assembly looms as a “grave threat,” said Bill Halter, CEO of Scenic Hill Solar of Little Rock. Halter’s worries reflect broad concern across the industry, according to five renewable energy company leaders who spoke with Arkansas Business. Since the inquiry was announced in March, sales of the imports have essentially stopped.
Arkansas’ top utility regulator, Public Service Commission Chairman Ted Thomas, last week scalded the investigation as “imbecilic,” resorting to almost barnyard language. Launching the inquiry amid a global energy crunch and natural gas volatility crisis rendered the timing disastrous, he said.
“Alternatives to the high prices of natural gas have been limited through what I describe as stupid fuel wars,” Thomas told a joint transmission task force of the Federal Energy Regulatory Commission and National Association of Regulatory Utility Commissioners on Tuesday.
“The donor bases of both political parties promote the interests of producers of energy, often at the expense of consumers of energy, usually while hiding behind a jobs argument,” Thomas continued. “The imbecilic actions of the United States Department of Commerce, again, a donor-driven political imperative masquerading as a jobs argument, has nearly imposed a construction moratorium on solar power plants.”
“To sum it up,” the University of Arkansas School of Law graduate and former prosecutor said, “my ratepayers cannot afford this bull-BLANK!”
80% of Projects Imperiled
Renewable power leaders say the inquiry could trigger tariffs up to 240%, “and they could potentially be retroactive,” said Halter, a former Arkansas lieutenant governor. “As a purchaser of these modules, you could be liable.”
The American Clean Power Association estimates that the tariffs would eliminate 80% of planned solar projects nationwide. Heather Zichal, CEO of the trade group, has called on President Joe Biden to stop the investigation. Otherwise, she said, the administration’s declared push for renewable power is just “empty rhetoric.”
The “moratorium” includes two huge solar fields the PSC has approved for Entergy Arkansas, the state’s largest utility and also its largest solar power producer. On hold are Walnut Bend Solar in Lee County, a 100-megawatt system with sun panels planned over 900 acres, and West Memphis Solar, an even bigger 180-megawatt project. That field is planned along Interstate 40 in Crittenden County and is being built by NextEra Energy Resources of Juno Beach, Florida.
NextEra Chief Financial Officer Kirk Crews announced April 21 that up to 2.8 gigawatts of the company’s planned solar projects are on hold, the approximate generation capacity of three nuclear power plants. He said all that work “may shift to 2023” or later “due to the circumvention investigation.”
Credit Suisse described the announcement as the “first concrete data point” indicating distress in the U.S. solar industry. The countries accused of fronting for Chinese exports are Malaysia, Thailand, Vietnam and Cambodia.
The Walnut Bend project is being built by Invenergy LLC of Chicago, which will sell the array to Entergy after completion. Originally expected to be completed this year, construction has yet to begin. “These are issues the whole solar industry is dealing with, driven in large part by tariffs and other disputes,” said Kurt Castleberry, the investor-owned utility’s director of resource planning and market operations. “Uncertainty in the availability of components has affected Walnut Bend and West Memphis, but this affects the whole country, not just Arkansas, and it’s just something we’re having to work through. But we believe it’ll be temporary.”
Castleberry made his remarks to Arkansas Business late last month. Entergy representative Kacee Kirschvink said last week that the projects could be delayed for several months. “While we continue working to get these projects under construction, we are also pursuing other renewable projects to expand our renewable portfolio,” Kirschvink said in an email. “A diverse energy mix is key to keeping the power flowing, while keeping costs down. Besides solar, Entergy Arkansas currently owns or operates nuclear, gas, coal and hydro plants that generate electricity for customers.”
The utility has the state’s three largest solar facilities, the 81-megawatt Stuttgart Solar, in operation since 2017; 100-megawatt Chicot Solar at Lake Village, which came online in 2020; and the 100-megawatt Searcy Solar facility, which started producing electricity in January.
Badly Timed ‘Curveball’
Solar-generated electricity is the cheapest power source these days, Castleberry said, but industry experts fear that rising module prices could alter the equation and smother a growing sector of the economy.
“To have this curveball thrown to the country now is really unfortunately timed,” said Halter, the Scenic Hill Solar CEO. “It would be difficult at any time, but now, when solar power is even more attractive both from a price perspective and a price-certainty perspective, ultimately reflects a policy failure. This set of circumstances needs to be addressed, as quickly as possible.”
The Commerce Department, which says it’s required by law to address all serious allegations of product dumping and tariff circumvention, has promised to complete its inquiry by September.
Arkansas solar companies, which have almost uniformly reported good business and a hiring surge, say they want a much faster resolution. Many haven’t fully felt the solar module impact yet because they buy panels in advance and saw supply-chain trouble coming.
“All supply chain issues aside, the first quarter was our best quarter in company history,” said Caleb Gorden, president and co-founder of Shine Solar in Fayetteville, which marked its sixth anniversary in February. “We’re installing more solar panels now than we ever have and demand is higher now than it’s ever been. There’s also far more awareness in the market about how solar power can give homeowners lower bills and real predictability in these volatile times.”
Shine Chief Operating Officer Tommy Lowden said the company installs between 2,700 and 3,000 panels a month on home rooftops.
Overall solar power production has soared in Arkansas during the past five years, increasing almost 2,000%, according to the Arkansas Advanced Energy Association. The number of solar systems on net metering, the billing method that allows power customers with their own generation to be credited for the energy they contribute to the grid, skyrocketed from just 408 in 2014 to more than 7,000 last year.
When customers generate more electricity than they consume and put the excess onto the grid, they are billed for the grid power they used and credited for what they put back on. A major appeals court decision upholding Arkansas’ system came down last week.
Shine Solar gets its solar modules from North America’s leading manufacturer, Silfab Solar of Canada, which has facilities in Toronto, as well as Bellingham and Burlington, Washington. “They do source some of their parts from overseas, so they’re feeling it a little bit, but generally speaking, they’re not having this same issue as far as allocation goes,” Gorden told Arkansas Business. “But they have seen prices go up on things.”
While Shine, which has been steadily growing and now has 280 employees, hasn’t really suffered yet, the company is working with partners and planning ahead. “However, pricing is changing along the way, and that’s a worry.” Gorden pointed to Shine’s diversified revenue streams. “We do energy efficiency, we do batteries, but there’s no question solar is the main driver.”
Still Cheaper Than 2016
Gorden said solar modules are still 20% cheaper than they were when Shine was established six years ago. And with utility prices rising, he thinks module prices will have to soar far higher still before he’s prepared to alter his business model.
“In 2016, solar pricing had come down enough and utility pricing had gone up enough that solar arrays finally made sense for consumers,” Gorden said. “Now, in 2022, utility prices are far higher than they were in 2016 and solar prices are still cheaper. So financially it’s still a decision that makes sense for Arkansas homeowners. Sure, prices could hit a point where it becomes less advantageous, but that’s going to hit the residential sector last.”
Commercial and utility-scale developers, citing competitive concerns, declined to reveal their module sources. Derek Dyson, president of Today’s Power Inc. of North Little Rock, said the developer of small utility-scale solar plants was “fortunate to have purchased and had delivered sufficient modules from Europe” for projects scheduled this year and next.
But he said he was aware of various projects across the country that had to request contract modifications for extra costs and delays. TPI, a wholly owned subsidiary of Arkansas Electric Cooperatives Inc. of Little Rock, built two of the largest five solar projects completed in the state last year, the No. 1-ranked Ozarks Natural Energy Solar Park in Lincoln, with a 2.35-megawatt capacity, and the third-largest of 2021, the 1.5-megawatt Star City School District’s array in Lincoln County. Entegrity of Little Rock built the fourth- and fifth-largest arrays last year for Searcy Water Utilities and the Bald Knob School District, 1.37 megawatts and 0.96 megawatts respectively.
Seal Solar of North Little Rock — which has 61 employees, up from 19 at one point in 2019 — built the second-largest array completed last year, a 2.3-megawatt project to power Lexicon Steel of Little Rock. That solar plant is in Carlisle.
Seal Solar CEO Josh Davenport said his company hasn’t really felt the module crunch yet, “but it’s definitely looming.” Davenport started the company with co-founder and president Heather Nelson in 2012 as an energy efficiency company. They turned to an exclusive focus on solar power in 2019.
“The energy situation right now is volatile, and people have been looking at solar energy for its resiliency and backup, a sort of strengthening of their independence,” Davenport said, summing up why he believes solar power adoption needs encouragement nowadays, not impediments.
“It offers rate predictability, and that’s one of the reasons honestly we’ve seen sales increase year over year. We hate to see that threatened.”