procurement, and construction companies (EPCs) and for the labor and materials required to build projects is expected to increase rapidly. Based on McKinsey analysis, EPC capacity to serve utility- scale solar projects would have to almost triple to meet the anticipated demand of approximately 50 GW installed in 2027. These market dynamics produce strong incentives to rethink traditional industry practices and unlock more-efficient project delivery. The size of the prize for successful collaboration has never been bigger: US renewables could attract an estimated $700 to $800 billion in capital investments to build onshore wind and solar projects through 2030. To capture this value, solar project owners, developers, and EPCs should establish new approaches to partnerships, risk ownership and contracting, workforce development, and digital and technology adoption. The energy transition will depend on it. An undersupplied market persists as bottlenecks shift To stimulate solar project development, the IRA extends old incentives and provides new ones. Chief among them are the revamped Investment Tax Credit (ITC), which offers a 30 percent tax credit on solar project capital cost, and the alternative Production Tax Credit (PTC), worth an estimated 2.75 cents per kilowatt-hour produced. 1 The IRA also created a new production tax credit that can be applied to domestically manufactured solar modules and subcomponents, including cells, wafers, polysilicon, and polymeric backsheets. 2 However, despite these incentives, the solar industry still faces five critical challenges: EPC and labor shortages, limited access to land and permits, inflation and commodity price volatility, interconnection costs and timelines, and supply chain constraints. These are the main bottlenecks that make it difficult to deliver projects at a competitive cost and schedule, and they could
potentially limit the rate at which the United States is able to grow its renewables to meet the economic incentives in the IRA. — EPC and labor shortages. The IRA puts pressure on already constricted markets for EPCs and labor, which have not kept pace with rapid renewables growth. Moreover, demand for engineering and construction talent is growing in other industries, such as broadband, transportation, semiconductors, and public infrastructure, with support from federal legislation including the 2021 Bipartisan Infrastructure Law and the 2022 CHIPS and Science Act. 3 To expand capacity, solar EPCs must compete with higher-margin industries for engineering and construction talent. What’s more, solar projects are often installed in rural areas where the overall labor pool is smaller to begin with, putting even more pressure on solar EPCs to ramp up their workforce development. — Limited access to land and permits. Securing the land and approvals to install solar is a challenge for early-stage developers. A 100-megawatt (MW) solar project can require more than 500 acres of land, and interconnection and topographical constraints further limit the land available. Permitting is managed by local governments, producing a patchwork of different requirements and regulations that developers must navigate. In addition, permits can be difficult to obtain without community support. — Inflation and commodity price volatility. Historically, solar module pricing has trended down as the technology has improved. However, the solar industry has not escaped recent inflationary pressures, and commodities such as steel, aluminum, and copper—which are used in modules, trackers, inverters, and bulk materials—have experienced record price volatility in the past 36 months. Going forward,
1 Utility-scale projects can receive potential add-on tax credits for using domestic materials or for basing themselves in communities tied to traditional energy resources, such as former coal, oil, and natural-gas sites; see “Renewable electricity production credit amounts for calendar year 2022,” Internal Revenue Service (IRS), November 10, 2022. 2 “The Inflation Reduction Act,” US Environmental Protection Agency, updated April 17, 2023. 3 Garo Hovnanian, Adi Kumar, and Ryan Luby, “Will a labor crunch derail plans to upgrade US infrastructure?,” McKinsey, October 17, 2022; “Semiconductor fabs: Construction challenges in the United States,” McKinsey, January 27, 2023.
Accelerating the journey to net zero
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