leaving panel manufacturers and their customers dependent on an international supply chain for these critical subcomponents. Other inputs, such as inverters, trackers, and racking, face an uncertain cost outlook, but significant shortages are not expected. Many of these challenges have been ongoing, but a recent McKinsey survey suggests that they have shifted in order of priority. 5 Today, EPC and labor shortages are a top challenge for renewables players, overtaking other obstacles such as limited access to land and permits, inflation and commodity price volatility, and interconnection (Exhibit 2). EPCs could remain in short supply for the next three to five years as the industry attempts to almost triple in size to build new utility-scale solar projects. This undersupplied market has given EPCs leverage to negotiate more favorable pricing and reduce their liability when materials or labor shortages cause schedule or cost overruns. At the same time, owners are struggling to secure EPC capacity and absorb risk from procurement uncertainty. Although some developers have established EPC partners, others—such as utilities that are just beginning to self-develop renewables—have arrived late to the matchmaking and need to catch up on solar-project-delivery capabilities. In this constricted environment,
pricing trends could be more uncertain because of geopolitical dynamics, commodity price volatility, and the challenges of rebalancing supply and demand amid the diversification of solar panel manufacturing. — Interconnection costs and timelines. Until an interconnection agreement is signed, grid connection can be one of the most uncertain costs for a renewables project. Additionally, in many regions, the interconnection process has become longer and more expensive. On average, US projects spend almost three years in interconnection queues, according to Lawrence Berkeley National Laboratory. 4 To reduce the number of speculative projects in queues, some independent system operators
(ISOs) have implemented administrative fees that force developers to make larger bets on projects before reaching an interconnection agreement.
— Supply chain constraints. The IRA creates incentives for the US solar market to transition toward a more localized supply chain. US panel manufacturers could begin producing at scale within the next one to three years, relieving recent module availability challenges. However, the shortage of domestically manufactured wafers and solar cells is expected to persist,
Today, EPC and labor shortages are a top challenge for renewables players.
4 Will Gorman et al., “Queued up: Characteristics of power plants seeking transmission interconnection as of the end of 2021,” Lawrence Berkeley National Laboratory, April 2022. 5 McKinsey Utility, Developer, and EPC Survey, December 2022.
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