On 2 June the second-largest U.S. automaker announced that it will invest $3.7 billion in new facilities and upgrades to manufacturing plants in Ohio, Michigan, and Missouri. This includes investments in both electric models including the F-150 Lighting and e-transit bus, as well as internal combustion engine vehicles.
Ford plans to increase production of the new F-150 Lightning to 150,000 per year at its Rouge Electric Vehicle plant near Detroit, Michigan. Ford’s F-Series pickup trucks represent the best-selling vehicle line in U.S. history and customers had purchased in advance Ford’s entire 2022 output of the F-150 Lightning more than a month before the first truck was delivered in late May 2022.
Ford also plans a $1.5 billion investment in assembly for a new commercial electric vehicle in Ohio, which the automaker says it will roll out in “mid-decade.” Finally, Ford will invest $95 million in Kansas City, Missouri, and hire a third shift to produce its Transit vans. This includes both conventional and electric models.
CEA was unable to find an exact breakdown of the portion of the $3.7 billion investment going to electric versus conventional vehicles. In aggregate the investments are expected to create 6,200 new jobs and convert 3,000 employees to full-time.
Ford has a goal to manufacture more than 2 million electric vehicles per year globally by the end of 2026. This will represent nearly a third of the company’s output. However, it is still investing in gasoline-powered vehicles, with several new conventional car and truck models being rolled out alongside the electric models.
Ford’s announcement came a day after Bloomberg published an assessment stating that the global peak of ICE vehicle sales has definitively passed. In the article, Bloomberg predicted that with new electric vehicle sales taking up an increasing share of the new vehicle market, the world will never again exceed the 85.9 million ICE vehicles sold in 2017.
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New York State has announced the results of its latest solicitation of large-scale solar and energy storage projects, awarding rights to tier-1 renewable energy certificates for 2,408 megawatts of solar and 159 megawatts of energy storage. Of the 22 separate winning projects, Boralex Energy will develop five totaling 540 megawatts of solar and 77 megawatts of battery energy storage, and CS Energy and EDF Renewables will each develop three. Winning bidders of two projects include ConnectGen, East Light, Nexamp, and SunEast.
Six of the projects feature energy storage and in all cases the storage component is much smaller than the solar component; the largest battery is a Boralex project featuring a 77-megawatt battery integrated with a 250-megawatt solar plant. This is very different than in California, the United States’ largest stationary storage market, where the battery component of solar plus storage projects is often the same capacity as the solar portion. The winning projects are spread across the state, with the highest capacity (640 megawatts) in the Western region.
This solicitation by the New York State Energy Research and Development Authority (NYSERDA) is part of the state’s efforts to reach 70% renewable energy in its electricity mix by 2030. This is one of the most ambitious targets in any U.S. state. NYSERDA estimates that there are currently 120 solar, land-based wind, and offshore wind projects under development in the state comprising 14.2 gigawatts of capacity.
The cost of manufacturing EVs is expected to surge this year due to rising prices for key raw materials. The average price of a lithium-ion battery pack had declined nearly 90% from 2010 to 2020 as the global battery cell production increased tremendously. However, in the last few years raw materials like lithium, cobalt, and nickel have witnessed continuous price increases and sharp supply shortages due to this booming demand from the EV sector.
According to Benchmark Mineral Intelligence, since January 2020, lithium prices have surged by over 700%, cobalt by 100%, nickel by 250%, and graphite by over 25%. Out of these raw materials, lithium is the biggest concern as its supply is growing at a pace lower than the global EV battery demand.
In response to the rising price of raw materials, both cell and EV makers are making upstream integration investments in raw material production and refining and cathode/anode powder production. These investments are attempts to secure long-term supply of key raw materials. This situation today is similar to the situation in 2018, when EV makers were forced to move one step up across the battery value chain by collaborating with battery cell makers in order to bring down the price of battery cells and packs.
While battery cell makers are regularly announcing large-scale “gigafactory” expansions, capacity expansions in raw material production such as mining projects will not be enough to match the growing demand from the downstream sector, at least over the next two to three years. Rising raw material prices have prompted cell suppliers to push up prices to EV manufacturers, which are ultimately passing on costs to EV buyers. US-based EV makers like Tesla and Rivian Automotive have already raised prices of some of their EV models in early 2022 due to the high-cost pressure tied to raw material supply shortage and increasing prices.
Rising inflation, along with higher EV prices, is likely to force some customers to delay their purchase decisions, while other buyers wait for some lower price EV models to be launched in 2023. However, despite a tight supply for EV batteries and increased EV prices, Bloomberg New Energy Finance and other market analysts expect the overall demand for EVs to keep growing. According to the International Energy Agency (IEA), 2 million electric cars were sold worldwide in Q1 2022, up by three-quarters from Q1 2021.
Source: CEA Research
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On 8 June, the U.S. Department of Energy (DOE) finalized its first loan guarantee in nearly 10 years, providing backing for a $504 million loan to support a green hydrogen project in Utah. The Advanced Clean Energy Storage (ACES) project will utilize 220 megawatts of electrolyzers powered by renewable energy to generate hydrogen, store it in a salt cavern, and supply it to the IPP Renewed power plant. This new power plant will burn a mix of hydrogen and natural gas, transitioning to 100% hydrogen, to help supply electricity to the city of Los Angeles’ municipal utility.
ACES/IPP was the first large green hydrogen-burning electricity project in the United States, meaning that the hydrogen that it uses will be generated via electrolysis powered by renewable energy. Since its announcement multiple other utilities have announced their own projects to produce and burn green hydrogen in modified versions of natural gas-fired power plants. All of these projects will burn a mixture of natural gas and hydrogen, with many planning to transition to pure hydrogen.
As such, the ACES/IPP project provides a potential solution to one of the greatest challenges of the transition to renewable energy: how to supply zero-carbon power during the Dunkelflaute, the extended periods of little wind or sun.
DOE’s Loan Programs Office backs private loans through its loan guarantee program in three areas: innovative clean energy projects, advanced transportation projects, and tribal energy projects. Under the Biden Administration, LPO has received applications for more than 70 projects in 24 state totaling $79 billion in requests. Only one other project has yet reached the stage of a conditional commitment: a $107 million loan guarantee for a facility to produce graphite-based anode materials for EV batteries.
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On 6 June, U.S. President Joe Biden issued five separate executive orders authorizing the use of a 1950 law to expand domestic production of a wide range of materials and products needed in the energy transition. These include solar modules and their components, heat pumps, fuel cells and electrolyzers, platinum group metals, transformers and electric grid components, and insulation.
The Defense Production Act (DPA) was initially passed as a means for the president to ensure the production of materials necessarily to the national defense. It has long been utilized on behalf of military contractors and has been used in recent years to spur production of a variety of non-military goods, from ventilators and face masks during the COVID pandemic to infant formula.
DPA gives the president a variety of means to exercise control over economic activity. This includes ordering companies to manufacture specific goods, preventing exports of certain goods, enabling additional dedicated government procurement from specific industries, and restrictions on the hoarding of key materials and goods. Recently, President Biden invoked the Defense Production Act to provide grants and loans to companies in the energy storage space.
CEA is not convinced that the administration’s use of DPA on its own will spur additional large-scale solar manufacturing. This is due to the higher cost of both building and operating U.S. solar factories compared to other locations including China, Southeast Asia, India, and Turkey. While there may be some additional factories that take advantage of DPA grants and loans, these are likely to be restricted to assembly of modules for the residential market, which is less price sensitive, and/or niche applications.
To spur a large-scale establishment of manufacturing for utility-scale solar market, which represents the bulk of U.S. solar deployment, CEA believes it will be necessary to offset the effects of the higher operating costs of U.S. manufacturing. A policy to do this could take the form of incentives such as were found in the Solar Energy Manufacturing for America (SEMA) act. This act is potentially being considered as part of the larger reconciliation package being negotiated between Senate Democratic leadership and Senator Joe Manchin. However, negotiations between various parties around this bill have been dragging on since the winter and there is no guarantee that any reconciliation bill will pass before the mid-term elections this fall.
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On 6 June, U.S. President Joe Biden invoked emergency powers to exempt solar cells and module imports from Cambodia, Malaysia, Thailand, or Vietnam from duties under the current anti-circumvention investigation for a period of 24 months. This declaration of an emergency was hailed by solar developers, installers, and the two largest solar trade organizations: American Clean Power Association and Solar Energy Industries Association. It was sharply criticized by Auxin Solar and organizations supporting its petition, as well as thin film module maker First Solar.
The United States is an import-dependent solar market and the four nations in the investigation supplied 85% of the solar module imports to the United States in 2021. Following the initiation of the investigation on 25 March, 2022 imports dried up and projects have been delayed or cancelled as developers scrambled to get their hands on modules from other nations at higher prices and less favorable terms.
However, despite this reprieve, U.S. module supply faces other policy barriers and many projects previously scheduled for 2022 are still struggling to get back on track. Wood Mackenzie estimates that without additional policy support such as extensions and expansions of solar tax credits, only 18 gigawatts of solar will be installed this year, less than in either 2020 or 2021.
CEA expects an eventual reduction in prices due to the 24-month exemption, however this price decline could be delayed and we do not expect prices to return to the levels seen before the anti-circumvention investigation was launched. Primary reasons for continued high prices are both the existing supply constraints in the U.S. market and the significant market uncertainty created by pending implementation of the Uyghur Forced Labor Prevention Act (UFLPA).
Biden’s declaration of emergency is based on a clause in federal law that allows the president to suspend duties in the event of an emergency. While the examples stated are imports of “food, clothing, and medical, surgical, and other supplies for use in emergency relief work,” the law proscribes broad powers under emergency declarations for the president to act in the national interest.
In his emergency declaration, President Biden stated that the restriction on solar imports is threatening the completion of solar projects that will be needed for grid reliability this summer. This assessment is supported by the North American Electric Reliability Corporation’s recent warning that much of the nation could suffer electricity interruptions this summer driven by climate-induced heatwaves, a reduction in hydropower due to a drought in the West, and lack of available capacity (for more information see the 31 May U.S. Energy Transition Report).
Auxin Solar, which filed the anti-circumvention petition, has indicated that it is considering a legal challenge against Biden’s emergency rule. Additionally, Trade Lawyer and Law Professor Tim Brightbill, who represented plaintiffs in earlier solar trade cases, called the move “unprecedented,” and stated that “a number of parties” would be looking at the legality of the move. However, other legal experts have noted that it is difficult to challenge presidential emergency proclamations. It is especially difficult to do so when the process to do so is spelled out in the law, as it is in this case.
Supply Shortage Remains
CEA’s position is that this two-year exception to duties will not on its own resolve the shortage of modules in the U.S. market. Demand far exceeds domestic production, as the nation has only 8 gigawatts of production capacity – and only 2.6 gigawatts suitable for the utility-scale sector – compared to 23.6 gigawatts of installations in 2021.
Meanwhile, the imports which have met the large majority of U.S. demand slumped in the second half of 2021 and 2022. This decline began after Customs began seizing shipments of PV modules under an withhold release order (WRO, an import ban) on product containing silicon from Hoshine Silicon. CEA estimates that this resulted in 4 gigawatts fewer modules delivered than would have been the case without the Hoshine WRO.
Additionally, the UFLPA is set to take effect on 21 June, 2022. This law creates a rebuttable presumption that materials produced in Xinjiang, China, are made with forced labor and thus any products made with them cannot be imported into the United States. Polysilicon has been identified as a priority area but many of the details of implementation will only be released on June 21.
Monthly U.S. solar imports, January 2020 through March 2022. Graphic: CEA. Data: U.S. International Trade Commission
At least one of the largest module makers in Southeast Asia is holding off on signing new contracts until it can get more clarity on how UFLPA will be implemented. The federal government’s deadline for releasing its strategy to implement UFLPA including a list of banned entities has a deadline of June 21, the same day that the law takes effect.
As such the United States solar market remains supply-constrained – a situation that may or may not be resolved after the release of the UFLPA implementation. And the prospects for domestic manufacturing to fill the market’s demand – let alone the Biden’s ambitious climate objectives – remain elusive and far off.
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European Firms Replace U.S. Utilities in Offshore Wind
According to an analysis by S&P Global, European developers are increasingly replacing U.S. power companies in the emerging U.S. offshore wind sector. S&P Global describes U.S. utilities as taking a “cautious” approach to the sector, while Europeans are stepping in to win an increasing number of bids in federal offshore wind auctions.
The article cites a number of examples of this. These include that a joint venture between Invenergy and energyRE was the only U.S. consortium to place a winning bid in the February 2022 auction of offshore lease areas in the New York Bight. Additionally, utility Eversource is considering selling all or part of 50% stake in an offshore wind venture with Orsted.
Korean Clean Energy Manufacturing Comes to Georgai
In the past two weeks, two Korean conglomerates have announced that they will locate manufacturing in the U.S. state of Georgia. In the first announcement, Hanwha Q Cells has revealed that it will build an additional 1.4 gigawatts of U.S. solar module capacity at the site of its existing solar panel factory in Dalton, Georgia. Hanwha Q Cells announced the capacity expansion earlier in May but had not revealed the location. The new capacity will utilize TOPCon cells and make modules for the U.S. rooftop market
In the second, Hyundai Motor Corporation has announced that it will build a $6.5 billion factory to make electric vehicles near Savannah, Georgia. The plant will occupy 2,923 acres and will create 8,100 jobs. Hyundai expects to begin construction on the plant in January 2023 and to reach full production in the first half of 2025.
Provisions in the REPowerEU package that focus on reducing methane emissions in imported liquefied natural gas (LNG) could put pressure on U.S. producers to address upstream emissions, according to an analysis by E&E News. The publication describes U.S. producers as having “resisted” tighter regulation, and notes that the United States is the third-largest emitter of methane globally, following China and Russia.
On 19 May, the California Public Utilities Commission (CPUC) approved contracts to allow one of California’s three large investor-owned utilities to procure 497 megawatts of power from five battery projects. The five contracts signed by Southern California Edison (SCE) are operating under a “fast-track” process to meet reliability needs and are targeted to come online between August 2023 and June 2024.
Under these contracts, Tenaska, AES, LS Power, and Calpine will install batteries at a combination of new and existing facilities. These contracts fulfill part of SCE’s requirements under a CPUC’s order in June 2021, which requires that the state’s utilities procure 11.5 gigawatts of new resources by 2026 to meet reliability needs. 2 gigawatts of this capacity must come online by 2023 and another 6 gigawatts by 2024. All of this capacity must be zero-emitting generation, zero-emitting generation paired with storage, and demand response.
California is in a race against time to install batteries to keep the lights on, as its grid suffers under the strains of both heatwaves and a drought that is reducing hydroelectric output (for more information, see the first article in this report, “Grid Reliability Monitor Warns of Summer Blackouts”). And while these projects will not come online to meet the state’s needs this summer, California regulators are also planning for future summers, as well as for the planned closure of the 2,280 megawatt Diablo Canyon nuclear plant in 2025.
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The United States’ largest electricity provider has presented a series of plans to reduce the carbon emissions in the generation portfolio of its utilities in North and South Carolina, in response to state law in North Carolina. Duke Energy’s Carolinas Power Plan is a response to North Carolina’s HB 951, which passed last summer and requires utilities to reduce emissions 70% by 2030 on the way to net zero by 2050.
The plans envision near-term buildouts of 5.4 – 6.8 gigawatts of solar, 1.7 – 2.2 gigawatts of battery storage, 2 – 2.8 gigawatts of offshore and onshore wind, 1.7 gigawatts of new pumped hydro storage, and 600 megawatts of nuclear power, as well as 3.2 – 3.5 gigawatts of new gas plants. Notably, the plans do not fully comply with the mandate; of the four plans only one has a 2030 date for 70% decarbonization; the others look at 2032 or 2034.
“You may be wondering, how does building a new gas plant comply with a net zero carbon plan? Friends, this is the North Carolina carbon plan. The gas plant(s) will be built in South Carolina.” – Simon Mahan, SREA
To meet the 2050 net zero target, Duke plans to add more nuclear power, including small modular reactors. The utility plans to retire its last coal unit in the Carolinas by 2035. Clean energy advocates have criticized the plan on the basis of the new gas plants and a coalition of four advocates plan to file an alternative plan with North Carolina regulators in July. Simon Mahan of the Southern Renewable Energy Association (SREA) has stated that Duke is skirting its responsibility to decarbonize its generation in North Carolina by building the gas plants in South Carolina, where there is no such mandate.
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The day after NERC issued its warning of higher probabilities of power outages in summer 2022, the Federal Energy Regulatory Commission (FERC) released a report warning that wholesale electricity prices are likely to also be higher this summer. FERC’s Summer Energy Market and Reliability Assessment cites higher natural gas prices along with forecasts of hotter temperatures and a slight increase in electricity demand as the primary causes of these electricity price increases.
This assessment is backed by market data. Notably, natural gas futures prices for June through September 2022 are averaging $7.06 per million British thermal units (MMBtu), up 88% from last year’s settled average price. And as of 13 May, wholesale electricity futures prices have increased between 77% and 233%. In the territory of the largest grid operator in the United States, PJM Interconnection, summer futures prices are averaging $130.07 per megawatt-hour, up 173% from last year’s settled prices.
FERC identifies an increase in LNG exports as the prime cause of higher natural gas prices. As explored in previous reports, an increasing share of U.S. LNG is headed to European markets which are attempting to wean themselves off Russian gas. The combination of modest increases in U.S. natural gas demand and growing LNG exports is outstripping growth in domestic gas output.
And as natural gas is in many regions the marginal fuel that sets wholesale power costs, higher gas prices drive wholesale power prices higher. These wholesale power prices will also result in higher consumer prices, although the effect is less dramatic as wholesale power is only a portion of customer bills.
Increase in wholesale power prices create better market conditions for renewable energy to compete. However, as explored in previous articles wind and solar are facing their own challenges, which include both lengthy delays for interconnection and supply chain challenges. The challenges for solar are particularly difficult, given that the anti-circumvention investigation has largely cut off the largest source of PV modules for the U.S. market.
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