Last year, I took a look at the dwindling availability of skilled resources in a post called, “Where are the skilled workers?”. We discussed brain drain and the lack of skilled tradesman to execute the work facing the utility industry. It’s a challenge that has been leaving many projects with cost overruns and schedule delays.Now, I’d like to do some follow up and lead into another issue we see developing in the short term, and then leave you with a bit of market strategy that might help you be successful in 2016.
To develop the lead in a bit more, I’m going back a bit further to 2013 to set the stage for 2016. If you recall, in 2013 the production tax credit for wind was expiring and the industry was looking for an answer. That answer came, although late, from D.C. in the form of a three-week extension in December 2014. At the time it was felt this extension was meaningless and would not have a large impact.
However, perception often misaligns with reality. When faced with a challenge, leave it to the wind and solar industries to hit a home run off a low and inside slider. What has happened is that all of the projects qualifying in 2013 that didn’t quite make it through full qualification were given a three-week reprieve to get their house in order and resubmit for a final and new qualification. This was and is only one part of the equation of how we got to where we are at. What also has happened, as suggested in my post “I want my two dollars! “, is a social shift in the United States in regards to the acceptance of wind, as well as solar as a viable generation source, and looming Section 111.d legislation.
In 2013 and 2014, we saw private corporations bridge the PPA gap and sign energy deals directly with wind farm developers. We have seen news stories on utilities lowering their rates due to decreasing fuel costs that can be attributed to renewable generation resources. And we are also seeing very real predictions of coal plant decommissioning.
All of these factors have pushed development in wind and solar to a scale that could not be imagined. Depending on those resources left to efficiently execute the work, 2016 could be one of the biggest wind installation years on record.
There is a very big “if” that really ties this scenario together. That would be available resources to construct these projects under the current schedule requirements. Those resources are of the industry/trade type that we were talking about in the skilled workers post. Over the years, we’ve fostered many close relationships within the contractor world. To put it bluntly, many of those folks are getting very tied up with work. It is a major hurdle that the wind, solar and utility industries face in 2016 for project completion.
I’ve added utilities in the mix of this article as they will continued to be affected by not only a shortage of tradesman, but now be placed in competition for those dwindling resources. Over the years many utilities have moved to EPC models to complete large capital projects. This move has been forced by the very same lack of available skilled-trade workers that are needed to complete the projects. And what has always held true is that when there is demand, inevitably a price premium comes along with it.
I’m excited to see what is coming our way and the challenges that will need to be solved. According to AWEA’s capacity stats shown in the chart, 2012 was the single largest year for wind installation. I, for one, am gunning to see an installed number higher than 2012’s 13.082MW this year.
Now, as for the market strategy for 2016, my advice is to be mindful of the market pressures and hold open dialogue with your service providers. In a bull market, your relationships and openness with your vendors, engineers and contractors will weather you through the potential storm brewing on the horizon.