The renewable energy and energy efficiency sectors are booming. Fueled (sorry for the pun) by growing utility and government incentives, regulations, high energy prices, and corporate demands to be more “green”, the industries are growing. However, like other general projects, construction of necessary renewable and other energy technologies is impacted by supply chain issues, affecting both time and cost.

Shortages of materials and slowdowns in transport are leading to delays, higher costs, and disputes between contractors, subs, and customers. This is particularly true for renewable energy and energy efficiency projects. Here are some key issues.

• Availability of key raw materials: Certain raw materials required to build solar panels or other components are limited in availability, increasing the risk of supply chain disruption.
• Limited manufacturing: Steel and other more components of less specialized equipment are also in short supply. An assembler of cooling towers told me he had to suspend business in this area because only one material was in short supply. But without it, they could not make the cooling towers per needed specifications.
• Transportation:  Raw materials must not only be mined and treated but also transported to the appropriate assembly plant or retailer. It has been well publicized that there is a shortage of truck drivers, boat operators (for barges), and dock workers to unload boats, trains, or trucks. Materials have sat around for many days at many ports around the world.
• ESG: Although renewable and energy efficiency projects have positive impacts on the environment, they often rely heavily on the mining or fabrication of certain raw materials which may have great negative impacts. They can also affect workers, local communities, and the nearby environment. Particularly for firms with strong social sustainability standards, some projects may no longer be a go.

What can you do to keep projects moving forward to help you comply or otherwise be more efficient?

• Review projects and consider which raw materials are critical and alternative technologies if an initial approach may not work because of shortages. Determine which equipment may undergo high price changes or shortages and communicate this to colleagues in case it results in delays or cost overruns.
• Suppliers should communicate all potential delays or cost bumps with customers before they happen. It may be in the customer’s interest to be proactive and reach out first. Given these recent problems, before hiring a supplier, a customer should keep in mind the bidders’ experience, reliability, and ability to communicate during difficult times, not just the cheapest price or best equipment.
• Customers should consider some type of performance insurance in case a certain piece of equipment cannot be supplied on time or at all. In addition, contracts should be reviewed to contain appropriate representations, warranties, and indemnities, to minimize potential losses that may arise due to projects being delayed or upended altogether. Speak to a qualified attorney about this.
• Customers should understand the regulatory risk they face if the equipment is not in place by a certain time, and both warn and negotiate with the regulatory agency(ies), to reduce liability because equipment is not in place in time for reasons beyond the customer’s (operator’s) control, such as supply chain issues. Just one example: I had a client (pre-COVID) who could not meet a regulatory deadline due to a part being backordered. I showed the agency the backorder a few months in advance and said they would install it when it arrived. The agency granted the facility an extension and, in fact, the equipment was installed soon after the original deadline.

CCES has the experts to help your firm design and execute energy efficiency and renewable projects to address and minimize risk factors of supply chain issues by suppliers. Contact us today at 914-584-6720 or at karell@CCESworld.com.