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Just as Minnesota is poised to roll out several large-scale solar projects, the solar industry is being battered by an economic storm.

The largest planned solar plant — Xcel Energy's huge Sherco project — is on hold. Several others face rising costs, supply chain uncertainties and grid connection problems while a federal investigation has essentially shut down vital solar panel imports.

"Solar developers are going back to renegotiate contracts because they can't cover costs," said Betsy Engelking, Edina-based vice president for policy and strategy at National Grid Renewables, a major U.S. solar developer.

"This is an industrywide issue," she said "Even if you have contracts that cover costs, you can't always get solar panels. It's a vicious cycle."

National Grid has three Minnesota projects — totaling 230 megawatts — that have been approved by state regulators. But construction won't begin this year, and National Grid has not allocated scarce panels to any of them.

Seven more utility-scale projects of at least 50 megawatts are pending before the Minnesota Public Utilities Commission (PUC). They would add another 1,270 megawatts of solar power. To put that in perspective, Xcel's two nuclear plants near Red Wing can generate 1,050 megawatts (though they can run constantly, unlike solar plants).

If all 10 proposed plants come online, Minnesota would more than double its current solar power capacity. The expansion could also shore up the state's slipping national rating in solar deployments.

At the end of 2021, Minnesota ranked 30th in solar power capacity as measured in megawatts, down from 13th in 2019, according to the Solar Energy Industries Association (SEIA), a national trade group.

Xcel's Sherco solar plant planned for Becker would be particularly large; at 460 megawatts, it would be more than four times bigger than the state's current largest solar array.

Xcel recently told the PUC that while still on board with the project, it's "assessing" the effects of a U.S. Commerce Department investigation into whether Chinese solar manufacturers are circumventing U.S. tariffs.

"It is fair to say we have paused the process so we can figure out the best way to keep the project on track, and whether price adjustments are necessary," said Christopher Clark, Xcel's president for Minnesota and the Dakotas. "Right now, we are working to see if we can find panels and keep the original time frame."

Xcel has planned to open the Sherco solar plant in 2024.

Tariff dispute hits industry

At the request of a small U.S. panel manufacturer in California, Auxin Solar, the Commerce Department in March initiated an investigation into whether Chinese companies were dodging tariffs by routing solar panels through Cambodia, Vietnam, Thailand and Malaysia.

Former President Donald Trump in 2018 slapped tariffs on solar panels made in China, the world's largest panel producer. In February, President Joe Biden extended those tariffs for another four years.

Southeast Asia itself is a major producer of solar panels, and the four countries targeted in the U.S. tariff investigation account for about 80% of the solar panels used in the U.S.

If the Commerce Department finds that China routed panels through the four countries, those panels would be subject to steep — and retroactive — tariffs. The investigation has essentially shut down panel imports from Southeast Asia, solar industry officials say.

"The solar investigation is causing massive uncertainty for the industry across the board," said Logan O'Grady, executive director of the Minnesota Solar Energy Industries Association, a state trade group. "Nobody wants to be stuck paying an unknown amount in tariffs."

In an April survey by SEIA and consultancy Wood Mackenzie, 88% of solar companies in Minnesota believed the investigation would be "severe" or "devastating" to their businesses.

The solar market tumult affects rooftop arrays and community solar gardens as well as larger-scale utility projects, which provide electricity directly to power producers like Xcel.

The tariff issue "will have a larger scale impact on utility-scale projects," O'Grady said, because they require far more panels. The Sherco project alone calls for 1 million solar panels.

Currently, about 3 % of Minnesota's electricity generation comes from solar. The state's capacity for solar generation — when the sun is shining — was 1,357 megawatts at the end of 2021, with 63 % of that coming from community solar gardens, according to the Minnesota Department of Commerce.

The so-called gardens, which usually produce 1 megawatt of power, are aimed at residents, businesses and governments that want solar energy without setting up their own panels. But growth in the community solar garden market is slowing some.

"There has been kind of a process of ramping down that program a little bit, and ramping up larger scale projects," O'Grady said.

Two of those large solar projects — one in Murray County, the other Faribault County — would generate up to 150 megawatts of power and include 50 megawatt batteries to store electricity. They would be by far the state's largest grid batteries.

"A battery allows us to shift solar generation to exactly when the grid wants it," said Dan Litchfield, renewable development vice president at Invenergy, which is developing one of the solar plus storage projects.

Inflation hits project budgets

Well before the U.S. Commerce Department investigation, the solar industry, like many other businesses, had been pummeled by supply chain disruptions and inflation.

"We are playing catchup on the supply chain issue and there is no end in sight," O'Grady said.

Inflation for solar arrays has jumped across the board.

"It covers everything from glass to the metal for the frames to screws that hold things together," O'Grady said. Plus, high fuel prices have jacked up transportation costs.

Solar prices had been steadily declining for years, until last year.

Year-over-year prices in 2021 increased across all solar markets — from residential to utility-scale — for three consecutive quarters for the first time since SEIA and Wood Mackenzie began tracking costs in 2014. Utility-scale prices were up to 18 % higher than in 2020.

Transmission constraints are also a significant factor holding up solar projects, renewable energy developers say.

Wind and solar farms are often in remote areas that must be connected to the grid. Projects can wait for years to get interconnection approval — and often, transmission upgrades are necessary.

"Right now, the cost of these upgrades are very, very high," said National Grid's Engelking. "There is just no room on the existing system right now."

National Grid's Elk Creek 80-megawatt project in southwestern Minnesota has been permitted by the PUC, but it does not yet have an interconnection agreement with the Midcontinent Independent System Operator, or MISO, which runs the grid in Minnesota and 14 other states.

Due to grid system dynamics, the project's interconnection status is bogged down by a costly transmission upgrade needed in the Southwest Power Pool, a regional grid just to the west of MISO.

Litchfield said Invenergy had to cancel a promising solar project in southwestern Minnesota because of the cost of transmission improvements. But the Lake Wilson solar and battery project has a grid interconnection agreement that will entail only minor upgrades.

Developers say that despite the solar industry's current woes, demand hasn't dropped. "We see the fundamentals of solar as very strong and getting better," Litchfield said.