Construction Challenges

Skyrocketing demand for electricity and competition from data centers for labor and equipment are driving up costs. How hard is it to find a construction contractor? How common are construction delays and what besides elevated demand is contributing to them? Roughly 24% of US counties have adopted bans, moratoriums, zoning hurdles and other restrictions that limit new utility-scale solar and wind projects.

Four CEOs of solar and wind developers and the CEO of a large construction company talked at our 35th energy finance conference near San Francisco in mid-June about these and other questions. The panelists are John Clapp, CEO of Deriva Energy, Luigi Resta, CEO of rPlus Energies, Michael Rucker, CEO of Scout Clean Energy, Robert Tabb, CEO of Signal Energy, and Ken Young, CEO of Apex Clean Energy. The moderator is Luke Edney with Norton Rose Fulbright in Austin.

Overall Climate

MR. EDNEY: Quick temperature check. In the last five years, has construction of projects gotten harder or easier?

MR. RESTA: It has changed. We built during COVID and found that we had to turn into a logistics company. That was not something we had planned, but we started bidding on a daily basis for one to 20 shipping containers to get solar modules to the United States. The price per container had gone from $4,000 to as much as $28,000. You just do what developers do, which is be creative and solution-oriented.

MR. RUCKER: Construction has gotten harder. The supply chains that support our construction activities are constrained. We are seeing more competition for labor. We are seeing components that historically have had short lead times now extended. We are even having supply constraints for components that were routinely purchased, like small transformers and other substation parts that are really small components of an overall project, but are absolutely necessary.

This is making it harder to coordinate. The construction contractors are at full capacity. It has been extremely challenging to book contractors for wind projects because there has been so much consolidation among contractors. We now have to pitch our projects to contractors as opposed to them bidding on our jobs. The positions have reversed.

MR. TABB: I don't know whether construction has become more difficult from the EPC side. It has always been a risk management game, and prices are going up. Our margins are not fat enough to allow us to take on a lot of risk. It comes down to I can take risks and give you a nice fat price for it or you can take that risk and keep the upside.

Finding construction workers in the current market is a challenge. We have a project in Texas where we have 300 to 400 people, but we are constantly having to replace workers because they are taking jobs at data centers and making two or three times what we are able to pay.

MR. CLAPP: It has gotten harder. Longer lead times add more risk. Developers are having to deploy more capital earlier. That has led developers to have to borrow under pre-construction development loan facilities. That increases costs. The stakes are then that much higher if things swing dramatically toward the end.

MR. YOUNG: It is a little different for us. I agree with everything that has been said. We finally capitalized our business after many years and started moving to become a full IPP about four and a half years ago during the post-pandemic inflationary pressures and during the trade cases and the chaos that reigns. Four, three and even two and a half years ago, it was super hard for us.

Getting up the curve on delivering projects, and moving from a developer into a full-delivery owner-operator was harder under those kinds of circumstances.

The chaos caused us to re-sequence our work. We did additional things that we didn’t do in the past, and we stopped doing other things we did in the past. This is really a time for partnership. It is harder, but we are better equipped to handle it, and you can see that maturity as we move through hard things. Fire sharpens iron.

MR. RESTA: Ken's point about partnerships is important. Last year was incredibly stressful and difficult. With the regime change came wholesale policy changes, the OBBBA and tariffs. The only way we have been able to make it through this period as an industry is by having strong partnerships with EPC contractors, equipment vendors, utility offtakers and lenders.

Contractor View

MR. EDNEY: Robert, you are the one that I think we want to hear from most. Developers say they are struggling to find contractors, getting no responses on RFPs and having to go pitch projects to contractors. How do you choose among projects, and why are some of them getting no response?

MR. TABB: What we do at Signal is focus on projects on which we can partner with the developers. It is difficult to dedicate the resources to respond currently to RFPs. I will give a couple examples. Whether you know it or not, weather is probably one of the biggest factor in an EPC’s pricing.

We want to be competitive. We will not bid if we cannot talk through the assumptions and it is just throwing in a number and the low bidder wins. We try to focus on relationships where we can have those conversations and where there is time to understand the risks well enough to price them in.

This is an outdoor sport. Something is always going to come up on a project.

We have really focused the last few years on what I call our big four: quality, safety, on time and on budget, every single time. Customers talk about A teams, B teams, C teams. I don’t believe in that. I believe that when a developer hires you to do a job, it expects to get the A team every time. As I see it, we are building capacity and then we are selling that capacity. We are building partnerships and then we are working through challenges as obstacles come up during construction.

MR. EDNEY: I am hearing partnerships on both sides of the table. Have we gotten to a point where contractors have almost no capacity to take on new jobs?

MR. TABB: From an EPC perspective, we have large labor forces, and I am either selling you utilization or I am pricing in underutilization. The more visibility that we can get into the next set of projects, the better pricing you are going to get.

If you want to price one project at a time, you will get a different price than if we talk about multiple projects, especially if they are geographically in the same location. We can think about pricing and utilization of our people and our equipment a little bit differently. A partnership is important.

When we look at opportunities, we go through 15 different criteria to score every opportunity. We do not take just any job. We want to take the jobs at which we can be successful. One of the metrics we use to choose projects is whether the customer is somebody we know to be a great partner or someone who is transactional. Transactional does not work because something is always going to come up.

We need a partner with whom we can work through the inevitable issues. The developer and contractor are in it together and looking for good outcomes for both parties.

MR. CLAPP: It is important for a developer to have an EPC contactor along for the ride, providing the engineering and the cost estimate refreshes you need during the whole development period. You have to create relationships where you can rely on each other. It is a team sport.

It is important to have the attention of an EPC contractor early enough that you do not wind up with 11th-hour issues because you did not do the layout the right way or the pricing comes in materially different than you expected.

MR. RESTA: It is also important not to try to shave that last tenth of a penny with the EPC group and vendors. It is a race to quality as well, and you have to pay for it.

MR. RUCKER: If I were a small developer, and we are not really any more, I would also try to engage and show the quality of the asset itself. Sit down with your EPC partner and show that you have the development milestones made, you have all the permits you need to build your project. You are ready to go.

MR. CLAPP: The industry used to be all about bragawatts and having gigawatts and gigawatts of projects under development to show EPCs. With the carrying costs today to develop projects, we have slimmed down the projects we are developing to the ones that have the highest probability, and those are the ones we are showing to EPCs. We are not asking them to burn a lot of time on things that might be marginal.

MR. YOUNG: Re-sequence your work. Power prices keep going up. In the old days, the PPA led everything. Signing a PPA first today is not the best move. As a new developer, there is a lot of pressure to show value by having a PPA. Be patient. Get the project organized and have the right product.

MR. EDNEY: Before we pivot, let me ask the audience to raise hands if they have worked on projects that did not have change orders. [Pause] None. I think that answers a question that was raised earlier.

Wind

MR. EDNEY: Quick pivot. Michael Rucker, we heard a difference of opinion yesterday about whether the Federal Aviation Administration is still issuing determinations of no hazard that new wind farms need for construction. What do you foresee for wind? What is the biggest bottleneck?

MR. RUCKER: The bottleneck has been devastating for the onshore wind industry in the United States. We have about 2,500 MW of wind projects planned between now and 2030. They are all more or less on hold due to the impasse with the Department of War. We had one that was at full notice to proceed with construction. We had purchased turbines. We had a power purchase agreement signed. It was short of completing financing, construction and moving into on-site operations.

Now we are forced to find a new home for those turbines. Thankfully, we have a project that was fully permitted with determinations of no hazard that were still in place so that we can make that pivot, but that was a lucky break. Clearly something needs to be fixed.

We still successfully permit wind projects. The communities where we work appreciate the tax revenues and the support for hospitals and schools. They want these projects. It is absurd to create an obstacle to achieve that for those communities.

MR. CLAPP: As a corollary to what Michael said, we have 2,500 MW of older wind projects that we are planning to repower between now and 2030. Fortunately, we have a few that got all their permits before the current administration.

For all the rest, we are moving to the next best option, which is component repower. It does not change any of the physical dimensions of the projects or the swept area. We stay under the radar screen in terms of having to get new permits from the federal government.

It still allows us to extend the lives of these projects and to bridge to a time when the pendulum inevitably will swing back. In the meantime, we are being forced to do next-best solutions instead of optimal solutions.

MR. YOUNG: I spent my formative years in the Army, and then have spent the last 20 years in renewable energy. I am incredibly proud of the Army. Never in a million years could I have imagined we would be suing the Department of Defense and, to be clear, it is the Department of Defense.

Michael used the word absurd. I appreciate that. I will get a little salty. This is bullshit. It goes against everything in our core. Our customers want wind.

Wind has proven over time to be a natural complement in so many ways to solar and storage, night and winter peaking. I am proud of our industry coming together and filing suit against the federal government.

A year ago, I was saying go my team, "Let’s keep our heads down and not poke the bear. We financed more wind projects at Apex last year than anybody. It feels as an industry like we have been punched in the face. We really have little to lose. We have to punch back. I think this will be the eighth time that we will prevail in court as an industry.

Local Roadblocks

MR. EDNEY: Let's pivot from roadblocks at the federal level to obstacles at the community level. We have heard today about security guards accompanying development teams, and 24% of US counties either have already restricted new wind and solar development or are considering imposing such restrictions. When you are working on projects, how do such roadblocks factor into your planning?

MR. RESTA: I get asked all the time about the biggest risks facing our industry today. Unknown tariffs are number one. Local opposition is second. The trade associations are doing a lot of work in Washington on federal policy. At the state level, it is up to the developers operating in those states to tackle the issues.

In Utah, as an example, in the 2023 and 2024 legislative session, there were 110 anti-renewables bills at the state level. We are having to contribute to the political campaigns of legislators whom we might not normally support. It is harder at the county level where you have county commissioners. The message we are trying to spread is energy literacy. We want the staff people and commissioners to be more literate about electricity and what it takes to build power plants and transmission.

We have a large solar-plus-storage project that was commissioned today in Emory County, Utah. I was down in Emory County three weeks ago with a senior vice president from PacifiCorp. Ninety-five percent of the county tax base is based on coal plants and coal mines that PacifiCorp built. The PacifiCorp senior vice president and I sat with the county commissioners for an hour and a half before a county commission meeting. The PacifiCorp person said, "We need this solar, we need these batteries, we want to make this investment in this county." The meeting went well. Then we went from that private meeting into a public county commission meeting, and a commissioner said, “I make a motion to ban all future solar.”

County leaders complain they have two things leaving the county: coal and young adults. We did a $375,000 local scholarship for trade certifications. They now have a trade group to train people. These types of actions to help local communities are super critical for our continued success.

As an industry, we have to mature to the point where we are viewed as utility providers rather than developers. We are not there merely during construction, but also for the life of the power plant.

MR. EDNEY: Robert, to what extent do construction contractors also have to invest in the local communities where they are building projects?

MR. TABB: The developers do a lot of work to get projects to that point where we can actually build them. We see ourselves as being handed the torch. We want to be good stewards in the communities where we work. We try to hire as many people locally as we can. I don’t know how many cows and pigs I have purchased at local fairs.

It is extremely important as contractors after taking the torch to ensure we are a value add and not a nuisance to the communities. We don't want to overstay our welcome. During the 12 to 18 months we are there, we want to be good neighbors. We want to leave each community better than we found it.

MR. YOUNG: A few years ago, there were Super Bowl commercials with a Verizon guy walking through a wind farm and Budweiser Clydesdales going down the road. And we had 80% to 90% support from consumers for wind and solar. Those numbers are now in the 50% range because of all the misinformation and vitriol.

It is an educational process. We have to do it at multiple levels. As developers, we are all doing it at the local level. Let's not lose sight of the top level, where general advocacy is needed to change consumer perceptions. These campaigns take money and require multiple levels of messaging.

The county commissioners are not equipped to handle a $500 million or $1 billion facility. It puts a tremendous amount of pressure on them. The longer the development takes, even people that want to support projects are likely to wear out. The pressure builds, and it is easier to be against things.

Various states, like Illinois, Michigan and Minnesota, enacted policies to allow reasonable and responsible siting. All those policies have a local control element. The more states that we can encourage to take the pressure off county commissioners to allow for responsible development, the better off our industry will be in the long term.

MR. RESTA: Maybe we should talk to the producers of Landman to have Billy Bob Thornton have an epiphany about how great wind is.

MR. CLAPP: We have all been building up our ground games for a decade or more, depending on how old our companies are. One of the challenges is we are getting caught up in what data center developers are doing. They are not coming at it from the grassroots. They are coming at it from we know the governor. We are going to bulldoze in and do what we want to do.

We just started construction on a 350-MW solar project that happens to be next to a data center, and we are having to do a delicate dance. We made a deal with the unions to get local support. The data center developer did not. It bypassed the unions by going to the highest political levels.

Now there are giant inflatable rats next door at their site, and we are trying to make sure that they don’t migrate to our site.

MR. RUCKER: The rising opposition we are seeing in counties across the United States has forced us to engage early and aggressively. We used to go through several stages of the development process before we began engaging with the community. Now to do stakeholder mapping starting the moment we first hit the ground.

We are basically pursuing political campaigns using the same tools the politicians use in terms of canvassing. We do polls. We do paid media. We do social media. We do radio tours. We do more of it earlier in time to try to build community support in the hope we will not get surprised five years into the project.

Usually we are also signing memoranda of understanding with the local unions. We want good labor relations. We leave the project labor agreements for our EPCs because they are better positioned to negotiate them. We make sure our contractors are paying prevailing wages and using apprentices as required to qualify for tax credits. The unions show up with 50 people at county commissioner meetings to make the point that this is good for the people who work in that community.

MR. CLAPP: The growth of local opposition has changed how we look at development. We operate a lot of our projects ourselves. Some of the projects have been in the communities for a decade or more. We have built up a certain amount of goodwill with landowners as a good neighbor.

In cases where we are looking to add to existing projects, we already have a constituent group supporting the project as opposed to finding that next patch of dirt in some county that doesn’t know us.

MR. EDNEY: Let's ask the audience some more questions. Raise your hands if you are a developer who feels it is getting easier to work in your core market now? [Pause] No one.

Rookie Mistakes

MR. EDNEY: Robert Tabb, what is something that developers miss when trying to execute on projects.

MR. TABB: I think we hit all of the main ones. The key is getting in early and being good partners. The developer and EPC contractor need to understand the different risks at different points of the project. A developer might be in a better position than the contractor to take on a risk and mitigate it. Sometimes the contractor is in a better position. Getting a project built requires a real partnership. Being transactional does not work.

MR. RESTA: Since COVID, everyone has moved to Teams and Zoom calls. How important are face-to-face meetings, at least at the start of the relationship?

MR. TABB: Absolutely important. I hate when I see a growing issues log with a project. Three weeks have gone by, and no has flown to the client's office and worked through them. Showing up is very important. One thing we do that is unusual is we hold periodic meetings with our clients.

I try to connect with the CEO at least once a month to make sure the first time we are talking is not when there is a serious issue. Communication is critical. Face-to-face time is important. I hate Teams. I hate messaging. Pick up the phone and call or show up.

MR. EDNEY: Change orders are inevitable along with death, taxes and random changes in policy that no one understands. It is too easy for people to trade emails aggressively without trying to solve the problem as opposed to sitting in a room together and dealing with the problem.

John Clapp, moving a project to the point where it is ready to start construction is like trying to cook a multicourse meal in the hope that everything comes out of the oven at the right time. How do you line up PPAs, financing arrangements, all of your procurement contracts, your construction contracts and all the other tasks when starting work on a new project.

MR. CLAPP: We do not execute the PPA before we have hammered out the EPC contract and nailed down our transmission interconnection costs. We are executing all the contracts in relatively close proximity. We are executing things more tightly now, but it means we are taking more risk upfront with all the long-lead equipment costs.

MR. RESTA: Developers have to be better capitalized today than in the past. We have to put a lot of deposits down early. You used to be able to close financing and make all those deposits and just-in-time delivery. Now it is all about early delivery and early spend before financial close.

MR. EDNEY: Luigi Resta, your 400-MW Green River solar-plus-storage project just went into service. The project cost more than $1 billion. Are there any lessons you learned that you will deploy in your next project?

MR. RESTA: We have a full-time staff on our construction sites. We procure the modules, the transformers, the batteries, and we let the EPC do everything else.

Working with the construction team is key to minimizing the need for change orders, which we all hate. It requires the ability to do horse trading in real time in the field. That is key to keeping on schedule and keeping the cost down. An increase in cost in one place can be offset in real time somewhere else.

MR. RUCKER: We are commissioning a wind-plus-storage project in California about an hour and a half from here. It sits in a state park. We are tenants of the state park. One of the lessons learned from that was not to be surprised about changes in the environmental permitting requirements, even when we are two thirds of the way through building the project. Our interactions with the state fire marshal led to massive changes in scope that we just basically had to pay for.

They were change orders. That was the only way we could comply. If we had been able to engage with those authorities much earlier in the process and lay this out specifically so we could have planned for it, it would have worked better for everyone. Growing fire risk and water shortages in the West will lead to more of these types of interactions.

Audience Questions

MR. EDNEY: Are there any questions from the audience?

MR. ATTARI: Jam Attari, CEO of Pathway Power. How important do you think domestic content will be to sustain the future growth for our industry?

MR. YOUNG: It is definitely part of the journey. It appeals to policymakers.

There has to be a transition. It takes a long time to build the domestic manufacturing capacity. I worked for Vestas for many years. You are talking about hundreds of millions of dollars to open a new factory. How in the world can anybody do that right now with the unpredictable and frequent changes in tariffs and other policy uncertainties? They can’t.

If we could have a long-term, somewhat stable policy, folks could make those investments.

The supply chain took us 20 years to organize. The Inflation Reduction Act brought more manufacturers into the US. Please let us get through the projects that are already on the docket without pulling the rug out. We just talked about how long it takes to put a project together. Let us at least finish what we started.

MR. RESTA: We are risk adjusting prices on our PPAs and everything else because of tariffs and long lead times. I have visited a lot of factories over the last few years. They have all moved to robotics. Domestic manufacturing of modules and inverters and batteries is all robotics. It is not a big job creation. Absent the tariffs, we could buy modules for 8¢ a watt. We are paying 30¢ today. All of that gets passed through to consumers in electricity prices.

MR. SLOAN: Mike Sloan, CEO of Synergetic. I used to be involved with Texas energy policy. Chapter 313 used to cap the property taxes that could be imposed by school districts to encourage more construction of wind and solar projects. It expired at the end of 2022. There is now a great opportunity to show school districts how much support new solar and wind projects can provide. I believe every new wind turbine supports a teacher in the state of Texas somewhere. That is how much taxes the owners of such projects pay every year on a wind turbine.

MR. RESTA: We just did a tour last Saturday on our site for members of the local community. We had about 70 people show up. We did hour-long tours. There were four of them back to back. We had a couple county school board people come. We have a $75 million bond that this rural county just approved to raise money to build a new school. Our project is paying that bond off for the community. That is super important.