Inflation pressures are reaching climate tech companies

Although inflation ticked down a bit in the most recent US assessment, rising prices are continuing to affect companies across the board—even in the high-growth world of climate tech.

In recent weeks, renewable energy and EV company execs have acknowledged that the current economic environment will likely influence consumer behavior and change the outlook of existing investments. From electric vehicles to residential solar, here’s how climate tech executives expect inflation to affect their businesses.

Solar

Deployment of solar power set records in 2021, and while higher interest rates may be slowing utility-scale installations, residential solar could continue to surge in spite of inflation.

The Inflation Reduction Act includes credits that will cover 30% of the cost of residential solar installations. Along with rising energy costs, these incentives present residential solar installers—like Sunrun, the largest in the US—with an opportunity to pitch its product as a source of long-term savings. With utility prices up more than 15% across the US, Sunrun executives said there is room to further raise prices on solar and still “deliver a strong customer value proposition.”

“We remain in a strong position to respond to further volatility in interest rates as inflationary effects continue to attract customers to our product—one that improves the financial health of households by lowering electricity costs and providing long-term price certainty,” CFO Danny Abajian said on the company’s earnings call.

Sunrun has already “strategically adjusted prices” several times during 2022 in response to inflation and interest rate hikes.

Company executives cited these price adjustments and “our focus on a disciplined strategy” as factors in delivering continued growth and profitability despite the macroeconomic environment.

Electric vehicles

Inflation is affecting the bottom line for EV manufacturers as raw-material prices rise.

Rivian reported $1.7 billion in net losses for the quarter, compared with a loss of $1.2 billion in the third quarter of 2021, partially due to materials costs, expedited shipping fees, and supply-chain challenges, according to CFO Claire McDonough.

Legacy OEMs also reported spending  more on raw materials and shipping.

Ford saw margins shrink and expects that commodity prices and “other inflationary headwinds” to add ~$9 billion in costs compared with 2021.

Increased raw-material prices and logistics accounted for about two-thirds of GM’s additional costs earlier this year but made up about half of those in the third quarter, according to the company. Those commodity and logistics costs will add up to ~$5 billion for 2022, CFO Paul Jacobson said on the GM’s earnings call last month.

Despite rising costs, automakers said on Q3 earnings calls they’re still seeing strong demand. So many consumers have wanted to buy EVs this year that many models have a wait list.

Rivian had more than 114,000 pre-orders and reservations in the US and Canada for its first-generation vehicles as of Nov. 7, and GM plans to increase production of the Chevy Bolt by nearly 60% next year due to “record levels” of demand.

“The early signs are coming in,” Ford CEO Jim Farley told analysts. “It’s interesting. It’s lumpy. The commercial vehicle and EV demand is through the roof. We’ve seen literally no change, if not an increase.”

Wind

Inflation has also created some significant complications in the effort to add offshore wind to the US energy mix.

The Biden administration aims to install 30 GW of offshore wind by the end of the decade—an ambitious goal that analysts now say the nation is unlikely to reach, due to an “immature supply chain” and the added challenges posed by rising prices.

Because of long project timelines, offshore wind developers who won contracts to bring this energy online are now locked into agreements that don’t reflect the current cost of materials, Sam Huntington, director of North American power and renewables at S&P Global Commodity Insights, told E&E News.

In Massachusetts, the future of a 1,232-megawatt offshore wind project went into limbo as developer Avangrid Inc. said in October that the project was “no longer viable.” Due to factors like inflation, interest rates, and rising commodity prices, Avangrid sought a one-month suspension from the Massachusetts Department of Public Utilities to renegotiate the contracts.

Although the state denied the request, Commonwealth Wind (Avangrid’s offshore wind business) announced last week that it would move forward.

For Ørsted, the developer of a 1,100-megawatt offshore wind project in New Jersey, the expected returns from their US projects are “not where we want them to be,” CEO Mads Nipper told analysts during the company’s Q3 earnings call earlier this month.

But maximizing the incentives for wind in the Inflation Reduction Act could help Ørsted offset rising costs, according to Nipper.

“We still believe there is a path for this to be value-creating,” he said.