The state of the economy is having a lasting effect on the energy sector. The U.S. economy has been and still is weathering inflation, extended higher interest rates and supply chain bottlenecks. Consumers see the more immediate effects of high inflation and interest rates when they go to the grocery store or take out a personal loan or mortgage.
At electric cooperatives, the lead times on some equipment have only recently normalized, while supply chain shortages and shipping delays still have a grip on many items. Additionally, according to the U.S. Bureau of Labor Statistics Consumer Price Index, the highest point of year-over-year inflation surpassed 9% in June 2022 and fell to 3.1% in 2024. However, while inflation has slowed, prices, especially for utility materials, remain very elevated. For example, a 50 kVa transformer, which typically serves up to four homes in a subdivision, has gone from $1,700 to almost $6,000 in the last four years while a standard 40-foot pole has increased from $700 to $1,100 each.
YVEC is working to ensure we remain competitive and efficient in serving our members.
Wholesale power specific inflation is currently at 5% nationally, down from a high of over 30%, and YVEC’s wholesale providers have given us notice of double digit increases for 2025, due to regulatory and inflationary issues that they have been experiencing the past several years. New power generation projects are also being challenged. In the first quarter of 2024 alone, 5,585 Megawatts of renewable energy capacity, including wind, solar and energy storage, were added to the grid. Renewables are being added but the renewable energy sector is being affected by changes in the economy. According to BloombergNEF, in 2023, renewable power purchases by corporations slowed to 15 GW from 20 GW in 2022 and the number of power purchase agreements fell to less than 100.
Renewable energy projects are capital intensive and rely on subsidies, including the investment tax credit and the production tax credit, to remain feasible. Debt from bonds and project finance constitute a substantial portion of the capital structure. For project developers, capital costs make up a significant share of project costs and higher interest rates are causing serious headwinds. Also, supply chain and logistic issues are making an impact. Three projects were canceled in New York due to an inability to make them cost effective. Some projects were contractually agreed to prior to the strong inflation, making the margins very squeezed. Time will tell if the economics of future wind projects make sense at the same pace as the past few years.
The energy sector is seeing the convergence of many types of external pressures, thus impacting prices for materials and wholesale power alike. YVEC is working to ensure we remain competitive and efficient in serving our members. Affordability and reliability are the standards by which we operate. As the economy creates shifting sands in the energy industry, our focus on serving you is unwavering.
Brandon J. Wittman
Chief Executive Officer