Ukraine War Drives Up Cost of Wind, Solar Power

The Biden administration and other governments around the world have called for speeding the transition to renewable-energy sources to avoid reliance on Russia for oil and gas. But project developers say it might be nearly impossible to move faster in the near term.

Wind and solar development has boomed world-wide in the past decade as a result of rapidly falling costs that made the projects more competitive with traditional sources of power generation such as natural gas and nuclear, as well as growing government pressure to reduce greenhouse-gas emissions to combat climate change.

Globally, wind and solar accounted for about 6.4% and 4% of power generation last year, respectively, up from 3.8% and 1.4% five years prior, with further sharp growth projected, according to S&P Global Commodity Insights. The cost of solar generation fell to $45 for a megawatt-hour last year, down from $381 in 2010, S&P estimated. The cost of onshore wind generation, meanwhile, fell to $48 for a megawatt-hour, down from $89 in 2010.

But like many other businesses, renewable-energy projects are now being hit by soaring post-invasion prices for key materials such as aluminum and steel, as well as higher transportation costs stemming from higher oil prices, which have surged by more than 50% this year.

The rising costs are particularly acute in the U.S., where many projects were already facing increases in part because of trade tariffs targeting China, a dominant producer of solar cells and other renewable-energy components. A third of U.S. utility-scale solar capacity scheduled for completion in the fourth quarter of 2021 was delayed by at least a quarter and 13% of the projects planned to complete this year have been delayed for a year or canceled, according to a new report from Wood Mackenzie and the Solar Energy Industries Association.

U.S. projects have also faced long wait times to receive necessary approvals to connect new projects to the electric grid, as developers rush to bring wind and solar farms online to capitalize on aggressive state mandates to reduce emissions, overwhelming grid operators. Those delays are adding to uncertainty for project investors.

A report by LevelTen Energy, a renewable-energy marketplace, found that prices for long-term contracts for wind and solar-power purchases, which are used to finance new projects, rose substantially last year in almost every competitive power market in the U.S. Fourth-quarter prices jumped by 12.1% for solar and 19.2% for wind compared with the prior year, according to the company’s indexes.

French utility and renewables developer

Engie SA

is signing customer contracts closer to project start dates to get a better view of cost inflation or potential logistics problems, said

Dave Carroll,

the company’s head of North American renewables. Predicting costs has become far more complex than even a year ago, Mr. Carroll said.

“This is sending shock waves through the materials prices,” he said. “It’s uncertain how that’s going to settle out.”

Denmark’s

Ørsted

A/S, a major wind-power developer, said last month that inflation and permitting delays were pressuring its planned offshore wind projects in the U.S. Now marine fuels, tied to the rising price of oil, are pushing vessel contracts higher, said

David Hardy,

chief executive for Ørsted Offshore North America. He called the need to contract for vessels now “kind of Murphy’s law.”

Companies that make wind turbines for projects like Ørsted’s have been among the hardest-hit since the start of the pandemic, as the cost and complexity of moving giant blades around the globe have no easy workarounds. Their costs are set to rise again, though no critical components are sourced in Russia or Ukraine, said

Deepa Venkateswaran,

senior renewables analyst at Bernstein Research.

Nevertheless, she said the current spate of troubles is being viewed as a near- to midterm problem, as demand for renewables projects accelerates under more calls to become less dependent on fossil fuels from Russia.

“The bigger midterm to long-term positive is the added sense of urgency to get going with renewables and tackle the barriers such as permitting,” Ms. Venkateswaran said.

Competitive Power Ventures, a Maryland-based generation company with several renewable-energy projects under way, said it is working to stockpile solar panels and other equipment by ordering more than it currently needs in the hope of avoiding future supply constraints. It has also been screening for development sites that don’t require major transmission upgrades to reduce potential delays in getting approval to connect to the grid.

Sean Finnerty,

the company’s executive vice president of renewable energy, said the number of projects in line for transmission studies has posed a significant challenge for the industry. PJM Interconnection LLC, an electricity market serving 13 states from Virginia to Illinois, recently proposed a two-year waiting period for interconnection requests filed last year as it works through a backlog of requests, further adding to project timelines amid other challenges.

“It’s just really going to slow down the PJM market a little bit, which is going to make it difficult for some of those states to meet their near-term renewable goals,” Mr. Finnerty said.

Some customers of

Schneider Electric SE,

which makes electrical products and provides technology and services for managing power use, are trying to outrace inflation and have told the company, “Just build me more and put it in storage,” said

Aamir Paul,

the company’s U.S. president.

“We didn’t have a practice that helps customers decide what storage facility to use, because it wasn’t a thing,” Mr. Paul said. “Now it’s a thing.”

Write to Jennifer Hiller at jennifer.hiller@wsj.com and Katherine Blunt at Katherine.Blunt@wsj.com