(Bloomberg) -- The oil crash is yanking the rug out from under the hottest U.S. solar market.
Developers including Cypress Creek Renewables LLC and 8minute Solar Energy have scrapped plans to build at least 13 solar farms in Texas since crude prices began plummeting in March. Analysts warn more may follow.
The canceled projects, which total 2.5 gigawatts, are an early indication that the solar building boom intended to meet burgeoning demand for electricity in Texas may be going bust as drilling slows. Economic growth from surging crude production made Texas one of the only states with a pressing need for new power plants. That’s fading as the oil industry suffers its worst downturn in history.
“Texas used to be very lucrative,” Tara Narayanan, a BloombergNEF solar analyst, said in an interview. “Now it’s collapsing.”
Texas, the nation’s second-largest economy, emerged as a solar hot spot because the state needed power, solar farms can be built faster than other generating plants and there’s ample sun and cheap, easy-to-build on land. A year ago, developers were proposing enough installations to quadruple the state’s solar capacity, adding enough panels by 2022 to light up all of Dallas.
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There are, of course, reasons developers are scrapping projects aside from the oil crash. Economic fallout from the coronavirus has made it harder to line up financing and is limiting demand for clean-energy tax credits, which can be crucial for making solar farms profitable.
Yet as Texas’s oil-fueled economy cools, the case for building power plants erodes. Unemployment in the state, which began the year at a near-record low, surged above the national average in March as jobless claims hit record highs. By June, Texas may lose 1.3 million jobs, according to estimates by economists at Moody’s Analytics.
Read More: Double Black Swan Hitting Texas Drags Down Rest of the U.S.
Power use is projected to fall across Texas, but especially in the oil-rich western end of the state. Genscape has cut its forecast for peak use in the region by about 20% as drilling has slowed, said Flannan Hehir, an analyst.
“The supply chain for solar and wind is certainly taking a hit for years to come,” Hehir said.
Robert Reichenberger, president and founder of developer Solar Prime, pulled plans in March for a 380-megawatt solar farm in Pecos County, the heart of the oil-rich Permian Basin. The reason, he said, was local demand for electricity is receding and he couldn’t afford to ship the output over high voltage lines to San Antonio, Dallas and other cities to the east.
Not all solar developers are walking away from Texas. There are still applications to build hundreds of installations totaling 76 gigawatts on file with the state’s grid operator. 8minutenergy, which has canceled plans for a 360-megawatt solar farm near Midland, plans to move forward with other projects in the state.
“We remain committed” to the Texas market, said Katie Struble, a spokeswoman.
Cypress Creek dropped plans to build a 200-megawatt solar farm near the Mexican border to focus on more lucrative projects in the state, said Ally Copple, a spokeswoman for the developer.
But there are growing signs of a slump.
“We are already seeing evidence that renewable development is slowing,” Curt Morgan, CEO of Texas power giant Vistra Energy Corp., said on a call last week with analysts. “We have received calls from a number of developers seeking to sell the rights to their projects for very nominal fees.”
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