How surety bonds are accelerating the transition to renewable energy
The transition to renewable energy in the United States has been making notable progress in recent years. According to the U.S. Energy Information Administration, this shift has contributed significantly to reducing carbon emissions from the power sector. These reductions align with targets set by various state and federal initiatives aimed at mitigating climate change.
Solar and battery storage will make up 81% of new U.S. electric-generating capacity in 2024. Wind and solar will account for 18% of total U.S. electricity generation, with solar surpassing hydropower for the first time. Overall, U.S. electricity generation from renewables is forecasted to grow by 3% in 2024.
Surety bonds address challenges to renewable energy progress
Despite this progress, several challenges are hindering the full transition to renewable energy including grid modernization, intermittency, regulatory inconsistencies, high initial investment, supply chain issues and local opposition. In many cases, these challenges can be addressed through construction surety bonds.
Risk mitigation: Surety bonds guarantee that projects will be completed per the agreed contractual terms. For renewable energy projects, this incentivizes adherence to timelines, budgets and quality standards, reducing the risk of delays and cost overruns.
Ensuring project completion: Performance guarantees ensure that projects will be completed per the agreed contractual terms, incentivizing developers, contractors, and subcontractors to adhere to timelines, budgets, and quality standards. This reduces the risk of project delays and cost overruns, which are critical concerns for investors and stakeholders.
Fostering investor confidence: Investors and financiers are more likely to fund renewable energy projects backed by surety bonds, as the bonds provide a safety net against project delays or contractor defaults. This increased confidence can lead to more investment in renewable energy projects, accelerating their development and implementation.
Facilitating regulatory compliance: Surety bonds ensure contractors comply with strict regulatory requirements and environmental standards, avoiding fines, legal issues and project shutdowns. This compliance is crucial for maintaining timelines and securing government incentives or subsidies.
Supporting small- and medium-sized enterprises: Surety bonds help smaller contractors and developers participate in the renewable energy sector by guaranteeing their performance and financial reliability. This enables small- and medium-sized enterprises to compete for contracts, increasing competition and innovation in the industry.
Encouraging public-private partnerships: Public-private partnerships often fund renewable energy projects, and surety bonds facilitate these by guaranteeing private contractors’ obligations. This encourages more collaboration, increasing investment and project development in renewable energy.
Reducing financial barriers: Surety bonds can reduce the financial barriers to new and emerging renewable energy technologies by providing a form of credit enhancement. This can help developers secure loans and other forms of financing on more favorable terms, making it easier to launch and scale innovative renewable energy projects.
Enhancing supply chain stability: Surety bonds ensure suppliers and subcontractors meet their obligations, crucial in renewable energy projects with complex supply chains. By guaranteeing performance, these bonds help maintain timelines and reduce the risk of disruptions.
Surety bonds offer a reliable mechanism to meet the increasing demand for renewable energy projects. Their role in mitigating risk, ensuring project completion and fostering investor confidence makes them a key factor in accelerating the transition to sustainable energy throughout the nation. As the renewable energy sector continues to grow, surety bonds will remain integral to overcoming challenges and driving progress.
Lauren Leskanic, a Surety Executive at Surety Bond Professionals, helps ECP contractors and developers with bonding programs for the successful construction and operation of renewable energy projects. She partners with a trusted network of underwriters who understand the intricacies of solar and renewable energy operations. She can be reached at Lauren@SuretyBondProfessionals.com
