The US employment market has become as unpredictable as the weather! Since March of 2022, the Federal Reserve has adjusted the interest rate (for a total of 5 percentage points) a near record 12 times! All with the goal of taming inflation, adjusting consumer spending, and slowing job growth. But is it working? Well, job growth has been defying the analysts for 19 months. Once again, in September, job creation surprised the Federal Government, expert analysts, and Wall Street. For the past year, the US unemployment rate has hovered between 3.4% and 3.8% (a near-historically low). So, why is the clean energy job market softening?
For the first time in more than three years, job cuts in the renewable energy industry are making headlines. This is extremely troubling given how much tailwind is behind the industry right now through the Build Back Better Act and Inflation Reduction Act. In 2023, layoffs in the US are up 5x over 2022, with tech companies leading the way. Clean energy companies are now joining the ranks of the general employment market. If you remember my Outlook from last year, I predicted that the fast-rising salaries would have a market correction, and here it is.
In March 2022, I talked about the rising costs of talent acquisition in renewables (because of high demand vs limited supply), and even before the IRA was signed into legislation (May 2022), I saw early signs of the employment market slowing. While no clean energy company has made the list of the largest workforce reductions, several of them have downsized; including Maxeon, Tesla, Bloom Energy, which also helped slide solar stocks. Behind the scenes, EnergeiaWorks has heard (from frustrated employees) of several other private companies that have downsized this year.
While personally, I think the clean energy job market has been unbalanced and could use a little shakeup, it's never good for an industry to have layoffs. Since we have a healthy number of customers hiring through EnergeiaWorks, hopefully we can help the unemployed get back on their feet. You can see from this graph that tech layoffs have gotten fewer as the year progressed, and I think we'll start to see the clean energy job market get better in Q1 of 2024.
Why the layoffs? For one, the interest rate! Renewable Energy projects are capital intensive. Whether it's a consumer purchasing a residential solar and storage project or a corporation constructing a multi-megawatt rooftop system, the ROI just isn't what it was last year. Residential solar had a banner year in 2022, but I can bet we'll see something different for 2023 once the numbers are finalized.
In addition to the rising cost of capital, interconnection slow-downs on utility-scale projects have certainly put delays into project development. And when project development is delayed, then design, engineering, permitting, equipment purchasing, and construction are being delayed. Therefore, we're seeing organizations upstream in manufacturing and distribution also being affected by development delays. I've heard from multiple customers that Q3 was soft this year compared to their forecasts.
Lastly, I believe the clean energy industry over-hired when renewables came roaring back in the summer of 2020, and now companies are realizing they should trim back on corporate expenses, including payroll. Optimistically, I believe Q4 will be stronger than Q3, so let's hope 2024 gets off to a solid start!
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