Will skills gaps worsen inflation pressures?

More than 30million extra people need to start working in renewables by 2030 if the world is to make a shift to cleaner energy, research has said.

The International Energy Agency has this month published its inaugural ‘World Energy Employment’ report, which said 14million new jobs need to be created in renewables in the next eight years, and an extra 16million energy workers need to move over from fossil fuels. Sixty percent of these would need some kind of specialist higher skills training.

This would be huge growth. Around 11.3million people are currently employed in the power generation sector, of which 6.8million are in renewables. Around two-thirds of those working in energy are developing new infrastructure, and the rest focus on running and maintaining operational assets. Developers may get excited by legislation such as the US Inflation Reduction Act, but they will need enough people to deliver the projects.

However, it said shortages of skilled workers are already delaying development schedules in areas including offshore wind, and this will only worsen as targets for renewables installations get more ambitious.

The IEA warned that governments and companies need to plan now so that “scaling is not hampered by a shortage of skilled workers”; and added that current upheaval in energy markets’ would worsen the problems.

This could be an additional inflationary pressure for companies already dealing with rising costs of materials and supply chain disruption after the pandemic.

“Concerns about cost inflation are acting as a brake on the willingness of companies to increase spending, despite strong price signals. Ongoing labour shortages and increased worker turnover are creating challenges for hiring and recruitment,” the report said.

It added that the “very competitive environment” meant firms are struggling to hire candidates and are seeing high turnover of the most skilled people.

Inflationary pressure

Wind companies are already grappling with the challenge of inflation. For example, digital investment platform operator RealPort last week released a special report called ‘Winning in Green Energy’s Age of Inflation’, where it looked at the threat of inflation for project owners and investors.

It warned many investors will need to re-think their debt financing terms and off-take structures because they have paid high prices for assets, particularly in the last two years, and would struggle as costs are rising.

Tighter employment markets would only lead to higher staff costs and delay project schedules, which would further exacerbate these challenges.

The IEA is not alone in making these workforce warnings.

There are currently 650,000 people employed in the wind and solar sectors in the European Union, and these numbers are set to double over the next eight years, according to trade associations SolarPower Europe and WindEurope. In the US, the American Clean Power Association said the IRA would lead to the creation of 550,000 jobs. Firms must plan now to get ahead of these shifts.

It isn’t just the associations. Companies including Vestas are saying the same. Rising targets for renewables installations are great, but they need people to deliver them. If that doesn’t happen then it could slow the energy transition.

Finally, the IEA made another warning.

It said that the expansion of renewables and the pressure on the workforce would also increase the risks of human rights violations against those working in renewables. The unions in emerging renewables sectors are less established than their counterparts in fossil fuels, and this meant weaker protection for those working in areas including the fast-growing solar market.

Solving skills shortages is far from straightforward. The wind industry requires skilled people to install and maintain turbines, but it takes time for people to get those skills. They may then be lost from the sector if there is a slowdown in their home market and they are not prepared to move to newer markets.

Training people with the right skills is only the first part of the solution – but, right now, it is the most important bit. Failing to do so will stop this industry reaching its potential and act as an obstacle as green energy demands grow.