Renewable energy resources have become a bigger part of the grid in recent years, competing with traditional generation sources. With flat load growth, falling costs and the expansion of the energy storage sector, this trend is only expected to rise.
While onshore wind is more economic than utility-scale solar in many areas of the U.S., analysts say solar could become increasingly competitive with wind.
“In 2020, this competition will likely evolve further to encompass not just renewable versus traditional resources, but also renewables in competition with each other,” Marlene Motyka, partner of Deloitte’s US Renewable Energy division, told Utility Dive.
The solar and wind energy industries receive a lot of optimism from analysts based on current growth trends for deployment and decreasing prices across the sector.
But the lack of new federal subsidies for clean energy has disappointed many environmental advocates, and the federal trade policy updated at the end of 2019 remains the strongest headwind for wind and solar energy.
“The headwind will continue into 2020 as well as impacts from the stepdown of the national tax credit,” Motyka said.
A strengthening domestic economy may encourage continued renewable energy development, however.
“In 2020, there’s sort of a ‘come on in, the water’s warm’ element of excitement and momentum.”
Senior Manager, LevelTen Energy
“There’s been this looming concern about the recession,” Reed Smith renewable energy partner Brendan McNallen told Utility Dive. “Maybe six months ago, there was a feeling that [a recession] is very likely,” but now that sense “is abating a bit.”
However, he added, development may be stymied by uncertainty from the presidential election.
“Both sides … have pretty different views of renewable energy in the national energy mix,” McNallen said, which is becoming a headwind “against additional development.”
Despite the politicization of renewable energy incentives, the market has expanded in the past year, showing a “real maturation of the [commercial and industrial (C&I)] procurement space,” LevelTen Energy Senior Manager Ben Serrurier told Utility Dive.
The record-breaking year “marks a turning point in who is buying clean energy and the sophistication of those buyers,” he said. “In 2020, there’s sort of a ‘come on in, the water’s warm’ element of excitement and momentum.”
Tax credit reform didn’t shake out new renewables incentives
National tax credits have been key drivers for wind and solar growth in the U.S. renewable energy market. Several advocacy groups continue to lobby for extensions and new clean energy credits after the annual spending bill approved in December left out a number of renewable energy provisions.
The budget included a one-year extension for the wind production tax credit (PTC), although some analysts have argued a short extension will not provide investment certainty.
Efforts to extend the investment tax credit (ITC) for solar were unsuccessful, causing the credit step-down to begin in 2020.
The majority of renewable energy developers think power purchase agreement (PPA) prices for solar and wind will decrease or stay the same in 2020, LevelTen’s Serrurier said.
“In 2020, the entire sector is going to be focused on that final PTC hurdle and getting these massive projects over the line.”
Wind Analyst, BNEF
In 2019, competition from other renewable projects was the leading factor on PPA pricing factors, he said. Only 15% of developers, as surveyed by LevelTen, said the phasedown of federal tax credits had an impact.
For 2020, the phase down of the tax credits are expected to play a greater role.
“They’re sort of connected,” Serrurier said. “When you look towards 2020, competition from other renewable projects … and the phaseout of the tax credit are tied [as developer concerns].”
The phasedown is expected to cause “a rush for projects to get grandfathered in,” he said.
For onshore wind, at least 19 GW is expected to come online in the U.S., according to the U.S. Energy Information Administration’s (EIA) most recent short-term outlook.
“In 2020, the entire sector is going to be focused on that final PTC hurdle and getting these massive projects over the line,” BNEF Wind Analyst Rachel Shifman told Utility Dive.
The train won’t stop on renewable energy deployment
Increasing concerns do not seem to stymie renewable energy’s rapid deployment.
Solar will see growth across every sector next year, said Deloitte’s Motyka. “However, utility-scale solar will outpace other sectors due to demand from corporations and states and municipalities,” she said.
In 2020-2024, she forecast utility solar to grow 70%, with C&I expanding 10% and residential 20%. The sector expects 26 GW of utility-scale solar growth over the next two years, coupled with 11 additional GW of small-scale solar, according to EIA.
“Even in the places where we’re not seeing large comprehensive policy, in the Southeast, we are seeing consumer demand pushing the utilities” to develop renewables, J.R. Tolbert, managing director of Advanced Energy Economy (AEE), told Utility Dive.
Meanwhile, BNEF expects continued growth for the residential and C&I, due to the continuation of two trends: an increasing size of solar systems and more interest in investment opportunities, Tara Narayanan, BNEF solar analyst, told Utility Dive.
“There are banks and capital providers that are accelerating their investments under the banner of sustainable finance.”
Partner and Global Leader of Energy, Infrastructure and Water, Pillsbury Winthrop Shaw Pittman
“There’s a lot more funds that are raising capital to get into C&I as an opportunity to diversify” investments, she said.
“More utilities are getting involved in renewables or setting up their own renewables deregulated arm,” Narayanan said.
But another thing to watch for is increasing investments from international asset managers and other financial organizations, according to other analysts.
The increased consumption of renewable energy from corporate offtakers is “really having a profound impact,” Mona Dajani, partner and global leader of the energy, infrastructure and water team at law firm Pillsbury Winthrop Shaw Pittman, told Utility Dive.
“There are banks and capital providers that are accelerating their investments under the banner of sustainable finance,” she said. “It’s infrastructure funds, it’s foreign pension funds, it’s foreign corporations like IKEA that are very strong in Europe.”
“There seems to be more interest in not just the U.S. but in other areas besides Europe because [renewable energy] is so mature there,” she said. This is based on cost declines, remaining tax incentives not available in other countries, trends for deployment growth and market instability in Europe from events like Brexit, according to Dajani.
Besides promoting a “level playing field in the tax code,” renewable energy advocates are looking at how corporations are measuring their sustainability initiatives.
Environmental, Social and Governance (ESG) scoring is a central metric investors rely on currently. Financial institutions, energy companies and the C&I sector are looking at ESG scoring and “adapting a universal climate benchmark to accelerate the transition to renewable energy,” Dajani said. A number of organizations, including market analysts from Moody’s to Dow Jones, are contributing to a scoring process to represent sustainability investment.
In the U.S., that has grown to over $12 trillion across different sectors, she said, with ESG investing as a subcategory of that.
Investing based on ESG scores has fundamental calculation problems that do not prioritize key greenhouse gas emissions benefits, according to ACORE’s Wetstone.
Demand for offshore wind and energy storage sustains despite new tax credits
BNEF is watching the wind industry in 2020 for growth opportunities in hybrid projects with energy storage and in offshore deployment.
While a lot of energy storage projects are being planned alongside renewable systems, for the wind industry, “there’s also very conscious efforts of getting into hybrid projects … admittedly a few years behind solar-plus-storage,” Shifman said.
Many analysts also said that 2020 would have a surge of investments in the nascent offshore wind industry.
“Demand for wind continues strong with a large pipeline of projects,” Deloitte’s Motyka said. “The one aspect different this year from last is the progress made in 2019 on offshore wind.”
Acquisitions are taking place even without a coveted offshore wind-specific credit, which had gained support among many renewables advocates. Additionally, investments are growing in the Northeast region in anticipation of new state offshore wind solicitations.
“I wouldn’t be surprised” if more “fossil fuel giants” and large European energy companies enter U.S. offshore wind space, Shifman said. Such companies are making acquisitions and creating joint ventures, offering financing and expertise for deep sea construction.
Maryland will offer a new round of Offshore Wind Renewable Energy Credits in 2020, while New Jersey and New York will make additional buys, according to Liz Burdock, CEO and president of the Business Network for Offshore Wind.
However, she acknowledged that the sector also faced headwinds last year, including a delay in offshore wind leasing on the federal side.
“If we see a lease [this year], it will be in the third or the fourth quarter,” Burdock told Utility Dive.
State by state
From renewable energy advocacy to nonprofits, several stakeholders are gearing up in 2020 to work on renewable energy policy on the state level.
“Historically, it’s generally seen as more difficult to legislate during a presidential election year.”
President and CEO, American Council on Renewable Energy
Multiple renewable energy advocates continue to work on federal tax credit extensions and establishing separate credits for energy storage and offshore wind, but Congress may act “more in the longterm,” according to Wetstone.
“Historically, it’s generally seen as more difficult to legislate during a presidential election year,” he told Utility Dive.
Meanwhile, states are leading a big shift in 2020 in administrative and regulatory processes to continue advancing the ball in integrating renewables, according to AEE’s Tolbert.
States from Minnesota to Oregon attempted to pass renewable goals through their legislatures and will renew those efforts this year, he said.
“More and more states seem to be trying to get their ducks in a row for when their legislature matches their values,” he told Utility Dive.
Virginia and Illinois state legislatures are considering bills this year to increase renewables in the energy mix. Illinois’ bill seeks to increase utility-scale solar and wind procurement and new development of residential, community and C&I solar, according to the Solar Energy Industries Association. Virginia’s Senate and Assembly, following an executive order from Democratic Gov. Ralph Northam in September, will consider a bill to increase distributed and utility-scale renewables.
In addition, a number of states are working to develop existing policies to suit the needs of an increasingly interconnected grid and allow more solar and solar-plus-storage online. For example, New Jersey regulators must finalize a transition program for rooftop solar incentives in the state, and California regulators will begin their Net Metering 3.0 proceeding.
“It’s important for policies … to evolve,” Audrey Lee, solar developer Sunrun’s vice president of energy services, told Utility Dive. We were able to secure [capacity in ISO-New England] because of the competitiveness of the capacity and the offering.”