New Hampshire, USA --
“Some think it is the beginning of the end here for renewable energy
in the United States,” began Adam Umanoff partner at Akin Gump at the
start of his presentation for energy media in early December. As a
renewable energy journalist based in the U.S. this was a very
provocative statement indeed.
I followed up with Umanoff
after the presentation to make sure I was clear on the reasons he gave
in support of this view. While none of these reasons are new or even
particularly insightful (Umanoff himself calls them obvious), the bottom
line is that it will be a different playing field for renewables going
forward. On the next few pages, you’ll find three obstacles that stand in the
way of utility-scale renewable energy growth in the U.S. and the
solutions and/or mitigations to those problems.
1. Problem: Low Load Growth
The U.S. is building far fewer power plants today than it ever has
before. Historically utilities enjoyed load growth in the 3 percent
range but those days are gone. Umanoff pointed out that low load growth
is the new norm. In some cases, the U.S. has even experienced negative
growth. That means that we’re using less energy as a nation (some may
call this a good thing) but it also means that the outlook for new
generation plants being built is slim to none.
Solution: Rebound is underway.
Much of the negative load growth was due to the great recession, said
Umanoff, and thankfully, most people believe that the recession is now
behind us. While we won’t return to 2 or 3 percent load growth for a
while (if ever), experts predict it to be in the 1 to 1.5 percent ranges
for the next 3 to 5 years.
Solution #2: Retiring generation.
“We also are facing the retirement of a significant amount of
generation here in the U.S.” said Umanoff. He listed older coal plants
that are too expensive to retrofit and nuclear retirements around the
country, noting the San Onofre plant in California that was permanently
retired in 2013. “So there will be demand drivers in the near future,” said Umanoff, “and that will help renewables in the near term.”
2. Problem: Cheap Natural Gas
Even though renewable energy generation costs have come down
significantly, according to Umanoff, “the fact of the matter is that
natural gas, due to the advent of hydraulic fracturing, is historically
cheap.” Umanoff said that projections are that for the next 10-15
years, natural gas will be in the $5.00 per mBTU range. “With gas that
low,” he said, even though renewable costs have come down, “the goal
posts have now been moved.”
Solution: Cost-competitive renewables.
Umanoff believes that the real reason renewable capacity grew so much
in the past two decades is because of the tremendous cost reductions
that the industry has been able to make. He explained that wind
generation (with a good wind resource where capacity factors hover
around 50 percent) costs are now $0.04 to $0.05 per kWh compared to the
mid-eighties when they were $.25 per kWh.
In some markets, wind and solar are approaching grid-parity, he said,
including wind in Texas and the Midwest and solar in the Southwest. In
some markets, solar generation costs are coming in around $60 to $70
per MWh range, he said, making utility-scale solar in California, Nevada
and Arizona a real success story.
Solution #2: Policy support.
The U.S. still enjoys (although there is a looming end-date) good tax
credit support for renewable energy. Umanoff explained that the
production tax credit (PTC) for wind, which gives developers a $0.023
tax credit for each kWh of wind generation, will continue to support
wind projects in the U.S. for the next two years. As long as a wind
project commences construction by the end of 2013 and construction
continues until completion and the project is online by 2015, it is
eligible for the PTC.
The investment tax credit (ITC), which awards developers a 30 percent
tax credit for investment in solar project costs, is available for
solar projects that come online by 2016. The solar industry hopes to
help pass legislation that will change the language of the ITC so that
it would allow developers to take the credit as long as their projects
commence construction by 2016 (as opposed to being online by 2016).
In addition, there are renewable portfolio standards that are going
strong in 30 states plus the District of Columbia. “Current RPS’ on the
books will require around 5000 MW of new renewable energy per year over
the next 15 to 20 years,” said Umanoff.
3. Problem: Distributed Generation Solar
New growth will come from distributed generation for a very simple
reason, according to Umanoff. Utility-scale renewables compete with
wholesale energy prices, which have been very depressed over the past
two years. “Distributed generation, whether it’s a residential consumer
who wants to put solar panels on her home or it’s a commercial or
industrial user that wants to do an ‘in the fence’ deal to provide power
to their facility, they are competing against retail electricity
prices.” Distributed generation will not only disrupt the utility
business model, it will also impact the need for new utility-scale
renewable energy generation.
Caveat: Financing is still an issue.
“Driving down the cost of capital in the distributed generation space
is critical,” said Umanoff. He believes that ultimately “it’s going to
be a volume game,” and that we should expect to see a lot of mergers
and acquisitions among the distributed generation developers in this
space in 2014 “as companies attempt to aggregate capacity so they have
larger portfolios that they can take to market to finance.”
According to Umanoff, financing this space could make or break the
growth in distributed solar. “To me that’s going to be the largest
impediment or potentially success story to growth in the next two to
three years,” he said. Markets change, and in the U.S. large-scale renewables will face some
uphill battles in the future. Said Umanoff: “Things are going to look a
little different on the wholesale side.”
http://www.renewableenergyworld.com/rea/news/article/2013/12/utility-scale-renewable-energy-development-in-the-u-s-faces-obstacles-in-2014?page=4
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