What lies ahead for US renewables?

COMMENT

MANAGING EDITOR James Little

james.little@palladianpublications.com

SENIOR EDITOR Callum O’Reilly

callum.oreilly@palladianpublications.com

ASSISTANT EDITOR Sarah Smith

sarah.smith@palladianpublications.com

EDITORIAL ASSISTANT Abi Larkin

abigail.larkin@palladianpublications.com

SALES DIRECTOR Rod Hardy

rod.hardy@palladianpublications.com

SALES MANAGER Ben Macleod

ben.macleod.@palladianpublications.com

PRODUCTION MANAGER Calli Fabian

calli.fabian@palladianpublications.com

DIGITAL EVENTS MANAGER Louise Cameron

louise.cameron@palladianpublications.com

DIGITAL EVENTS COORDINATOR Stirling Viljoen

stirling.viljoen@palladianpublications.com

ADMIN MANAGER Laura White

laura.white@palladianpublications.com

DIGITAL ADMINISTRATOR Leah Jones

leah.jones@palladianpublications.com

VIDEO CONTENT ASSISTANT Molly Bryant

molly.bryant@palladianpublications.com

Editorial/Advertisement Offices: Palladian Publications Ltd

Ditte Juul Jørgensend

Director-General for Energy, European Commission

On 18 May, the European Commission published its REPowerEU plan. First outlined in March in the aftermath of the Russian invasion of Ukraine, the objective of this plan is to rapidly and structurally transform Europe’s energy system to reduce dependence on Russian fossil fuels as quickly as possible, without losing track of the long-term ambition of becoming climate-neutral by 2050. For one, it underlines the immediate priority of finding alternative suppliers, and the vital role that energy infrastructure can play in sharing energy among member states. It also stresses the importance of energy efficiency and measures individual consumers can take to save energy. The cheapest form of energy is the one that is not consumed. And then there is renewables.

The massive scale-up of renewables is one of the main pillars in the REPowerEU plan. This is an approach which clearly supports energy independence, while also serving the fight against climate change. A recent poll shows that 84% agree that the war in Ukraine makes it more urgent for EU member states to invest in renewable energy.1

In the new geopolitical situation, the REPowerEU plan proposes a new objective to increase the European renewable energy target from at least 45% of the energy mix by 2030, instead of 40% in last year’s proposal. This would bring the total EU renewable energy generation capacities to 1236 GW by 2030, in comparison to 511 GW today. This new target would enable us to rapidly reduce reliance on natural gas for heating purposes in buildings and industrial processes through heat pumps, solar thermal, and geothermal resources, as well as locally produced biogas from agricultural waste residues. The deployment of district heating systems in densely populated areas will be critical to ensure that renewables can help decarbonise buildings and offices in a cost-effective way, in particular if combined with renovation measures.

A dedicated solar strategy will guide rapid deployment of utility scale solar technologies, unlock the rooftop potential on public, commercial, and residential buildings, and bring solar value to citizens and communities.

The conversion of renewable power into renewable hydrogen is another avenue to replace fossil fuels in hard-to-decarbonise applications in the EU. The REPowerEU plan boosts both local production and imports of renewable hydrogen, and accelerates the renewable electricity roll-out as well as electrolyser manufacturing capacities in the EU. The rapid development of both grid and hydrogen infrastructure to produce, transport, and import renewable hydrogen will be supported to ensure that renewable-rich areas are taken advantage of, and that these renewables are brought in the form of electricity or hydrogen to consumers.

In light of the higher renewable energy targets, the European Commission is also taking additional measures to support member states and other stakeholders to speed up the deployment of renewables. Slow and complex permitting procedures for renewables have been a concern. Whilst legislation mandates specific time limits to permitting procedures for renewables, these rules are not evenly implemented across member states. This is why the European Commission will issue a guide to share best practices, as well as a set of recommendations to remove any ambiguities in the application of existing EU legislation. Furthermore, the European Commission is amending the existing legislative framework to introduce so-called ‘go-to areas’ where renewables deployment can take place through shortened and simplified permitting procedures, whilst minimising any potential impacts on the environment.

Last but not least, the European Commission is supporting the development of renewable energy purchase agreements. Increasingly, large corporate companies have been signing long-term corporate renewable power purchase agreements with renewable project developers to obtain stable and cost-competitive renewable electricity. This often gives them a competitive advantage and also underlines their green credentials, whilst reducing public support for renewables deployment. The guidance aims to enable renewable energy purchase agreements across the EU as well as for small- and medium-size enterprises.

Taken together, we believe these measures can help the EU address the most difficult geopolitical challenge that Europe has seen in more than half a century without losing focus of the longer-term fight against climate change.

Marcelo Ortega and Geoffrey Hebertson, Rystad Energy, US,

present an outlook for the current US renewables landscape, as well as outlining the roadblocks the country must overcome to reach market stability.

At the start of the year, Rystad Energy estimated that 47 GWAC of solar photovoltaics (PV), wind, and energy storage projects would be commissioned in 2022. Of this, almost 10 GWAC of onshore wind assets are to be deployed this year – a 57% drop compared to 2021. Rising steel prices and expiring production tax credits are set to result in capacity levels such as those seen in 2019. Solar, meanwhile, could install just over 27 GWAC across the utility, residential, and commercial and industrial segments, which would have made 2022 a record-breaking year for PV capacity. The solar industry, however, has had a tough kick-off, with 17.5 GWAC at risk of being delayed or cancelled as the recent anti-dumping circumvention probe has halted panel imports into the US. Exacerbating the issue, silicon prices remain high with no alleviation in the immediate-term.

More than 12 GWAC of renewable energy capacity was delayed by more than six months in 4Q21. Due to commodity price inflation and unfavourable policy decisions, almost 5 GWAC of solar PV, onshore wind, and battery capacity lined up for installation in the US was delayed in November last year, and almost 7 GWAC in December. This is a significant trend because while project delays are expected in the industry as installed capacity grows and developers overestimate lead times, in a typical month these delays do not exceed the gigawatt mark.

While in the first three-quarters of last year, a typical delayed solar PV asset would see its start-up date pushed back by 3.5 months on average, this skyrocketed during 4Q21 to 6.4 months. This indicates that developers are facing more substantial hurdles in project development that could shift the entire country’s pipeline. The same trend can be appreciated for other technologies, with average project delays jumping from 2.4 months for batteries and onshore wind in the first three-quarters of the year to 5.5 months for batteries and 5.4 months for wind by the end of 2021. Solar PV projects were affected by polysilicon prices which soared in 2021. Prices for this commodity are not expected to come down until 2H22 at the earliest. US developers have been left hoping for a better economic and political environment further down the line. Similarly, steel price hikes put pressure on wind projects. Hopes were deposited on the Build Back Better framework that did not come to fruition.

The bill put forward by US President Joe Biden was set to be voted on by the Senate in December 2021 but was effectively killed when Democrats fell short by one vote. The legislation, which included commissions related to social policy and climate change, was expected to be a major game-changer for renewables in the US as it extended federal incentives for clean energy projects, specifically the Investment Tax Credit (ITC) and

the Production Tax Credit (PTC). These two incentives have been paramount for the development of renewables in the US. The PTC is preferred by wind developers and was terminated at the end of 2021. The ITC was the incentive of choice for solar PV projects and has a scheduled phaseout in 2026. The legislation also contained other potential federal incentives addressing clean hydrogen production, standalone utility scale batteries, and manufacturing facilities for solar and wind components. When the bill failed, wind developers had to quickly reassess strategies, which led to 1.43 GWAC of capacity being delayed on the back of expectations of a PTC extension later this year instead. Meanwhile, uncertainty over the duration of the ITC also hit solar PV future projections.

Discussions on Capitol Hill indicate that the bill may be revisited in a version that retains some of the original clean energy tax credits. If Democrats can agree on the contents of this new potential bill, they would be throwing the clean power sector a lifeline when it needs one the most to overcome current supply chain hurdles.

Figure 1. US renewable energy installations to 2035 by year and technology.

Figure 2. Average delays for renewables in 2021 by energy source.

Figure 3. Battery storage outlook in the US to 2025 by state.

What to watch out for this year

Despite significant policy and supply roadblocks for solar and uncertainty of tax extensions for wind, US storage is set to continue strong having established its presence across grids in the US with various use cases from arbitrage to resource adequacy. Worldwide battery installations are estimated to reach 24.6 GWAC by the end of the year, which entails a 96% annual growth rate. Although all regions of the world are waking up to the benefits of battery storage, nowhere is this more apparent than in the US. Last year marked the beginning of the battery boom in the US, and this trend will continue in 2022. The US battery capacity grew by 152% in 2021 and is estimated to grow by 154% this year, which equates to 8.8 GWAC of new capacity. By 2025, 53% of the world’s batteries will be in the US. This year, California will install 3.1 GWAC of batteries, reaching 5.8 GWAC of total capacity. California’s energy storage mandates from the early 2010s propped the state to become the leading US battery market. California’s lead has been declining since 2020 when the market in Texas started to ramp up deployments. This year, Texas is set to install 2.4 GWAC of capacity. New York and Arizona follow, with 900 MWAC and 488 MWAC, respectively, of the year’s total battery installations.

The US battery boom is closely related to another key trend in the North American market: asset hybridisation. Rystad Energy estimates that 57.5% of the battery capacity to come online in 2022 will be part of a hybrid project. By co-locating a battery next to a solar PV or wind farm, different development synergies can be achieved resulting in lower project costs and the unlocking of lucrative tax credits. By employing these configurations, developers only need to acquire a single piece of land, negotiate a single power purchase agreement, and reduce the number of power electronics by sharing it between the battery and the power generator.

Another trend to pay attention to is the clear dominance of renewables in the interconnection queues in the nation. Solar and storage are the most in-demand technologies looking to connect to the US grid in the short- to medium-term, according to Rystad Energy analysis of the country’s seven largest independent system operators (ISOs). There is currently over 760 GW of zero-carbon capacity seeking transmission access in the US, with over 320 GW of new capacity added to the interconnection queue in 2021. Nearly 80% of this is split between standalone storage, solar, solar plus battery, and storage paired with generation. While not all projects will reach completion, the major influx of capacity will undoubtedly help the US move closer to its clean energy goals.

The current administration has aggressively incentivised offshore wind, with a hefty goal of deploying 30 GWAC of capacity by 2030. Noticing its lackluster 42 MWAC of operational capacity in 2021, the federal government has expedited auction processes. In February, the largest offshore wind leasing auction in the US occurred, with six companies being awarded offshore land with the potential to generate 5.6 GWAC of electricity. The pace of offshore