The recent move by the United States to impose tariffs on solar panels made abroad has caused much discussion and uncertainty within the industry. But while the tariffs are having some effect on the consumer market, investment in utility scale solar and wind development continues at a rapid pace.
After a down year in 2017, the U.S. is on track to resume sustained solar growth, having moved up to No. 2 in the world for renewable energy investment attractiveness (behind China), according to the Ernst and Young (EY) Renewable Energy Country Attractiveness Index. Despite concerns over the current administration’s view of renewables, the U.S. is set to invest $56.9 billion in clean energy technology this year, up 1 percent from 2016.
What makes the U.S. still so highly attractive for renewables development?
Growing market surplus
China, like the U.S., has also been addressing solar tariffs of late. A reduction in their feed-in tariff program is expected to decrease demand for solar panels in the near term, creating a global market surplus and depressed prices. That could erase the short-term cost increases triggered by the U.S. tariffs on imported solar panels.
Technology investment and declining capital costs
In April the U.S. Department of Energy announced that it had reserved as much as $105 million to fund approximately 70 projects to enhance solar photovoltaic (PV) and solar thermal power technologies. The funding also addresses the process to securely integrate these projects into America's national electric supply framework. Per a report by International Renewable Energy Agency (IRENA), the price of solar PV modules has dropped 80 percent since 2009.
Extended tax credits
The solar space continues to benefit from the investment tax credit that Congress extended for new wind and solar generators in 2015. This allowed investors to claim federal Investment Tax Credits, which amount to 30 percent of the qualified expenses associated with a solar energy system installed by a business or homeowner. The U.S. Energy Information Agency (EIA) projects that wind and solar generation will account for nearly 900 billion kilowatt-hours (94 percent) of the total renewable energy growth over the next 25 years. The extended tax credits account for much of the accelerated growth in the near term.
Power economics and changing fuel mix
The cost of electricity from solar PV fell by about three-quarters between 2010 and 2017. Also, the global weighted average cost of electricity of utility-scale solar PV has seen a decline of 73 percent since 2010. The levelized cost of electricity (LCOE) for renewable power has dropped by 18 percent worldwide according to Bloomberg New Energy Finance. This brings estimates of installation costs to $55 per megawatt-hour for onshore wind projects and $70 per megawatt-hour for solar PV panels. According to Lazard’s projections, LCOE for unsubsidized wind power was $43 per megawatt-hour while the price for unsubsidized solar was $30 per megawatt-hour.
In addition, it has been clear for some years that the increasing deployment of solar and wind is cutting into the market share of coal and nuclear power plants in the United States and Europe. These plants are being retired, and a negligible number of new plants of either technology are being built. EIA projects wind and solar generation will lead the growth in renewables generation, accounting for 64 percent of the total electric generation growth through 2050. Demand for solar energy is expected to soar 20 percent annually on the back of its abundant supply.
State policy drivers
State level policy and voluntary capacity additions also continue to drive renewable energy investment and ambition across the US. State tax and performance-based incentives are promoting investment in the distributed generation (DG) market, while economies of scale continue to spur investment in utility-scale renewable energy projects. The DG solar market is expected to grow in the short term as tariffs on solar equipment enter the financing equation. Investor-owned utility (IOU) investment and ownership of renewable energy is on the rise throughout the U.S. and deployment is currently proposed with most IOU integrated resource plans. Policy at the state level continues to be spurred by the Public Utility Regulatory Policies Act, which requires utilities to purchase energy produced from qualifying facilities that does not exceed the price of the utility’s avoided cost.
Meanwhile corporations continue to drive more renewable energy and technology investment in response to the attractiveness of the favorable renewable energy economic equation, a desire for direct ownership in their energy production and customer demand for companies with sustainability goals.
More utilities are pairing renewable generation with energy storage to support a balanced load on the grid and limit service interruptions resulting from shifts between traditional and renewable generation capacity. FERC’s recent order directing wholesale markets to develop rules for the participation of energy storage facilities will spur new opportunities in this market.
Analysts say the long-term outlook for the renewables industry and the advanced energy economy is trending upward for the long term and will ultimately transform the way the U.S. generates and delivers electricity. Opportunities are expected to be abundant over the next decade in the unsubsidized and post-tariff era, driving innovation and creating new employment opportunities. IRENA estimated in its latest jobs report that solar and wind employment is up almost 100 percent and solar is creating jobs at 17 times the rate of the overall U.S. economy.
Going forward, the renewable energy industry will pursue land acquisition strategies to limit the soft costs of project implementation. All phases of project development will require an outward-facing and multi-faceted engineering team to navigate the interconnection, planning, design and construction process. Turn-key engineering consulting solutions will increase efficiency and reduce development costs in the face of short-term increases in equipment costs and declining incentives. Mergers and acquisitions are ever present and successful deals rely on independent engineering to identify potential technical risks and offer mitigation and third-party review of risks to help secure economically attractive deals.