Renewable energy in the United States is at a crossroads. With several federal tax grants set to expire by the end of 2012, utilities are trying to decide if the falling prices of solar and wind technology makes renewable energy competitive enough to invest in despite vanishing federal aid.
Lindsay Morris recently discussed the future of renewable energy with four renewable executives: Tom Doyle, president and CEO of NRG Solar; Michael DeAngelis, manager of energy research, Sacramento Municipal Utility District (SMUD); Steve Sawyer, secretary general of the Global Wind Energy Council; and Ed Feo, managing partner, USRG Renewable Finance. These renewable energy leaders discussed the possibility of a North America sans renewable tax grants, the pros and cons of low-cost manufacturing of PV modules, the role of renewable energy in light of the natural gas revolution, and more.
How will the removal of the 1603 Treasury Grant affect renewable energy developments? Will we see more state renewable programs popping up to encourage renewable growth?
Mike DeAngelis: The 1603 Treasury Grant Program is a significant incentive to renewable energy development. At SMUD, we’re in the final stages of negotiating sale and buyback agreements for our new 120 MW wind project in Solano that is now under construction. The sale is to a private party. The 1603 Program is a very important part of the deal.
Ed Feo: I agree that the 1603 has been a significant program for renewables over the last two years. As of September 2011, the Department of Treasury reports that almost 20,000 projects have been funded for a total of more than $9 billion since the program began in 2009. Let’s assume for the sake of this discussion that the grant is not renewed or replaced with something very similar to it. If you do the math and back out the amount of the grant based tax equity transactions, the tax equity market suddenly falls from a volume of over $7 billion to around $3.6 billion.
Another factor affecting the tax equity market is the expiration of the Production Tax Credits (PTC) at the end of 2012. What we’re seeing is a pretty significant acceleration of wind development financing into 2012 that might otherwise have fallen to 2013. This acceleration of development and financing in wind will actually put more pressure on the tax equity market in 2012, and could have the effect of increasing pricing for the available tax equity.
Tom Doyle: I think you’re going to see different types of development going forward. The large scale, utility-type development activity is going to be impacted the most by the loss of the 1603 grant. I think there will still be tax equity markets available for smaller projects.
Will there be a time when renewable energy no longer needs government subsidies?
Doyle: The way we’re developing our business plan, we absolutely assume that there will be a point in time over the next five years when renewable energy no longer needs government subsidies. We see a lot of markets from a retail price perspective where solar projects can achieve grid parity without government subsidies. In fact, we’ve studied the U.S. market and believe that within the next three to four years, there are more than 20 states where we can compete without government subsidies.
DeAngelis: Regarding declining costs, we have really seen some of the renewable energy technologies moving down the price curve as production economies, learning curve progress, and innovation occurs over time. As that continues, I think we’re going to see excellent competitive prices from wind and solar PV.
Steve Sawyer: We have successful wind developments in New Zealand, Mexico and Brazil without any government subsidies of the kind that we’re used to seeing in the U.S. If we’re talking about a level playing field, I think that wind and solar in many locations are ready to compete right now.
How do low natural gas prices and the overall “natural gas boom” affect the renewable energy market in the U.S.?
Doyle: From my perspective, low natural gas prices force us to sharpen our pencils and focus more aggressively on ways that we’re going to be able to drive down costs. I actually think low natural gas prices have been a benefit to the renewable space because I think we’ve all seen what’s happened with respect to prices in a very short amount of time. I do believe at some point in time, we’re going to see gas prices elevate north of the $4 level, and that’s only going to be an upside for a renewable space that has already worked out a lot of the major issues to drive down costs and achieve grid parity.
DeAngelis: I think it’s true that increased natural gas supply and low prices will make it more difficult for renewables to compete in the U.S. And though natural gas is certainly much better than coal and petroleum in terms of greenhouse gas emissions, it still results in significant carbon emissions. If California is going to meet an overall goal of 80 percent reduction (of greenhouse gases) by 2050, then that means eventually reductions in natural gas use would be needed also.
Feo: The RPS programs really put renewables off in a separate procurement bucket so you don’t have this head-to-head competition between natural gas and renewables. But natural gas does affect what the price of power is, and that in turn affects what’s going to be considered an acceptable price for renewables. I think on the natural gas side, the impact is potentially greater on coal than it is for renewables, with gas becoming the dominant fossil fuel. It may be more of a battle between coal and natural gas than between natural gas and renewables.
Sawyer: Slow – painfully slow – the world is moving to price carbon emissions. When you compare just the combustion of gas and coal, the advantage for gas is quite substantial, but when you include the fugitive emissions from the hydro-fracking process, the situation changes dramatically.
On the manufacturing side, does it look like the majority of technology will continue to come from other countries? If the U.S. were to gain the upper hand in the renewable technology market, would that be beneficial to American renewable developers?
I think it’s hard to have a crystal ball on this topic. Particularly China has become a major force in photovoltaics and may be becoming significant also in wind manufacturing. The Solyndra issue aside, I think the jury is still out concerning U.S. innovation and U.S. subsidies and whether they can overtake the government subsidies from other countries and the cheap labor applied to traditional wind and solar PV technologies. But yes, if the U.S. renewable growth continues, that’s certainly going to help support the industry and the economy in this country.
Sawyer: I can’t speak for PV, but I do not believe it will ever be the case that any significant percentage of the wind turbines erected in the U.S. will come from other countries. The economics of wind means that anything other than quite a small quantity will be shipped around the world.
Feo: Having been at SPI and having walked around the exhibit hall, I think it was noteworthy to see how many manufacturers were there from Asia, but also from Europe and the U.S. It was quite the drama to have the SolarWorld case announced in the middle of the conference. I think it’s going to be fascinating to watch that case develop—is this a matter of selling panels cheaper in the US than at home, or simply a matter of more efficient manufacturing taking control of the market? The commentary thus far from developers is that they love that competition among manufacturers, whether it’s fair or unfair. At the end of the day, the competition results in lower prices and the ability to do more projects at competitive rates. If prices were to be increased, fewer projects would be economic.
Doyle: One thing that people need to appreciate is that there are different types of PV manufacturing. I think what you’re going to see more of going forward in the U.S. is module assembly. It’s a low-cost effort that really does make it appear as though you’re fabricating in-country. I think the cell manufacturing will continue to come largely from China.
I will echo what Ed said as far as would it be beneficial to American renewable developers if we had more technology developed in?house? I don’t think it really matters that much. I think what’s important to developers right now is the intense competition to drive down PV panel pricing. It’s such an aggressive market that it’s significantly surpassed our expectation of what we thought we could see as a buyer of PV products.
DeAngelis: There are technology improvements going on in wind very clearly right now – direct drive, new materials/components and other improvements. But inherently, wind has been penetrating grid-connected markets for a much longer amount of time than photovoltaics. I think there’s a whole series of PV technologies, particularly thin films and some of the concentrators that are still in the development stage. The more developed countries, with high labor costs and the resources to manufacture advanced, innovative technologies, can become competitive compared to the traditional sliced crystalline cell technologies that might require more labor provided in countries such as China.