18
AUG
2018

The last post I sent you the other day was about what will shape up as a titanic battle between oil companies and electric utilities as cars and trucks switch from gas to electric.  So, following up on that theme the following article is a fairly deep dive into the kind of investment and opportunity there exists in the transition.  The following excerpts are just a sampling of the really worthwhile information and projections in the fascinating article.  

 

“Renewable energy has been the number one source of private sector infrastructure investment in the U.S. for each of the past seven years,” ACORE’s Wetstone said. “It is one of the nation’s most important drivers for new investment and job creation.”

 

“Renewables provide jobs and financial benefits in “many red and blue state rural areas where other sources of economic opportunity can be hard to find,””

 

“A trillion dollars could be a conservative estimate of the potential for U.S. renewables investment by 2030.”

 

“Rural areas have 99% of all wind generation, and 81% of them are low income areas”

 

“This investment has already brought the cost of utility-scale solar down 77%, the cost of wind down 38% and the cost of battery storage down 79% since 2009, a March BNEF study found. Both wind and solar costs dropped 18% in the just first half of 2017, according to the new BNEF Outlook. Battery prices are forecast to fall 67% more by 2030.”

 

New investor-backed campaign targets a trillion dollars for US renewables

Clean energy investors want policies to bring green dollars to the red, white and blue.

There may be a trillion-dollar opportunity in U.S. renewable energy.

The “phenomenally abundant” mix of wind, solar and other renewables makes the U.S. one of the most likely places in the world for more investment, according to Gregory Wetstone, president and CEO of the American Council on Renewable Energy (ACORE).

The major investors in renewables are ready to up their commitment, Wetstone told Utility Dive. In return, U.S. policymakers must commit to policies like increased mandates for renewables and energy storage that will keep renewables on a level playing field with other generation resources when the federal tax credits now driving growth expire in the early 2020s.

Globally, $5.9 trillion has gone into the renewable energy and energy efficiency sectors since 2007, according to Ethical Markets’ Green Transition Scoreboard. Additional global investment in renewables alone could reach $11.5 trillion through 2050, according to the 2018 Bloomberg New Energy Finance Outlook. The 2017 global investment was $333.5 billion. U.S. investment in 2017 was $57 billion. 

This investment has already brought the cost of utility-scale solar down 77%, the cost of wind down 38% and the cost of battery storage down 79% since 2009, a March BNEF study found. Both wind and solar costs dropped 18% in the just first half of 2017, according to the new BNEF Outlook. Battery prices are forecast to fall 67% more by 2030.

“Renewable energy has been the number one source of private sector infrastructure investment in the U.S. for each of the past seven years,” ACORE’s Wetstone said. “It is one of the nation’s most important drivers for new investment and job creation.”

That is why ACORE has introduced a new campaign to get investment in U.S. renewables and related grid infrastructure to a cumulative $1 trillion by 2030. Achieving its goal will take the right policy, and the trillion dollars in potential investment is why red state and blue state policymakers should be thinking green, ACORE’s Wetstone said.

The trillion-dollar campaign

The enormous economic benefits from investment in renewables and grid infrastructure justify the trillion dollar ambition, Wetstone said. ACORE’s April 2018 survey of financial institutions that represent an estimated one-third of U.S. renewables investments revealed strong backing for increased commitments.

Of the surveyed renewables investors, 67% expect to increase their investment by at least 5% in 2018. More than half expect to increase investment by over 10%. Through 2030, 89% of respondents expect to at least double their investments — if there is supportive policy, including expanded mandates for renewables and energy storage.

Despite current headlines that the White House and some in Congress prefer to support coal and nuclear power, the numbers could convince them there is political and economic opportunity in providing support for the sector.

Renewables provide jobs and financial benefits in “many red and blue state rural areas where other sources of economic opportunity can be hard to find,” ACORE’s Wetstone said. According to Labor Department data, “solar installer and wind turbine technician are the nation’s two fastest growing careers.”

Of the top 25 solar generating congressional districts, 13 are represented by Republicans, Wetstone added.

The top five wind-producing states are led by Republicans, according to the American Wind Energy Association (AWEA) 2017 Market Report. Republican-held congressional districts have 85% of all U.S. wind generation.

Rural areas have 99% of all wind generation, and 81% of them are low income areas, AWEA reported. In 2017, wind projects paid an estimated $267 million in lease payments to landowners in those areas.

But a trillion dollars?

ACORE defines renewables as “energy production using wind, solar, bioenergy, waste energy, hydropower, geothermal or marine hydrokinetic technologies,” Wetstone said. Grid technologies include “energy storage, demand response and other ancillary service technologies.”

The trillion dollars is expected to be about evenly split between direct private investment in renewables and grid technologies.

It is an ambitious goal, Wetstone said. But if annual investment in renewables stays at 2017′s $57 billion, it would be more than $500 billion by 2030. That is a reasonable assumption, given that not one of ACORE’s survey respondents anticipated reducing their investments through 2030 by more than 5%, he added.

The other $500 billion would come from investment in grid modernization, Wetstone said. “That will give us the grid we need to accommodate a high renewables penetration and a new level of distributed energy.”

A trillion dollars could be a conservative estimate of the potential for U.S. renewables investment by 2030, given that a significant minority of survey respondents, 26%, said a $2 trillion investment is possible with the right kind of policies, he added.

Electric utilities are likely to continue playing a key role in reaching the trillion-dollar goal, according to EEI spokesman Jeff Ostermayer. Their 2040 use of renewables is projected to be almost four times what it was in 2010.

But getting to ACORE’s $1 trillion goal will require going beyond the investors, developers, manufacturers and off-takers the sector has relied on in the past, Wetstone said. And it will take new drivers to get beyond the barriers ahead.

Drivers and barriers

There is “absolutely” investor appetite for renewables, according to Nancy Pfund, managing partner for Silicon Valley venture capital investor DBL Partners. “At every level of the investor spectrum, we are seeing high levels of activity.”

The main driver is falling prices and Pfund expects that to continue. The tripling of battery manufacturing in the next three years will be a second key driver. A third driver is rising demand from consumers, corporations and municipalities for sustainability, “regardless of pricing,” Pfund emailed Utility Dive.

The biggest barriers to growth are costs associated with project construction and with research and innovation, she said. DBL Partners is finding these barriers “mitigated significantly” by investor interest and by creative financing.

An example of new financing is the emergence of blockchain to support investment with cryptocurrencies, Pfund said. Using the blockchain technology platform, “many new companies in the renewables space are choosing initial coin offerings, or ICOs, to fundraise instead of raising VC money.”

There is “hostility towards renewables expansion at the federal level,” Pfund acknowledged. She expects it to influence but not stop renewables.

State level growth will come from the 29 renewable portfolio standards(RPSs) that mandate a certain percentage of renewables in a state’s generation mix and from the growing number of municipalities targeting 100% renewables, she said. Polls show overwhelming support from consumers, she added.

Wetstone agreed. “In 2017, despite tariffs on solar, the threat of a trade war and other uncertainties, renewables brought 18.4 GW of new capacity online, the second biggest annual growth ever.”

It is not certain whether new Trump administration trade policies will disrupt renewables in the near term, but they will not impact long-term growth, he said. “The economics are just too good. This is a sector that is firmly rooted in the heart of the American business community.”

Solar and storage opportunities

Starwood Energy has energy infrastructure investments worth an estimated $7 billion and is “actively pursuing” renewables opportunities. “We are seeing continued growth in distributed generation, particularly solar and storage, because costs are coming down so much,” Vice Chair/Senior Managing Director Brad Nordholm told Utility Dive.

In the last year, the Trump-imposed tariffs drove the installed cost of solar systems up, “but the falling cost of modules drove the price down more,” he said. “Investment will be driven by that, and by people who want resilient, always-there power.”

Rising interest rates are somewhat more significant than tariffs because wind and solar projects are more capital intensive than natural gas power plants, Nordholm said. “But intermediate term benchmark rates remain between 2.5% and 3%,” he said. Starwood’s expectation is of interest rate increases, “but not of the magnitude that would have a negative impact on the competitive economics” of renewables.

Policies that put upward pressure on electricity prices, like a carbon tax, would drive customers to renewables and distributed energy resources (DER), Nordholm said. Policies that subsidize coal and nuclear plants could, in some markets, lower the price of electricity and slow growth.

But Hannon Armstrong, one of the leading U.S. renewables investment funds with $1 billion invested annually, sees supportive policy, including carbon policy, gaining momentum, Managing Director Susan Nickey told Utility Dive.

Policies and strategies

ACORE’s survey highlighted market and policy changes identified by respondents that will be needed for investment in renewables to reach the trillion dollar mark, over the next four to six years, as the federal tax credits for wind and solar phase down.

Expanded state RPSs were identified as necessary going forward, “with 45% of respondents indicating they are ‘very important’ and 50% indicating they are ‘important,’” the survey reported.

“There were no new RPSs or major rollbacks of existing RPSs in 2017,” according to research scientist Galen Barbose, who is now completing the Lawrence Berkeley National Laboratory’s annual RPS assessment. “But a few states have increased their targets,” he emailed Utility Dive.

Energy storage was identified by 88% of respondents to be “a leading magnet for investment within the next three years,” the survey reported. Three-quarters of respondents expected the growth of investment in energy storage to drive renewables growth through 2030.

“More than half (58%) of respondents identified the lack of a federal policy driver for renewable energy after the sunsets of the production tax credit (PTC) and investment tax credit (ITC) as a hurdle,” the survey reported.

“Because of internal revenue service ‘safe harbor‘ provisions, it will be four years or more before developers face the loss of the 30% ITC for solar and the $0.023/kWh PTC for wind,” Wetstone said.

IRS rulings allow developers to “harbor” projects safely for later development at the highest tax credit rates by meeting specified 5% project investment requirements, he said. “Developers have made those provisions for large amounts of future capacity.”

The ACORE campaign’s objective for 2022 or 2023 is not to have “a permanent tax advantage, but a technology neutral policy that creates a level playing field for all generation sources,” Wetstone said. “It should also be a policy that values carbon-free energy production.”

Starwood Energy’s Nordholm said investors will simply see a change in debt and equity options as the tax credits phase down. When the tax credits phase out, the tax equity in the capital stack will be eliminated, leaving only conventional equity and debt, he said.

Getting the details allocated among investors is pretty complicated, Nordholm said. “A lot of people in this space are already looking forward to getting past the next five years, when they won’t need to deal with tax equity, and financing projects will be much simpler.”

A slightly higher PPA price may be necessary to offset the loss of the tax credits’ value, unless falling overall costs offset it, he acknowledged. “After the tax credits expire, we will be able to understand the economics and do profitable projects, though it is not yet clear whether the new economics will slow or accelerate growth.”

Other factors driving renewables investment will likely also shift. Corporate buyers of renewables are already an important part of growth, he said. “As utilities get comfortable with solar and wind, and project economics get even better, utilities may choose to own a higher percentage of the projects they are taking energy from.”

Economics, rather than policies or mandates, is now more often the driver, he said. “But policies and mandates drive the economics.”

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