Exploring renewable energy policy, innovation, and market trends

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The renewable energy industry is primed to enter a new phase of growth driven largely by increasing customer demand, cost competitiveness, innovation, and collaboration. But will challenges surrounding trade and tariff policy require the industry to prioritize risk mitigation tactics? Our 2020 renewable energy industry outlook explores what it will take for companies to thrive in the year ahead.

Renewable energy industry primed for continued growth

For the first time ever, in April 2019, renewable energy outpaced coal by providing 23 percent of US power generation, compared to coal’s 20 percent share.¹ In the first half of 2019, wind and solar together accounted for approximately 50 percent of total US renewable electricity generation, displacing hydroelectric power’s dominance.

Declining costs and rising capacity factors of renewable energy sources, along with increased competitiveness of battery storage, drove growth in 2019. In the first half of the year, levelized cost of onshore wind and utility-scale solar declined by 10 percent and 18 percent, respectively, while offshore wind took a 24 percent dip.² The greatest decline was in lithium-ion battery storage, which fell 35 percent during the same period.³ This steady decline of prices for battery storage has begun to add value to renewables, making intermittent wind and solar increasingly competitive with traditional, “dispatchable” energy sources.

The renewable energy sector saw significant demand from most market segments as overall consumer sentiment remained positive. Renewable energy consumption by residential and commercial customers increased 6 percent and 5 percent, respectively, while industrial consumption declined slightly, by 3 percent, through June 2019 compared with the previous year.⁴ As in 2018, US corporate renewable energy contracts once again hit new levels, as corporations signed power purchase agreements (PPAs) for 5.9 gigawatts (GW) of renewable energy in the first half of 2019.⁵

The prospects for short-term solar and wind energy growth appear favorable, with about 96.6 percent of net new generation capacity additions (~74 GW) expected to come from these two resources in 2020.⁶ With several states increasing their renewable portfolio standards (RPS) in 2019, the industry will likely see mandatory RPS-driven procurement growth through the mid-2020s, while voluntary demand will continue to hit new levels. As of late 2019, at least 10 utilities have announced 100 percent decarbonization goals, and we’ll be watching for that list to grow in 2020.⁷

Moving into 2020, companies in the renewable energy industry should be mindful of a few caveats that could impact renewable energy growth. Under current policy, eligibility for the Production Tax Credit (PTC) for new wind build expires and the solar Investment Tax Credit (ITC) step down starts in 2020, both of which have been key drivers for wind and solar growth in the US renewable energy market.

While the wind industry did not request extension of the PTC before it expires next year⁸, it has requested that solar energy’s ITC be extended to wind projects.⁹ The solar industry, however, did request an ITC extension. In July 2019, both houses of Congress introduced legislation to extend the solar ITC for five years at its full 30 percent value.¹⁰ We’ll be watching to see if this becomes law by yearend or is taken up again in 2020, and whether wind will be included. For sectors that have worked together toward a cleaner energy mix, taking separate paths would likely create new industry dynamics.

We will also be watching US tariff policies throughout 2020. Solar developers are optimistic, since imported panel costs have fallen rapidly and are likely to offset the impact of existing tariffs by the end of 2019.¹¹ That’s good news for growth as long as new tariffs are not imposed. However, the US government expanded tariffs on Chinese imports, most recently including bifacial solar modules, and is considering increasing tariff amounts.¹² The wind industry expects record growth for 2019–2020 before the PTC phaseout, but we’re keeping an eye on recently proposed tariffs on imported wind towers from several countries. If these tariffs are imposed on top of existing tariffs on towers and other equipment from China—and existing multi-country steel tariffs—the upward pressure on prices could stymie some new projects.¹³ Overall, the decline in wind and solar construction costs—weighted project costs fell 13 percent and 37 percent, respectively, between 2013–2017—will likely help cushion the impact of tariffs on imported components.¹⁴

2020: Renewable energy industry poised to enter new growth phase

The year ahead promises further growth in the renewable energy sector. This will likely come against a backdrop of increased innovation and collaboration among multiple stakeholders. Renewables are likely to continue moving into the driver’s seat in electricity markets as utilities and regulators prefer them to replace retiring capacity and customers increasingly choose them to save costs and address climate change concerns. Growth in the US offshore wind sector will likely bring multiple opportunities for industry players as states vie for manufacturing and port infrastructure projects. Grid resiliency will also likely be a growing driver for distributed renewable deployment as utilities and their customers increasingly consider renewable microgrids combined with storage solutions. However, trade and tariff policy uncertainty will likely keep the industry on the lookout for risk mitigation tactics. But companies that are ready to innovate, collaborate, and seize new opportunities will likely thrive in a new phase of renewable growth.