trending Market Intelligence /marketintelligence/en/news-insights/trending/ZQXgoYoiCDjBww8G7TRS0A2 content esgSubNav
In This List

US renewable energy momentum to withstand 2018 headwinds, experts predict

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


US renewable energy momentum to withstand 2018 headwinds, experts predict

SNL Image

A wind turbine in Missouri silhouetted against the setting sun.
Source: Associated Press

From the GOP tax reform bill to the U.S. Environmental Protection Agency's plan to strike down the Clean Power Plan, 2017 saw an array of threats to the continued expansion of the renewable sector. Entering the second year of President Donald Trump's administration, though, U.S. renewable energy advocates, analysts, consultants and market participants see the sector's long-term prospects undimmed by these short-term headwinds.

Among the biggest challenges are the potential loss of some renewable energy project investors due to recently enacted federal tax reforms, Trump's upcoming decision on import tariffs for solar cells and panels and the U.S. Department of Energy's controversial bid to buoy coal and nuclear generation through a proposed Federal Energy Regulatory Commission ruling on grid resilience.

Despite these threats, industry experts forecast a continuation of many of the same tailwinds that have propelled wind and solar energy, along with natural gas, to the forefront of power generation in the U.S. These include cities, states and corporate buyers that are hungry for renewable energy, and pricing so competitive that building or acquiring new wind and solar can be less expensive than simply continuing to operate existing coal and nuclear plants, an advantage that is driving U.S. utilities to purchase renewables beyond mandated levels.

Corporate America still hungry

Over the past five years, corporations have announced nearly 9,700 MW of renewable energy purchases in the U.S. and Mexico, including 2,850 MW in 2017 through Dec. 4, according to the Rocky Mountain Institute. By far the largest corporate buyer, Google Inc. has procured nearly 3,200 MW, possibly enough to cover its entire global energy demand, the company projected. The Alphabet Inc. subsidiary is just one of the companies to commit to 100% renewable energy through the RE100 campaign, which now includes 119 global corporations, most of which have a long way to go.

This is one reason developers continue to look to Fortune 500 companies for business. Even though pricing dynamics in U.S. competitive power markets remain challenging, given the risks associated with long-term contracts, a recent survey of 153 major companies found that 43% of respondents plan to be more aggressive buyers of renewables over the next 24 months, while 84% of respondents said they are actively pursuing or considering purchases in the next five to 10 years.

"This is a trend that is going to continue to grow," John Breckenridge, a managing director at Capital Dynamics, said in an interview. The investment firm, which acquires and owns renewable energy projects, announced in December 2017 that it has energized three new large-scale solar photovoltaic farms in California. Among them is a 130-MW facility that generates power for Apple Inc. under a 25-year contract.

"At the moment, 2018 looks great for us," Breckenridge, who heads the firm's clean energy infrastructure team, said. Corporate tax reform "has not crippled the industry," he said, despite a potentially "modest impact" on tax equity investors.

SNL Image

States 'push the limits' amid federal uncertainty

Marlene Motyka, head of Deloitte's global and U.S. renewable energy practice, believes that the tax cut bill will be "the biggest hurdle" for renewable energy in 2018, citing "speculation that one or more larger financial institutions in tax equity may bow out of the market." But the sector could have fared worse, she added. "Renewable energy actually ended up doing okay" in the bill's final passage, Motyka said, noting that a previously negotiated phaseout of wind and solar tax credits was preserved in the final bill.

Two decisions in January could go a long way toward determining the trajectory of renewable energy in 2018 and beyond: Trump's decision on solar import tariff levels, which could temporarily hike prices and cripple the industry's growth, and FERC's ruling on a possible new pricing approach proposed by U.S. Energy Secretary Rick Perry that could support coal and nuclear power plants. Even if FERC were to endorse the DOE proposal, however, "it would have only a modest impact on the pace of coal retirements," Raymond James & Associates analyst Pavel Molchanov wrote in a Dec. 27 note to clients. Any slowdown in the share gains of solar, wind and natural gas, "would be both muted and temporary."

Motyka anticipates strong demand from cities and states to combine with corporate purchases to temper the policy shifts from Washington, D.C., and to fuel at least moderate clean energy growth in 2018.

"Some states may continue to push the limits," she added, pointing to efforts to ratchet up renewable energy procurement requirements in California, Massachusetts, New Jersey and other states. In addition to boosting targets, more states that do not have renewable portfolio standards will adopt them over the next few years, predicted Scott Smith, Deloitte's U.S. power and utilities leader. Moreover, many utilities around the country are going "above and beyond" required renewables targets simply because of economics, he said.

Nathanael Greene, director of the Natural Resources Defense Council's renewable energy initiative, expects a wave of 100% renewable energy commitments made by mayors in 2017 to begin bearing fruit in 2018. "Cities will get in the game of purchasing renewables. It's going to be meaningful," he said. In June 2017, the U.S. Conference of Mayors approved a resolution to power cities entirely with renewables by 2035. As of Dec. 27, 2017, 186 mayors had pledged to transition to 100% renewables under a related Sierra Club campaign.