After a Bumpy Year, Renewable Energy Looks Poised for Boom Times!
The future has never been brighter for renewable energy, as some of the snags preventing wind and solar generation from going full throttle look set to ease this year.
While site- and grid-permitting delays, inflation, and supply-chain bottlenecks have dogged the creation and adoption of renewable energy this past year and will cause lasting setbacks, the global outlook is still overwhelmingly bullish for companies building wind and solar farms and for those buying them. power.
According to the International Energy Agency, net additions of renewable electricity are expected to reach an estimated 352 GW of capacity in 2022, up from 286 GW the previous year. The IEA raised its five-year capacity expansion forecast by nearly 30% this year, its biggest annual increase ever, buoyed by supportive policies and a renewed appreciation for energy security. What’s more, as early as 2025, the IEA says it expects renewable energy to overtake coal as the largest source of electricity in the global energy mix.
Driving the IEA’s Roza view: The first is the global energy crisis caused by Russia’s invasion of Ukraine that has prompted European countries to improve their energy security and build more renewable energy capacity within their borders to replace Russian fuel imports. and second, more supportive renewable policies in Europe, the US, India and China.
Here’s a look back at solar and wind installations, power-purchase agreements and other advances in renewable energy this past year, as well as expectations for 2023 and beyond.
Utility-scale solar is the cheapest option for power generation. And with commodity consumption electricity prices rising, solar will be on pace to overtake coal as the largest share of global electricity capacity by 2027, the IEA said, and natural gas by 2026.
Efforts are underway in India and the US to build more solar components within their own borders, but the IEA says China will still be the dominant player with $90 billion in investments from 2022 to 2027. Still, investment in solar manufacturing in India and the United States will reach nearly $25 billion from 2022 to 2027, a sevenfold increase over the past five years, the IEA said.
The US solar industry has had fits and starts this year due to the trade deadlock. A dispute over tariffs between the United States and China has significantly slowed solar installations in the U.S., with President Joe Biden softening the impact by signing an executive order in June that put additional tariffs on hold for two years. Shipments and equipment orders resumed, but supplies were limited and prices were higher than usual. Separately in June, enforcement of the Uyghur Forced Labor Prevention Act further disrupted supplies and detained more equipment at the port.
According to Wood MacKenzie, trade issues played a key role in driving new US solar capacity installations down from 24.1 gigawatts in 2021 to about 15.7 gigawatts in 2022. Still, the energy-research firm expects growth to resume next year.
Wood Mackenzie analyst Michelle Davis pointed to the August passage of the Climate-and-Costs bill, known as the Inflation Reduction Act, for the solar industry, though she said the law’s benefits likely won’t be seen until at least 2024 because of current supply constraints.
But those supply constraints should ease somewhat next year as importers work through the various new requirements, Ms. Davis said. The industry will return to growth next year, he said. While the timing is still uncertain, volumes are expected to back up.
Wind installations have increased this year as the industry grapples with inflation, permitting, grid infrastructure, and continued supply-chain disruptions from the Covid-19 pandemic.
The IEA forecasts that global wind capacity will almost double between 2021 and 2027, with offshore projects accounting for one-fifth of the increase. But the addition of onshore wind projects won’t break the 2020 annual record until around 2027 as they continue to face long permitting and poor improvements to the grid.
In the US, analysts at Wood Mackenzie say wind-power capacity added in 2022 was in the range of 12.6 gigawatts, down from 18 gigawatts in 2020. Despite the slowdown, this year’s growth was strong and the climate- and the transition-spending bill should provide long-term stability, particularly the extension of a 10-year tax credit for wind power, said Luke Lewandowski, director of America’s power and renewables at Wood Mackenzie.
Still, Wood Mackenzie said it expects newly installed wind capacity to fall 10% in the 2023 quarter as developers, manufacturers, and others in the industry await guidance from the US Treasury about tax credits. In the long term, developers will try to maximize the tax credit and install significant additions in 2028 before the credit phaseout begins in 2032.
Historically, the price of a power-purchase agreement, or PPA, has fallen in line with the relative cost of projects – the so-called Levelized cost of energy. But the prices corporations are paying for long-term renewable-energy contracts in the U.S. have risen due to inflation, supply-chain issues, the risk of solar tariffs, and new rules on forced labor.
According to consulting firm Bain & Co., the average U.S. market price for PPAs with a length of about 20 years for both wind and solar stood at about $46 per megawatt hour in the third quarter of 2022, up from about $30 per megawatt in the same period in 2020. . Coal and gas prices have also risen, helping to drive up the cost of renewable energy.
For solar, PPA prices are likely to remain higher next year, largely thanks to uncertainty after the U.S. Commerce Department found that four major Chinese solar-cell makers had evaded U.S. tariffs, said Aaron Denman, who leads the U.S. utilities and renewables practice. . At Bain
But the climate-and-costs bill’s support for solar industry growth should reverse recent spikes in PPA costs, he said. According to Bain, the PPA value past 2030 remains unclear.
In the case of wind, Mr. Denman said, inflation, supply-chain issues, and rising interest rates have helped push US PPA prices for such projects up nearly 60% over the past two years.
We’ve seen projects restructured, but projects are unlikely to move forward unless previously agreed terms can be restructured, Mr. Denman said, pointing to the case of Avangrid Inc., which recently halted a wind project off the coast of Massachusetts.
Long waits for permits and approvals to build new grid infrastructure are a challenge to getting more renewable energy.
As of this year, a record 1,400 gigawatts of total generation and storage capacity are seeking interconnection with the grid, more than the current 1,200 gigawatts of U.S. generation capacity, according to Lawrence Berkeley National Laboratory, part of the US Department of Energy. .
No significant progress has yet been made to speed up the process, and politics is a major culprit. Sen. An effort by Joe Manchin (D., W.Va.) to overhaul the permit has hit roadblocks as both progressives and conservatives oppose the measure for a variety of reasons.
Battery pack prices have reversed their downward trend this year, but energy storage units that help better sustain wind and solar power are still proliferating at a rapid clip.
After more than a decade of decline, the average price of lithium-ion battery packs will rise to $151 per kilowatt-hour in 2022 from $141, according to data provider BloombergNEF. Higher raw material and component costs send battery prices higher, but the firm said it expects costs to start falling again in 2024 as more mines and refineries come online.
Even so, the US grid has 7,828 MW of battery storage capacity as of October 2022, up from 4,752 MW at the end of 2021. The growth of battery storage bodes well for more flexible power grids and widespread use of wind and solar power, said Noel Bakhtian, executive director of the Berkeley Lab Energy Storage Center.
He said battery storage is growing from a national focus on securing supply chains from the passage of the climate-and-spending bill as well as a separate infrastructure-investment bill.
The next few years look more promising than at any time in history for the deployment of increased energy storage, which is critical to meeting our global climate goals, Ms. Bakhtian said.
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