Renewable Energy Remains Poised for a Banner Year in 2016

by Sullivan & Worcester
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[co-author: Morgan M. Gerard]

Opposition to the Clean Power Plan (CPP), promulgated by the EPA and championed by the Obama administration as a path to a cleaner energy future, recently came to a head as the Supreme Court granted opponents a stay halting implementation of the plan. The future of the CPP is full of uncertainty; motivated states on both sides of the debate, the recent passing of Justice Antonin Scalia, one of the votes against implementation, and the tumult created by the presidential election cycle make prognostication a difficult task. However, despite the uncertainty surrounding the CPP, renewable energy remains poised for a banner year in 2016.

The objective of the CPP, as currently constituted, is to reduce carbon emissions through the retirement of coal plants, improve the efficiency of natural gas generation and encourage the development of more renewable energy facilities. Renewable energy proponents had hoped that the implementation of the plan would help to drive the adoption of policies intended to stimulate renewable energy project development, particularly in states where deployment of renewables has lagged behind national averages. However, that hope may be missing the broader point; even with the uncertain fate of the CPP, the market data seems to be pointing to cost reductions as the driving forces behind what has been an extraordinary uptick in renewables coming online in recent years.

While some, particularly large consumers of electricity, have tapped into the commodity price hedge opportunities afforded by solar and wind deployment, and while those in off-grid situations and those with green goals have been utilizing renewables for decades, observers point to price declines which have made renewables more competitive with traditional sources as the main driver behind explosive mainstream adoption in recent years. While renewable install costs were very high in the early to mid 2000’s, the declines since then are nonetheless striking. AWEA has noted a two-thirds drop in wind power costs over the past six years while Lawrence Berkeley National Laboratory reports a seventy percent drop in solar panel cost since 2009. National Laboratory reports also point to a 50% decline in solar installation costs over a similar time period.

The impact of these price declines has been stark, and renewables are well on thier way toward reaching the holy grail of grid parity. Renewable sources of power accounted for almost two-thirds of the new electrical generation placed in service during 2015 in the United States according to the Federal Energy Regulatory Commission (FERC). The continuing rise of wind generation was a particular highlight of this past year with the FERC’s December 2015 Energy Infrastructure Update showing that 69 new units of wind power accounted for 7,977 MW of new generating capacity (the American Wind Energy Association’s (AWEA) estimate was 8.6 gigawatts) – nearly a third more than the 50 new units of natural gas providing 5,942 MW of added capacity. Other renewable sources also scored well in 2015, with solar adding 2,042 MW of capacity, biomass adding 305 MW, hydropower adding 153 MW, and geothermal steam adding 48 MW. On the other hand, concerning conventional resources, FERC reported no new capacity at all for the year from nuclear power, 15 MW from oil and one new coal unit producing 3 MW.

Though it is early, the trend of new capacity being comprised mostly of energy from clean sources seems to be continuing into 2016. In January Invenergy reported that it signed a 225 MW wind power purchase agreement (PPA) with Google to provide the latter’s facilities with renewable energy to help support its data center operations. Other tech giants have also been focused on going solar in 2015, with Apple announcing that it will buy $848 million worth of solar energy from a First Solar-owned 130MW power plant.

Despite cost declines and national trends, there are still some states where adoption of renewables has lagged significantly. The ‘stasis trend’ is most predominant in the Southeast and the gulf region. It is also true that some states which had recently favored renewables have implemented regressive policies, typically at the behest of large utilities. Nevada provides a recent example as the state’s public utilities commission (NPUC) cut net metering payments by half while simultaneously raising the fixed fees for solar customers to around 40% by 2020. Because of these negative local approaches to solar, a permanent stay of the CPP, with the loss of a national mandate as a result, will certainly be a negative development in the short term for renewable progress. That said, and given both the price declines that have made renewables competitive with other generation sources and 2015 development trends, renewable energy appears positioned to make equally great strides in 2016. Even without the underlying certainty that would be provided by an unchallenged CPP, consumers, financiers, and regulators have received the message that renewables are an efficient, financeable and profitable proposition.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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