Renewable Energy Industry: 2005 Review/2006 Outlook

Issue 1 and Volume 110.

By Michael Eckhart, American Council On Renewable Energy

Renewable energy had its best year ever in 2005, and the outlook for 2006 is even better.

The Energy Policy Act of 2005:

  • Establishes goals for federal purchases of renewable energy from identified renewable sources (3 percent for 2009, 5 percent for 2012, and 7 percent thereafter of federal government energy consumption);
  • Establishes a five-year, 150 MW solar photovoltaic (PV) program for public buildings, contemplating up to $50 million in purchases of PV equipment;
  • Extends and expands the federal production tax credit (PTC) for “qualified” facilities for an additional two years (generally until January 1, 2008);
  • Provides a residential and small business tax credit of the lesser of 25 percent or $3,000 for renewable energy systems and district heating and cooling;
  • Encourages the U.S. Department of the Interior to approve 10,000 MW of non-hydro renewable facilities on federal lands within ten years;
  • Establishes a PTC-equivalent tax credit to holders of clean renewable energy bonds for use by municipalities and cooperatives ($800 million authorized);
  • Provides loan guarantees and grants for development of cellulosic ethanol, waste derived ethanol, and “approved renewable fuels.”

The U.S. wind energy industry installed some 2,500 MW of new wind power in 2005, a record amount that will help lower skyrocketing home heating and electric bills by reducing demand for natural gas. With forward-looking, steady policies in place to allow businesses to plan for strategic growth, wind energy could easily provide 6 percent of the nation’s electricity by 2020-a share similar to hydropower today-and 15 percent or more over time, according to the American Wind Energy Association (AWEA).

“Wind power’s rapid growth provides one of the best and most cost-effective supply-side options to ease the natural gas shortage,” said AWEA Executive Director Randall Swisher. “Wind energy projects also bring new jobs, rural economic development and tax revenues to cash-strapped states without creating any of the harmful side-effects associated with conventional power generation.”

In response to skyrocketing electricity and natural gas prices, the federal government encouraged solar power development by enacting a tax credit worth 30 percent of solar power system costs.  States and private industry also increased their investments in solar, bringing costs over the tipping point in many areas of the country – particularly where solar power can displace the need for peak power generated from expensive natural gas.  The key markets today are in California and New Jersey.  

“2005 was a watershed year for solar energy in the United States,” said Rhone Resch, president of the Solar Energy Industries Association. “As the global photovoltaic industry continues to grow exponentially, with 2005 global revenues projected at $11 billion and 2006 revenues at $15 billion, the United States will continue to develop a world-class solar industry and robust domestic markets.”

Biofuels also enjoyed a historic year in 2005. The inclusion of a first-ever Renewable Fuels Standard in the Energy Policy Act definitively sets the course for ethanol and biodiesel for the next seven years. Proponents successfully argued that the existing tax incentives must be complemented by measures to ensure market growth, which the RFS achieves by requiring a modest percentage of fuels be renewably derived. 

“Ethanol production is two years ahead of the schedule called for in the bill, and biodiesel projects are also being developed at breakneck speed,” said Doug Durante, Executive Director of the Clean Fuels Development Coalition.  The legislation also establishes aggressive programs for research, development and demonstration of technologies to convert non-grain sources, opening up the world of cellulosic biomass feedstocks that are available across the country. Existing programs of the USDA were expanded to develop renewable energy projects as well.

In short, 2005 will be remembered as a year that launched biofuels to the next level, reducing imported oil, creating investment opportunities, creating jobs and capturing the attention of the public as well as policymakers.

With global markets continuing to accelerate, public policy continuing to shift in favor of renewable energy, the cost of renewable energy technologies continuing to come down, and the price of conventional fuel continuing to go up, 2006 looks like a better and brighter version of 2005. If there is a risk in the air, it is that the technology suppliers are nearly sold out through early 2007, putting a supply-side cap on market potentials in 2006. In addition, it can be anticipated that nuclear power will emerge in 2006 as a strong competitive proposal for the “carbon-free” markets.

ACORE’s Utility Committee and Biomass Coordinating Council

In response to the need for better flow of information about windpower and other wholesale power generation options, and about solar PV and other distributed generation options, ACORE is establishing a new Utility Committee co-chaired by Hank Courtright at EPRI and Jeff Anthony at We Energies. In response to the need for better collaboration across the biofuels, biomass and bioproducts industries, ACORE has established a new Biomass Coordinating Council, chaired by Bill Holmberg. For more information on these programs, contact Tom Weirich at [email protected]