By Chris Namovicz, Team Leader for Renewable Electricity Analysis and Danielle Lowenthal-Savy, Renewable Energy Analyst, U.S. Energy Information Administration
Over the past 10 years, electricity generation from renewable resources, in particular wind and solar, has seen substantial growth. Bolstered by a combination of favorable state and federal policies, and by significant cost declines, wind and solar generating capacity each grew by over 600 percent in the 10-year period from 2005 to 2014. EIA estimates that wind capacity increased by approximately 12 percent in 2015 and solar by over 30 percent, with both increasing through 2016. Hydroelectric energy, the largest source of renewable generation in the U.S., has seen much lower capacity additions, so changes in weather account for most of the year-to-year variation in generation. As a result of the severe West Coast drought in 2015 and a warmer than usual winter in the Northwest, EIA estimates that U.S. hydroelectric generation will decline by 8 percent from 2014 to 2015, but rebound into 2016.
The Production Tax Credit (PTC) for wind generation has played a significant role in the growth of this market. The PTC received a five-year extension in late 2015, but with a declining credit value that dropped from its current 2.3 cents per kilowatthour value to less than 1 cent/kWh for projects beginning construction in 2019. It is too early to tell what, if any, impact this extension will have on 2016 generating capacity additions, many of which are already under development and may have already qualified for the previous “under construction” deadline of December 31 to obtain the full 2.3 cents/kWh credit. Prior to the recent PTC extension, EIA projected 14 percent growth in wind capacity for 2016. These additions would bring installed wind capacity up to about 83 GW by the end of 2016, making it the renewable resource with the largest generating capacity in the U.S., surpassing the nearly 80 GW of hydroelectric capacity projected to be installed by 2016. For 2016, EIA estimates that hydroelectric generation, at about 250 billion kWh and accounting for 6 percent of U.S. generation, will still be the largest source of renewable generation, somewhat larger than the projected 214 billion kWh of electricity generated by wind plants.
While the 30 percent Investment Tax Credit (ITC) for solar was previously scheduled to revert to a 10 percent tax credit for utility and other business-owned projects (and expire completely for installations owned by private individuals), this credit now steps down to 10 percent over time when it was extended at the end of 2015. In 2016, EIA expects continued growth in both distributed and utility-scale solar capacity. Prior to the extension of the ITC, EIA projected utility-scale solar capacity to increase by 71 percent (9 GW) in 2016.
In addition to the extension of the PTC and ITC, 2015 saw significant policy developments that could impact renewable electricity markets into the future. While EIA does not expect these longer-term developments to result in substantial renewable generating capacity additions in 2016, they could have a noticeable impact on the project development pipeline. At the state level, several new or substantially revised Renewable Portfolio Standards (RPS) policies were implemented in 2015. In June, Hawaii passed legislation setting a 100 percent RPS target by 2045. That same month, Vermont passed a bill creating a 75 percent RPS by 2032. Both of these target percentages are higher than any other RPS target in the U.S. By October 2015, California had increased its RPS target in 2030 from 30 percent to 50 percent. West Virginia and Kansas both dropped their RPS requirements during 2015, with West Virginia repealing their advanced energy requirements, and Kansas converting their mandatory targets into voluntary goals.
In August, the U.S. Environmental Protection Agency (EPA) finalized their Clean Power Plan under section 111(d) of the Clean Air Act. The Clean Power Plan requires limits on carbon emissions from existing fossil fuel-fired power plants, such as coal or natural gas. Individual states are responsible for developing their own implementation plans to meet EPA standards for carbon emission rates or total carbon emissions. State plans may be submitted to EPA as early as September 2016. Initial emission or emission rate targets become binding starting in 2022, with final targets achieved in 2030. It is not clear that the rule will incentivize new renewable capacity in 2016 beyond that already in development.
For 2016, EIA expects the combination of lower technology costs and renewed federal tax policies to continue the robust growth trends for U.S. wind and solar. Slowing growth in electricity demand, expiring federal tax incentives, and the potential for low cost natural gas may limit demand for new renewable capacity. However, declining costs and longer-term policies that require new renewable generation and limit generation from existing fossil resources may work to create additional demand for these resources.