By Tim Miser, Associate Editor
|There is about $20 billion of wind power infrastructure under construction in the U.S. In the last reported quarter, the wind industry added 1,600 MW of installed capacity.|
There’s a lot of talk about disruptive technologies in the market these days. Whether it’s an app-powered taxi service or the next high-performance electric car, that term disruptive is as alluring as ever. Time was when renewable energy was the new kid on the block. Even these decades on, when renewable technologies are mature and dependable, there’s still plenty of disruption to be written about as wind, solar, and geothermal technologies are integrated into fossil-centric power generation portfolios. If renewables are to gain the market, they must prove themselves cost competitive with incumbent fuels like coal and natural gas. This puts them at the mercy of production and investment tax policy, and the unpredictability of lawmaking at the federal level.
With these issues top of mind, Power Engineering spoke with four leading executives in the renewables industries. Joining the conversation were Tom Kiernan, CEO, American Wind Energy Association; Christopher Mansour, vice president of Federal Affairs, Solar Energy Industries Association; Karl Gawell, executive director, Geothermal Energy Association; and Jacob Andersen, CEO Onshore Americas, Wind Power & Renewables Division, Siemens.
PE: What is the state of the renewable industry as we begin 2016?
Kiernan: In the wind industry, there is a tremendous amount of wind power infrastructure under construction, about $20 billion right now. Last quarter we added about 1,600 MW of new wind power, so there is a lot of construction and activity, and the industry is growing well. We’re on the cusp of greatness. We’re poised to do very well in the future, as long as we’re able to get an extension of the production tax credit (PTC). We’ve talked about that in past years, and we’re still talking about it. Getting clearer, more consistent policy support for the industry is hugely important. Most other forms of electricity generation have permanent tax incentives, and we’re hoping to see the PTC extended for a multi-year period of time. With the policy certainty we’re hoping to get from congress, we can continue the significant growth of the industry. We think we can meet or even exceed the Obama administration’s Wind Vision targets, which echo a vision from the Bush administration and have the country generating 10 percent of our energy using wind by 2020, and 20 percent of the country’s electricity needs by 2030. These targets are exciting, and we’re poised to be able to meet them and bring low-cost, reliable energy to the country, but we will need policy certainty to make it happen.
Mansour: In the solar industry, we feel very strongly about the need for solid, consistent federal energy policy. For the most part, federal energy policy has been driven by federal tax policy. We’ve had a long-term extension of the investment tax credit (ITC) from 2006 to the end of 2016. That’s at the 30 percent level. This kind of consistency has allowed the industry to grow year after year, with billions of dollars in investments, tens of thousands of Americans employed, and more gigawatts of solar installed.
Over the past six or seven years, our charts show a straight-line growth. Unfortunately, wind has been hit hard by the stop-and-start nature of the PTC. This is not an efficient way to incentivize an industry, and it’s not a very good way to do federal tax policy. We certainly support an extension of the PTC, but we’re also looking now for an extension of the ITC before the end of 2016. We’re also looking for a change in the commence-construction eligibility standard, which will allow companies to use the ITC right up until it eventually drops from the 30-percent level down to the permanent 10-percent level.
With steady federal energy and tax policy, solar companies have installed 20 GW of solar power up to 2014. By 2016, just two short years later, we will double that number to 40 GW. But if the ITC is allowed to drop from 30 percent to 10 percent, our projections show about a 70 percent drop in the amount of gigawatts installed. Additionally, 80,000 solar jobs will be lost as a result of changes in federal tax policy.
Gawell: As much as the PTC has hurt the wind industry, it has hurt the geothermal industry even more. We’re seeing great growth around the world. We’re doubling or even tripling worldwide supply, but the United States is essentially stalled waiting for the PTC to be decided one way or the other. There are about a billion dollars of projects in the queue ready to go, if they could move forward with proper financing and power purchase agreements (PPA). These things will depend on policy. The good news is, in the long run the policy will be dominated by climate change, and that’s not an issue that will go away. Renewable technologies are going to be part of the answer.
Andersen: It’s evident that the PTC has done a lot to get renewables installed. Siemens is a turbine manufacturer, so our role is to continue to drive down costs. When we must constantly worry about what’s around the corner, about what’s happening after the end of the year, long-term investment cannot thrive. Uncertainty is not optimal to cost reduction.
Kiernan: While it’s important to talk about policy, I wouldn’t want to take credit away from the extraordinary progress that has been made by all the renewables represented here, especially in terms of cutting costs and improving productivity over the last several years. On the wind side, we’ve cut costs 66 percent in the last six years. Wind is becoming extraordinarily competitive throughout the country. The PTC sought to incentivize and catalyze an industry that can make that kind of progress, and that’s exactly what has happened. There are similar stories about improvements in solar and geothermal. We’ve really witnessed an incredible success story, and that will benefit consumers in the long run.
Mansour: This is a highly competitive market. Solar technologies must compete against wind, but they must also compete against natural gas, which is at historic lows. We can’t afford to sit back with the attitude that we don’t need to do anything about cost structures, simply because we have tax credits. Solar prices have come down over 60 percent since 2009. That’s not simply hardware costs like panels and inverters; that’s also soft costs including permitting and finding customers. The ITC gives us breathing room to fight for these kinds of cost savings. Eventually, in 2020 or 2021, we feel confident that our technologies and companies can compete head-to-head in a more levelized situation. For right now, the technologies that renewables must compete against-natural gas, oil, and coal-all have permanent tax benefits that are embedded in federal law. Renewables do not. Our benefits are only temporary.
SEIA has proposed a five-year extension beyond 2016 for commercial developers of solar, and also for other technologies like fuel cells, combined heat and power, micro turbines, and distributed wind power. We’ve also proposed extensions that would benefit homeowners when they are purchasing solar systems for their property. If the 30 percent tax credit drops precipitously in 2017, there will be a 70 percent drop in the market. If that tax credit is extended out to 2021, dropping to 10 percent in 2022, our studies with Bloomberg New Energy Finance show the drop would be only 10 percent. It’s a difference of having a blip in market growth, or falling off a cliff.
Kiernan: Yes, we need to avoid being thrown off the cliff again. In 2012, the wind industry saw a 92 percent drop in new additions to the grid because of uncertainty with the PTC. We had to lay off 30,000 employees around the country. Now it’s important to make sure congress doesn’t do this again. We accomplish this by extending the PTC for a multi-year period of time.
Mansour: That kind of drop off doesn’t just mean the loss of jobs. It also means the loss of entire companies and our technological base. Then when it comes time to rebuild, there aren’t supply chains available. This means companies have to import parts from overseas. We need to maintain a strong American renewable economy that keeps jobs and money here. There are 8,000 companies working in solar in the United States, and over 85 percent of them are small businesses with less than 25 employees each. Companies like these simply can’t survive a cliff-like drop off in the economy.
Gawell: Policy has always driven energy choices in this country. You can’t build an industry, only to lay off people, and then come back five years later expecting to see progress. We need to look at the models used by solar and wind, where sustained support has created improvements in technology and price as the industry moves forward.
Kiernan: In addition to all these considerations, the investment community is smart. This on-again, off-again approach is worrisome to them. I was just talking with a wind turbine blade manufacturer who said they’d love to expand their plant, but they don’t have the line of sight to do it. They can’t raise the funds because the industry can’t offer the confidence that is required for healthy investment.
Gawell: In the eighties we saw a period of 10 or 12 years in which there was sustained growth in the geothermal industry because of federal and state policies. During this period, the price of the average geothermal plant coming online was cut in half. Sustained market growth leads to sustained innovation.
PE: How does the United States’ renewable industry compare to that of the larger world?
Gawell: Worldwide, geothermal has seen strong sustained growth that has outpaced the United States. The federal government seems to be quite capable of telling other countries what to do, but we don’t follow those rules at home. We constantly tell other countries to invest in renewables and to build policy that supports them, but when it comes to our policy, it doesn’t seem like law makers are present half the time.
|If the Investment Tax Credit is held at 30 percent, the solar industry in the U.S. is projected to have an installed base of 40 GW by 2016, double the capacity of just two years ago.|
Andersen: It’s important to recognize what has been achieved in the U.S. as a result of the PTC. In other countries the PTC model might not work because the size of the market will not justify it.
Mansour: Our industries must compete on a global basis. The Chinese have made a huge investment in the development of solar. Companies and money follow steady policy. If the United States decides it doesn’t want to have an ITC or PTC, companies will place their investments elsewhere. We’re seeing how money follows policy now. Certain companies are bringing production of solar panels and solar cells back into the United States because the country has a good market. That could change very quickly if we don’t get an extension of the ITC before the end of 2016.
PE: How will environmental regulations like the Clean Power Plan affect renewables industries?
Kiernan: The Clean Power Plan (CPP) is very important for the renewable industries. For wind, it is a significant source of incremental demand. There will be roughly 140 GW of new wind power between now and 2030 because of the CPP. Department of Energy (DOE) analysis indicates that, in the long run, deploying that much wind power will save consumers money, about $3 billion per year by 2050. Also, utilities will see less price volatility. We think the CPP makes sense for America.
Mansour: Even in the absence of the CPP, many utilities want to buy wind and solar facilities because of the fuel diversity they can provide. Utilities want to hedge their bets. The beauty of renewables is, utilities can know exactly what their costs for fuels will be. It’s going to be zero. Eighty percent of the lifetime costs of a natural gas plant are in fuel. With renewables, these costs don’t exist.
Kiernan: The wind industry is now at a scale where we are very reliable and predictable. This October in Colorado, 50 percent of the state’s electricity needs were met using wind on one particular day. In Iowa, about 30 percent of electricity needs are met by wind around the clock. Wind is not only cost effective; it’s also reliable. When combined with other fuel sources, you get even greater degrees of reliability. We’re looking at a renaissance in the renewable industry during the coming years.
Mansour: On average, California gets 25 percent of its electricity needs from renewables. They’re able to do this consistently, even in their huge economy. People who say you need a megawatt of backup for every megawatt of renewable energy in place simply haven’t looked at how California has done it. Additionally, the energy storage industry will set up an entirely new dynamic which may take us into uncharted territories. We might not yet even realize the extent of the changes that very reliable energy storage will bring to the grid and to the power industry in general. We’re just at the front end of some of these things. We’re only just now becoming aware of some of the synergies that might exist between different technologies.
Gawell: We have the technology to make this happen. We just need to make sure we’re doing it right, in a reliable and economic manner. We can build a diverse grid that will support the daily lives of people. Any problems that may exist can be solved. They are being solved even now.