Why Renewables Will Have a Great Decade
January 28, 2016
In November, the International Energy Agency quietly dropped this bombshell projection: “Driven by continued policy support, renewables account for half of additional global generation, overtaking coal around 2030 to become the largest power source.”
The IEA notes, “With 60 cents of every dollar invested in new power plants to 2040 spent on renewable energy technologies, global renewables-based electricity generation increases by some 8,300 TeraWatt-hours (more than half of the increase in total generation).” That increase is “equivalent to the output of all of today’s fossil-fuel generation plants in China, the United States and the European Union combined.” It represents new investment of some $7 trillion in renewables over the next quarter century.
Significantly, this remarkable projection about the future of electricity is simply what the IEA believes is now going to happen given the pledges made in Paris by the world’s leading countries to rapidly expand renewable energy investment while restraining and, in many cases, reducing carbon pollution from fossil fuels through 2030. This is IEA’s “central scenario,” and in it the planet still warms 2.7°C by 2100 and more after that.
In short, this projection is not what would happen if the nations of world pursued the kind of aggressive policies they unanimously agreed to in Paris to avoid very dangerous warming and stay below total warming of 2°C. That would effectively end fossil fuel emissions by 2100.
Undereported story – Congress extended incentives for renewable energy.
Back in December, Congress did something it rarely does any more these days — struck a series of compromises and passed a bill, specifically a giant $1.8 trillion spending bill.
Among many other things, that bill extended the two key federal tax credits that support renewable energy: the production tax credit (PTC), which mostly goes to wind, and the investment tax credit (ITC), which goes to solar.
It went by quickly in an otherwise news-packed month, so it’s worth pausing a moment to note that for US renewable energy it was a very, very big deal.
Tax credits are not an ideal way to support social goals. They are a form of industrial policy, which picks and chooses individual industries to support. That offends the refined sensibilities of economists, who hasten to remind us at every opportunity, to the point of tedium, that a uniform, economy-wide price on carbon is to be preferred.
Nonetheless, politically speaking, tax credits have proven much easier to secure than a broader, more comprehensive climate policy approach.
The big problem with tax credits is that they are fickle, forever being extended for another year or two or allowed to lapse.
Take the PTC, originally implemented as part of the Energy Policy Act of 1992. Since then, it has been allowed to lapse six times, and Congress has voted to extend it six times (seven, if you count December).
This wreaks havoc on the industry. Here’s a chart of installed US wind capacity over time, which the effects of the PTC expirations in red.
On-again, off-again support like this makes investment planning very difficult.
Without the tax extenders, the economics of wind and solar would have undergone a serious blow. New capacity additions would have dropped off a cliff, leading to hundreds of lost jobs and lasting damage to the industry’s infrastructure and manufacturing base.
What’s more, natural gas would have been cheaper when CPP compliance began. In that case, CPP would have mostly driven demand for new gas.
With the tax extenders, renewable energy beats out natural gas and will provide almost all CPP (Clean Power Plan) requires.
As the cost of wind energy has dropped by more than half in just five years, there has been a steady increase in U.S. businesses, governmental agencies, and universities making direct investments in wind power to lock in low prices and reduce their carbon footprints.
“Successful brands and businesses increasingly see low-cost wind power as a great value,” said American Wind Energy Association (AWEA) CEO Tom Kiernan. “We’re seeing an expanding market for corporate purchasers that value wind both because it is clean and offers stable electricity prices.”
Corporations are attracted by wind’s unique ability to hedge against rising prices for other fuels, just as utilities buy fixed-price wind energy to protect their consumers against volatility in the price of other fuels.
“Over 23 percent of the wind power contracts signed in 2014 were with corporate buyers and other non-utility groups,” said Emily Williams, Deputy Director, Industry Data and Analysis for AWEA. “This trend is a meaningful source of new demand for wind power. The private and public sectors are saying ‘we value wind power, and we want more of it.’”
According to Energinet, Denmark’s electric utility, the country’s turbines accounted for the equivalent of 42 percent of all electricity produced for the year. It’s the highest proportion for any country — breaking a record the country set just last year — and represents more than a doubling compared to just 10 years ago.
There are other countries that generate more wind energy each year, but Denmark gets the largest chunk of its energy from wind by far. The government has committed to generating 50 percent of its energy from wind by 2020 and 84 percent by 2035. Denmark is part of the European Union, which committed to reducing its greenhouse gas emissions 40 percent by 2030 at the recent Paris climate talks.
In western Denmark, the heart of the country’s wind industry, turbines spun up more energy than the region could use for more than 16 percent of the year, letting the country sell some of its surplus power to its Scandinavian neighbors (though on less gusty days, Denmark also bought nuclear, hydro and solar power back from them).
The sheer number of turbines is one key ingredient for generating a huge amount of wind power. The other is, of course, wind, and as luck would have it, the winds blew harder than normal last year (note this is probably not due to El Niño for a change).
The amount of offshore wind generated in Denmark is also staggering. The country has more than 1,200 megawatts of generating capacity already installed and two other major projects in the works that will generate an estimated 1,000 megawatts, or enough to power 300,000 American homes.
In comparison, the U.S. has a whopping zero megawatts of offshore generating capacity, representing what scientists say is a huge “missed opportunity” for clean energy. That’s slated to change in 2016 with the Block Island facility set to open off of Rhode Island. It’ll only have 30 megawatts of generating capacity, but hey, you have to start somewhere.
What About Solar?