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Rachel Koning Beals
Deloitte’s report targets cost competitiveness, federal and state policies, utility decarbonization, corporate renewable procurement, residential solar and private investment
Solar and wind power are becoming increasingly competitive with their fossil fuel competitors. Now, with tax incentives and other spending hikes in the Inflation Reduction Act, and further sweetened by select government aid, US renewable energy strength will accelerate in 2023, a new report says.
Domestic renewable energy (ICLN) growth slowed in 2022 due to rising input costs and project delays linked to supply chain disruption, trade policy uncertainty, inflation, interest rate hikes and power sector interconnection delays.
While many of these challenges are likely to carry over into 2023, business consultant Deloitte said in a forecast released Wednesday that renewables growth is likely to accelerate next year, thanks to demand and a “record-breaking array of clean energy incentives” in the IRA, a broad law on spending that President Biden signed in August.
Major factors driving industry growth include cost competitiveness, federal and state clean energy policies, utility decarbonization, corporate renewable energy procurement, residential solar and private investment, according to the report.
Rising demand in 2023 could exacerbate supply chain constraints and interconnection bottlenecks, further raising prices and extending project timelines, the consultants said.
And constraints on transmission – moving more clean energy-generated electricity (CEL) to businesses and homes – could continue to hamper growth until capacity is significantly expanded, forecasters warn.
Further, the U.S. incentives are largely based on the domestic-only, pro-employment manufacturing stance that President Biden used to sell the bill to a closely divided Congress. The US has already faced pushback from its global trading partners who do not want to be excluded from US renewable energy deals, and meeting rising demand without globalization will be a challenge, Deloitte analysts said.
But the evolving trends and opportunities that follow could help the industry move against growth in 2023 and set the stage for faster growth in 2024 and beyond.
Marlene Motika, one of the authors of the Deloitte report, said that renewable developers regularly set up projects given the multi-year lead times required for permits and planning. This means that the IRA is likely to push more projects into the planning stages next year, keep those already in the works, and as a result, the US can expect a flurry of projects to be launched by 2025-2026.
Offshore wind (FAN), in particular, has a significant construction time. One of the IRA’s “most important provisions” is the Energy Investment Tax Credit (ITC), which provides a credit of up to 30 percent for projects that begin construction before 2026, Atlantic Council analysts wrote at the time of its passage.
Projects must meet prevailing salary and internship requirements to receive full credit. Further, the IRA is opening up additional lease areas in the eastern Gulf of Mexico and the Atlantic — off the coasts of North Carolina, South Carolina, Georgia and Florida — that the Trump administration previously placed off limits.
The Deloitte report details expected growth in the following areas:
Growing production of clean energy components could ease supply chain bottlenecks over time. U.S. manufacturing does not currently meet the renewable energy sector’s needs for clean energy components supported by secure and domestic supply chains. IRA incentives have already fueled growth, which will continue to grow in 2023.
The offshore wind industry is tackling challenges to unlock rapid growth. By mid-2022, the US offshore wind project development pipeline has grown to more than 40 gigawatts (GW) of potential generating capacity in 12 states. Currently, only 42 megawatts (MW) of capacity are in operation, about 1 GV is under construction, and almost 19 GVs are in the licensing phase. Another 20 GVs are in the setup and planning stages and will likely take many more years to develop.
The new clean hydrogen economy could pave the way for renewable energy suppliers. Interest in green hydrogen has been ignited by the passage of the IRA in August 2022. A statutory tax credit (PTC) of $3 per kilogram for eligible “clean” hydrogen could make it cost-competitive with higher-carbon “grey” hydrogen in much of the country. Gray hydrogreen is created from natural gas, or methane, using steam methane reforming, but without capturing the greenhouse gases produced in the process.
The IRA helps encourage renewable energy providers to seek opportunities in disadvantaged communities. Outreach to low-income and vulnerable communities could accelerate in the coming year. About 44% of American households are defined as low-income households, and this group could potentially benefit the most from clean energy savings, as their “energy burden,” or share of household income spent on energy, is 8.6% , about 3.5 times the national average, and can be up to 30%.
The renewable energy industry is focusing on managing growing cyber risk. Cyber threats are expected to increase in 2023 and beyond as the clean energy transition progresses, focusing on both utility and distributed renewables. The industry is preparing for a growing wave of distributed, often digitally controlled, third-party owned and aggregated energy resources on the grid, about half of which are solar energy systems.
Moreover, projections of renewable energy growth are partly fueled by expectations that investment in traditional fossil fuels will disappear. This is a position that is even shared several times by one of the representatives of the oil sector, the International Energy Agency.
Fatih Birol, Executive Director of the IEA, emphasized his belief that the golden era of natural gas is over.
Birol, speaking on the subject for the first time last year and again recently, said that renewable energy capacity has been replaced by some of the demand for gas in advanced economies and that emerging countries will not make huge investments in infrastructure to import gas in times of much higher growth. . gas prices than average. Indeed, the IEA World Energy Outlook 2022 predicts a peak in global demand for fossil fuels by the end of the decade.
Birol claimed that 2022-2023 will be a turning point in the energy transition because energy security has become a top political priority. This means more nations will look to renewable options at home that they can control, with less reliance on the global oil and gas market. When combined with new industrial policy and climate commitments, this can accelerate the energy transition, he said.
-Rachel Koning Beals
(END) Dov Jones Newswires
12-07-22 1959ET
Copyright (c) 2022 Dov Jones & Company, Inc.
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