Renewables and power in North America

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2023 has been a pivotal year for the renewables and power industry in North America. Questions arise as the energy landscape shifts towards sustainability and ambitious climate goals. At Rystad Energy, we've curated the top 10 questions dominating this sector based on feedback from our valued clients and market interactions. Discover our latest updates to the Clean Tech and Clean Power solutions alongside these insights. Equip yourself with the knowledge to navigate the evolving markets and make informed decisions. Dive in and stay ahead.

Top 10 Most Asked Renewables and Power Questions | First round

1. How will energy storage project investments change by project size in the US?

Battery Energy Storage System (BESS) systems – comprised of power and energy units – necessitate power conversation system (PCS) upgrades with increased power capacity without necessarily changing battery numbers. Conversely, higher energy volumes mean more batteries, modules and containers which raises battery management system (BMS)costs, development time and expenses. However, substations and PCS remain unaffected as power output stays constant. Larger BESS units reduce capital expenditure (capex) through economies of scale and cheaper battery cells via offtake agreements, yet there is an optimal capex per kWh sweet spot influenced by local factors. In the US, for a four-hour lithium iron phosphate (LFP) energy storage system, capex per kWh rises after reaching 250 MW power capacity and deploying substantial power can cause grid congestion, making it economically and technically preferable to distribute BESS units throughout the power system. (source: Rystad Energy research and analysis data as of 29 June 2023)

2. What are price forecasts for solar equipment in the US?

US PV module prices remain elevated compared to the rest of the world as they are still impacted by tariffs and the Uyghur Forced Labor Prevention Act (UFLPA), resulting in the US not importing large quantities of the commodity from the world’s largest producer – China. Despite prices holding stable around $0.37-$0.38 per watt for most of 2023, improved import volumes in the three first quarters of the year have eased the impact of the supply disruptions caused by the UFLPA, and currently the prices are trending down. In the beginning of November, the average price of a Passivated Emitter and Rear Contact (PERC) M10/G12 PV module in the US was roughly $0.33 per watt, with the low end hovering in the mid-twenties per watt. With more supply becoming available in the US market, module prices are likely to continue their downward trend, but will remain elevated compared to regions that engage in free trade with China. (source: Rystad Energy research and analysis)

3. How will Inflation Reduction Act (IRA) impact project economics and capacity build-out of renewables?

The Act will have a positive impact on project economics, providing extension and accessibility to valuable tax credits for renewable energy projects. Through our Renewable Economic Model we have observed that, under optimal conditions, solar PV may opt for the new Production Tax Credit (PTC) made available to solar through the Act, with average returns around 10%-12% compared to 8%-10% returns through the Investment Tax Credit (ITC). Similarly, battery storage projects will now have access to the lucrative ITC without the need to be co-located with generation. As a result of the Inflation Reduction Act, Rystad Energy sees an additional 150 GW of new solar, wind and storage ‘unlocked’ through 2030. (source: Renewable Economic Model)

Top 10 Most Asked Renewables and Power Questions | Second round

4: What are some key opportunities for the renewable transition in the US?

The Inflation Reduction Act, a watershed moment in US energy policy, has spurred massive interest and investment in clean technologies across the whole value chain. The Act provides incentives for investments in the production of clean electricity, clean hydrogen, CCUS and low-carbon supply chain, as well as incentives for clean vehicles and energy efficiency initiatives. This Act aims to trigger over $250 billion in new low-carbon energy spending by 2030. It has also provided certainty for developers, investors and other stakeholders to accelerate the development of renewable energy projects. At Rystad Energy, we expect the Act to add over 170 GW of new solar, wind and storage capacity by 2030. We have already observed an influx of new projects added to interconnection queues and developers greenlighting numerous projects, a trend we expect to continue through 2023 and into 2024.

5. How are interconnection queues affecting project development?

Interconnection queues are one of the largest hurdles for the development of any energy project wanting to connect to the grid today. Over the last five years, interconnection requests have grown over 180% with over 700 GW in the queue at the end of last year. The median time from interconnection requests to commercial operations has grown from 35 months in 2017 to 55 months at the end of 2022. However, this varies widely by market as the longest time-to-completion is currently in California ISO (CAISO) at approximately 130 months, with the fastest request to commercial operation in The Electric Reliability Council of Texas (ERCOT) at approximately 30 months. For policymakers wanting to meet renewable targets, there needs to be a careful examination of the current process and how bottlenecks can be decongested. This process has already started, with the Federal Energy Regulatory Commission (FERC) announcing a suggestion to move to a “first-ready, first-served” model, that the Pennsylvania-Jersey-Maryland (PJM) ISO will be one of the first to adopt.

6. What key risks are renewable energy developers currently facing?

Renewable energy developers are facing development pressure from all angles as the industry tries to navigate inflationary pressures, commodity price shocks from last year and permitting constraints from the county to the federal level. Last year, developers were shocked to see polysilicon prices skyrocket, forcing the cost of solar PV projects to rise significantly, all while the solar supply chain industry was halted with Antidumping and Countervailing (ADCV) investigations. These constraints have eased as import moratoriums and commodity price easing have occurred through 2023. However, developers who are more exposed to the volatility of the market will continue to feel the impacts as new solar PV manufacturing capacity waits to be completed in the United States. Meanwhile, general inflationary pressure has squeezed the value that renewable energy brings, with some of the lowest levelized cost of electricity (LCOE) compared to other traditional sources. Permitting will continue to be the most significant hurdle for developers in the coming years as interconnection queues are backlogged, with years of requests to review. Only approximately 20% of projects in the queues will reach commercial operation, adding additional pressure for developers to be ready earlier in the process, when real estate or offtake agreements have not yet been signed. This is the first step any project needs to complete to connect to the grid, and there are numerous hurdles at the local county level that may still impede development. Developers may also be faced with development challenges as power markets address reliability concerns. Power markets may choose to prolong thermal and nuclear generation or even prioritize new thermal generation to bridge the gap to 100% renewable targets in the late 2040s. The green power transition will likely be delayed as industry regulators navigate load balancing with more intermittent generation entering the grid.

Top 10 Most Asked Renewables and Power Questions | Third Round

7. What are current and future power purchase agreement trends throughout power markets?

Power purchase agreements (PPA) have been on a steady rise since 2021, as commodity pricing and supply chain disruptions have disrupted project schedules. Today, solar and wind PPA’s across the US are averaging $48 per MWh. Rystad Energy has created a PPA forecast for solar PV and onshore wind projects over the next five years across US power markets. Over the next five years, we expect prices to fall nearly 20% as capital costs and efficiency gains are realized in the markets. California ISO and ERCOT will remain the two most competitive markets, falling below $35 per MWh by 2026. Meanwhile, Southwest Power Pool will have the lowest onshore wind PPAs, falling as low as $33 per MWh by 2027.

8. What are the trends of levelized cost of electricity (LOCE) from renewable sources compared to traditional power sources?

Utility-scale renewable energy has been on a steep decline since 2010, firmly placing the power sources as some of the most cost-competitive generators today. Onshore wind currently holds the lowest levelized cost of energy (LCOE) of all power sources at $40 per MWh at a 5% discount rate, not including transmission or subsidies. Solar PV follows suit, with an LCOE of $45 per MWh. Gas is the only competitive source of energy, under similar assumptions with no carbon externalities, the LCOE of gas is approximately $50 per MWh. Going forward, renewable energy will remain the most cost-competitive source of energy as federal incentives and reduction in the cost of capital will support renewable energy.

9. What is the potential for residential, commercial and industrial solar PV in the US?

The US has the capacity for well over 500 gigawatts-direct current (GWDC) of rooftop solar PV, a significant hike from the current level of 52 GWDC that has the country third in the world in terms of installed capacity, behind China and Japan. Rystad Energy analysis suggests the US has the space to install almost a further 500 GWDC from today’s level. Of the top 10 states in the US with the largest potential for rooftop PV, only California has been able to install more than 30% of its potential, while most others struggle to install more than 10%. This disparity stems from significant differences in retail electricity costs and financial incentives, resulting in poorer economics and returns. Regardless, Rystad Energy calculates that the US will install up to at least 9 GWDC – or 5% of its potential market size – of rooftop PV per annum between 2023 and 2030.

Selected insights in North America

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Our experts views

In 2023, the energy market underwent a dynamic transformation, marked by a notable shift in focus from policymakers and industry stakeholders towards sustainability, aligning with ambitious climate targets. Here at Rystad Energy, we've diligently listened to your feedback and closely monitored industry shifts to enhance our services. Over the last months, we launched various updates to our clean Tech and clean Power solutions. Read more below on the key enhancements tailored to support your workflow and gain insights from our experts as they share their perspectives on the events of 2023 and what lies ahead for 2024.

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