While the overall economy is down, the effort to add renewable energy resources in the U.S. continues to push project development forward. For renewables, the lowlight of 2008 was certainly the credit crisis, which resulted in a stunning loss of capital. Until last year, the primary driver for financing was the available tax equity, most of which is now out of the picture. The need for tax equity and sponsor equity has never been greater. However, earlier this year, as part of the American Recovery and Reinvestment Act of 2009 (ARRA), renewable tax incentives and loan guarantees were passed that focused on renewable energy and transmission projects. These are expected to free up debt equity for large-scale projects. Thousands of applications are expected to pour in for grants that will be paid on wind farms that start construction before the end of 2010 and begin operations before the end of 2012. The stimulus-authorized U.S. Department of Energy (DOE) loan guarantee program provides up to 80% of the project cost. This is expected to support guarantees of $80 billion to $110 billion.
The growth potential for renewable energy is tremendous and is being driven by overwhelming government policy support. In January, as part of ARRA, the renewable energy production tax credit (PTC) was extended an additional three years. Uncertainty over these tax credits was creating some reluctance to move forward with proposed project activity. With more predictability, the likelihood of increased renewable energy projects increases. In addition, renewable energy developers now have the option of taking a 30% investment tax credit in lieu of the PTC.
Other factors will drive continued development as well. At present, 28 states have passed or plan to implement renewable portfolio standards. These actions mandate that up to 20% of total electricity be supplied by renewable energy sources over a defined period of time. In addition, as part of proposed CO2 cap-and-trade legislation, a national renewable electricity standard is being suggested. With carbon legislation looming on the horizon, the cost of renewable energy is likely to become more competitive with traditional forms of generation.
None of these factors alone is expected to launch widescale project activity. However, a combination of one or more of these key drivers is likely to create the spark for significant construction activity.
Wind Is Blowing Other Renewables Away
Wind energy is by far the leading renewable energy source moving forward today. For the U.S. wind industry, 2008 was a record year. In fact, more than 8,500 MW were installed, bringing wind’s total capacity to more than 25,000 MW in the U.S. This represents a 50% increase over 2007. It has been estimated that wind capacity could grow 19% annually over the next several years. In fact, during the past year the U.S. surpassed Germany as the nation with the largest amount of installed wind capacity.
Although 2009 is considered to be a sleeper year for wind projects because of the economy, a respectable amount of wind capacity remains under construction as we write this in late October. Currently, Industrial Info is tracking 5,212 MW of U.S. wind projects under construction, representing more than $8.8 billion of investment. Beyond 2009, an additional 100,000 MW have been proposed for construction kickoff between 2010 and 2015. Of this, 24,000 MW of project activity have been earmarked for a 2010 construction start. Of course, some projects will not move forward to fruition. Many of these projects are facing financial barriers, and transmission constraints in some parts of the country will be the death knell for others.
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