Renewables: Much easier being green
Industrial Info Resources (IIR) expects the growth and maturity of state renewable portfolio standards (RPS), combined with incentives in the 2005 Energy Policy Act (EPAct), to create unprecedented momentum for renewable energy development. Spending in this niche surpassed investment in gas-fired unit construction for the first time in 2005. In that year, just over 3,100 MW of renewables-fired plants worth $3.95 billion reached the construction kick-off stage. The comparable numbers for gas-fired plants were 6,800 MW and $3.4 billion.
Over 5,000 MW of renewable energy capacity—of which wind farms represent 87% and a total investment of more than $7 billion—were scheduled for project kick-off last year. Most of that capacity is scheduled for commercial start-up by the end of 2007. In the longer term, there are over 51,000 MW of renewable energy projects actively being developed in the U.S. They are scheduled to begin construction between now and 2010.
In the short term, wind will continue to dominate the ranks of renewable energy development projects. In August 2005, EPAct extended the federal production tax credit (PTC) before it expired, effectively ending the boom-and-bust cycle suffered by the industry over the past six years. The certainty of the subsidy drove investment in wind in 2006 and 2007 to record levels. But the ensuing spike in demand created a shortfall in wind turbine supply that continues today.
In response, Spain's Gamesa and homegrown Clipper Windpower are building new turbine manufacturing plants in the U.S. Siemens also has nearly doubled its production capability since acquiring Bonus Energy. In the near term, the tightness of supply may make financing too risky for projects unable to break ground before this summer—a bit too close to the PTC deadline.
Among other renewable resources, solar energy has the second-largest potential for capacity growth in the U.S.—particularly in Southwest deserts, which have some of the world's highest insolation levels. Utility-scale concentrated solar power plants provide the lowest-cost and most-efficient methods for harvesting solar energy. Currently, the U.S. has about 350 MW of plants that have proven the technology in California for the past 15 years. Growing RPS requirements are serving to improve the prospects for concentrating solar power. Over the past year alone, over 1,500 MW of power-purchase agreements (PPAs) have been signed for new installations.
Geothermal, landfill gas-to-energy (LFG), and biomass projects complete the increasingly rosy picture for renewables. Because each technology is capable of providing baseload capacity and qualifies for the PTC, project economics in all cases have reached a positive tipping point.
Today, for example, state and federal energy policies are driving geothermal development at a level not seen since the 1980s. Within the past year, over 500 MW of new capacity have secured PPAs. Most geothermal projects in near-term development either are plant expansions or represent an effort to redevelop an existing site and bring it on-line to reap the benefits of the PTC. IIR is now tracking 15 geothermal projects, representing over 312 MW and $780 million, that are scheduled to begin construction by mid-2007.
LFG projects qualify as renewable resource development in nearly all of the states that have adopted an RPS. What's more, LFG is included among the many green power offerings of local utilities. Together, these two treatments have created favorable conditions for landfill gas-to-energy development in the U.S. (Read how Exelon has reaped the benefits of using landfill gas.)
Today in the U.S., there are more than 300 operational LFG projects with a collective nameplate capacity of just over 1,100 MW. The U.S has nearly 600 other landfills that are thought worthy of exploiting. Of these, about 155 potential sites could produce in excess of 4 MW. Currently, IIR is tracking the development of 35 LFG projects with a total capacity of about 270 MW that are scheduled to begin construction within the next 24 months. Collectively, they have an investment value of $324 million.
Right now, there is limited development of large hydro projects planned for the U.S. But because the installed American fleet is aging, opportunities to boost its efficiency and production exist. We expect that incentives provided by the U.S. Environmental Protection Agency could help stimulate small hydro projects at existing nonhydro power dams as well.
Next to hydroelectric power, more megawatt-hours are generated from solid fuel biomass than from any other renewable energy resource in the U.S. At this point, IIR is tracking 34 solid fuel projects representing 1,360 MW and an investment of more than $2 billion in 19 states. Seven of those projects are already under construction.
The biggest challenge that renewable energy faces in the U.S. is to maintain its current momentum by making sure that the PTC never expires again. The subsidy will help wind, solar, geothermal, LFG, and biomass projects compete on a fair footing against fossil-fueled options in three key areas: cost, reliability, and dispatchability.
Prospects for renewables also would be helped by creation of regional renewable energy credit (REC) markets. Such markets would make state RPS programs more effective by encouraging development of the lowest-cost renewables in each resource category in areas where they are available. The RECs then could be sold wherever they are needed.
—Britt Burt is VP of Power Industry Research and Shane Mullins is VP of Product Development–Power Industry for Industrial Info Resources. The company provides comprehensive market intelligence about industrial processing, heavy manufacturing, and energy-related industries worldwide, including an annual North American Power Forecast that offers a comprehensive outlook of the industry. For more information, call 800-762-3361 or visit www.industrialinfo.com/powerforecast.
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