Renewable energy has been growing at a breakneck pace in the U.S. for several years. Solar and wind made up the largest share of new capacity additions in 2016 for the third year in a row, with nearly two thirds of all new capacity. As more wind and solar farms are built, their costs continue falling, to the point where in several regions across the U.S., wind and solar are cheaper to build than coal and natural gas. It’s clear that, as Bloomberg New Energy Finance’s Michael Liebreich declared in April, “this is not alternative energy. This is just mainstream, power-generating technology.”
Despite these economic and technology trends, the Trump Administration is attempting to alter America’s energy landscape, favoring fossil fuels over low-carbon energy technologies in an attempt to alter the picture for renewable energy. In addition to President Trump announcing the U.S. intends to pull out of the Paris Agreement, two potential policy shifts—opening up new areas to increased oil and gas drilling and adding a tariff to imported solar panels— have recently begun circulating at the federal level. But just how might these changes impact renewables?
Energy Innovation used the Energy Policy Simulator (EPS) to forecast wind and solar capacity additions to 2050 under three scenarios: a business-as-usual (BAU) scenario, a low natural gas price scenario, and a solar import tariff scenario. The EPS open-source computer model is freely available for public use through a user-friendly web interface or by downloading the full model and input dataset. The EPS models the U.S. as a national power grid, accounts for limitations on renewables deployment due to limited grid flexibility, and includes endogenous price decreases based on the cumulative installed capacity of wind and solar.
Using the EPS, we find that low natural gas prices actually increase new long-term solar and wind capacity by inducing retirement of uneconomic coal power plants and increasing the amount of flexible natural gas on the grid. Unsurprisingly, a tariff on solar panel imports would result in a large solar capacity decrease by 2050, though it would add additional wind as well as some natural gas.
Business as Usual
The BAU scenario assumes no new federal policies, except those that have already been approved or currently exist, are enacted in the future. Neither the Paris Agreement nor the Clean Power Plan is included in this scenario, since the first will not be determined until 2019, and the second is currently being litigated. In the BAU scenario, wind capacity increases from 81 gigawatts (GW) today to 209 GW in 2050. Under the same scenario, solar photovoltaic (PV) capacity increases from 33 GW today to 316 GW in 2050. This includes 134 GW of distributed (rooftop) solar. By 2050 wind comprises nearly 14% of total installed capacity in the U.S., while solar makes up 21%. Coal actually experiences a capacity decline between now and 2050, decreasing from approximately 266 GW today to 228 GW in 2050.
Lower than Expected Natural Gas Prices
The BAU scenario uses price forecasts from the U.S. Energy Information Administration’s Annual Energy Outlook 2017 without the Clean Power Plan or Paris Agreement. That forecast projects power sector natural gas prices increase from $2.92 per million BTUs (MMBtu) in 2016 to $5.73 in 2050. However, President Trump’s policies to open up more land for oil and gas drilling could increase natural gas supply and keep prices lower than forecast, so what happens to solar and wind capacity if gas prices stay low for longer than expected?
In our low natural gas price scenario, we use prices from the AEO’s “High Oil and Gas Resource and Technology” case, which assumes higher resource availability and lower costs, and projects power sector natural gas prices only increasing slightly by 2050 to $3.82/MMBtu.
When natural gas prices are lower than forecast, more renewables capacity is actually built out in future years. By 2050, continued low gas prices could induce an additional 58 GW of solar PV and 47 GW of wind on top of BAU projections.
Two factors drive this increase. First, lower than expected natural gas prices cause additional coal power plants to become uneconomic and retire when gas prices are low. In this scenario, lower natural gas prices cause an additional 26 GW of coal retirements by 2050. When these plants retire, their capacity must be made up from new resources, and renewables are quickly becoming the cheapest available option. Second, low gas prices cause additional natural gas plants to come online, offering a significant amount of grid flexibility and allowing additional renewables to integrate into the system.
Solar Import Tariffs
On April 27th U.S. solar panel manufacturer Suniva, facing bankruptcy, filed a petition for global safeguards with the International Trade Commission requesting a $0.40/watt tariff on all imported silicon solar panels, and an initial minimum price floor of $0.78/watt on solar modules. IBISWorld estimates three quarters of U.S, solar panels are imported, and silicon panels represent 95% of the global solar panel market, including a vast majority of U.S. panels, so this tariff could affect a vast majority of solar in the U.S. And with solar PV costs as low as $1.06/watt for utility-scale, and still even less than $3.00/watt for residential solar PV panels, a $0.40/watt tax is not an insignificant fee either.
In the solar import tariff scenario, we make a simplified assumption that all U.S. solar panel prices are raised by $0.40/watt starting in 2018 then step down to $0.37/watt in 2019, $0.34/watt in 2020, and $0.33/watt in 2021. Under this assumption the solar tariff significantly reduces annual U.S. solar PV additions by up to 3,000 MW per year in the near term.
After the tariff expires, annual utility-scale additions return to previous levels, but distributed solar installations remain suppressed. In the long run, cumulative solar PV capacity is reduced by about nine percent through 2030, and total U.S. solar PV capacity is reduced by 18 GW relative to the BAU scenario in 2050.
Wind capacity increases by 4.8 GW as solar becomes an expensive option in many markets, and natural gas capacity gets a small bump of 1.4 GW as well. But even under a solar import tariff, coal capacity barely increases, showing that making renewables more expensive won’t do much for Trump’s efforts to put coal miners back to work: Newer, cleaner technologies still expand because they are still cheaper.
America’s Likeliest Energy Future Is Still A High Renewables One
Even if Trump is successful in keeping natural gas prices low and/or imposing import tariffs on solar panels, renewables capacity will still expand and coal will still be retired, though it may be less than the BAU case predicts. It’s also important to note that forecasts are rarely spot on, and if past forecasts are any indication, we are likely still underestimating how low the price of renewables will go and how quickly capacity will grow. For example, the US Energy Information Administration has continually underestimated the amount of solar capacity in future years. As projections close in on their forecast dates, they still tend to under-predict actual capacity additions.
So while new federal policies have the potential to disadvantage wind and solar, the clean energy revolution is already underway. Of course, getting state and regional policies right will be important, but these technologies are already cost-competitive and will only continue to become more competitive in the future. The future is bright for renewables in the U.S.
By Robbie Orvis