The Trump Administration’s attempts to support coal have led renewable energy developers to focus on defending their place in America’s energy mix, and rightfully so – there’s no question that the pending solar import tariff decision or the Department of Energy’s out of market cost-recovery proposal will impact U.S. solar and wind markets.
The International Trade Commission’s (ITC) recommended solar tariff proposal options range from a licensing fee to a 35% tariff on solar panel imports, and if implemented as proposed, the tariffs may hurt small and medium-sized businesses more than big developers. Similarly, DOE’s proposal could keep uneconomic coal and nuclear running by creating a $10.6 billion annual subsidy allowing them to run at a loss but still receive revenue. No one yet knows what Trump will do with the ITC proposal or what the Federal Energy Regulatory Commission will do with DOE’s proposal, but the fate of many companies certainly lies in the balance.
Despite potential federal setbacks, solar and wind will continue to beat conventional power plants on cost alone, and Trump’s actions are unlikely to alter clean energy’s competitiveness with conventional large-scale power plants here in the U.S. So, if the pending tariff or DOE proposal will not change the fundamental economics of domestic energy markets, are renewable energy developers focused on the wrong trends? Five under-the-radar trends create long-term opportunities for America’s renewable energy industry.
Renewable Energy Cost Drops Are Relentless
The latest electricity cost comparison published by international financial advisory firm Lazard reveals why relentless renewable energy cost drops will keep open up opportunities for developers. For instance, to examine solar’s domestic competitiveness, focus on the crystalline utility-scale solar line – import tariffs are proposed for crystalline solar panels. Compare the unsubsidized cost of crystalline utility scale solar ($46-$53 per megawatt) with any of the conventional sources (below the dashed line). Unsubsidized solar beats nearly all fossil fuels – natural gas combined cycle is the only conventional generation source in range from a pure cost perspective right now.
By the most conservative estimates, solar panels make up less than half of the total installed cost of a solar project. So, the highest proposal from the ITC (a 35% solar tariff) would add 17.5% to Lazard’s reported cost of crystalline utility-scale solar. Since 2010, overall installed costs for utility scale solar have dropped an average of 18-20% —if that trend continues, it would put this tariff in the noise for utility scale solar. But let’s be conservative: Even if we assume that historically observed drops in the overall cost of solar stop altogether, we get a range of $54-62 per megawatt. Natural gas combined cycle is still the only conventional alternative in range, save for the cheapest 3% of all coal generation.
Top Five Issues for Renewable Energy Developers to Watch Today
- Grid resilience
We must maintain and enhance our electricity system’s resilience as extreme weather events happen more often. Sandia National Labs defines electricity system resilience as “a grid that adapts to both large-scale environmental and unnatural events and remains operational in the face of adversity—minimizing the catastrophic consequences that affect quality of life, economic activity, national security, and critical-infrastructure operations.” DOE’s recent proposal to FERC used this guise to support power plants that have a 90-day on-site supply of fuel, i.e. coal and nuclear. But this proposal gets resilience all wrong: Less than 0.00007% of power outages since 2012 were related to fuel supply issues. Power lines are more to blame. And—ironically since the DOE proposal was at least partially intended to provide an economic lifeline to coal plants— the rare cases where on-site fuel supply was an issue happened at coal plants where fuel froze or became too soggy to use. Of course, all power plants are vulnerable to extreme weather to some extent, but renewable energy eliminates the need for on-site fuel supply altogether, and clean-energy powered microgrids have proven more capable of remaining operational through extreme weather events. America’s grid could benefit if energy developers emphasized the very real grid resilience qualities of their projects.
- Utility business models
- Wholesale power markets
Unfortunately, DOE’s proposal may be just the tip of the iceberg of ideas to support uneconomic power plants as renewable energy’s relentless cost declines continue to put pressure on incumbents. The details of arcane rules in wholesale markets (i.e. grid operators like PJM Interconnection, the Southwest Power Pool, and the Midcontinent Independent System Operator) can make a big difference on utility-scale solar and wind revenue streams. The opportunity here for renewable energy developers is defining what the grid needs in a technology-neutral way, and then ensuring markets allow all resources to compete equally to provide those services. The interests of renewable energy developers, consumer advocates, and industrial customers are aligned in wholesale markets; getting these rules right—and allowing all possible resources to compete—can produce the least-cost reliable power mix.
- Responsible coal retirements
The cost of building new renewable energy projects has dipped below the cost of continuing to run existing coal plants in many parts of the country. Last week, Empire Electric District Co. filed a proposal to shut down a coal plant in Missouri and replace it with 800 megawatts of wind generation, saying it could save up to $325 million for customers by acting quickly to replace the old generation. This is just the latest in a series of analyses suggesting new renewable energy projects could replace existing coal to save customers money. Allowing investor-owned utilities to put the remaining balance they owe on those old coal facilities into ratepayer-backed bonds could save customers even more money and make funds available for coal community transition assistance. Many states need new legislation to enable this financial fix. Labor, consumer advocates, industrial customers, and renewable energy developers could all work together to move this solution forward for responsibly supporting the electricity system transformation underway.
- Electric vehicles and electric homes
Okay, just one last trend: electrification. After years of flat or declining electricity demand, electric vehicles and electric homes provide a potential for growth in the U.S. utility industry. Shifting energy demand from fuels to electricity to power vehicles and homes can achieve many benefits – from public health improvements to reduced greenhouse gas emissions. And well-timed charging for electric vehicles combined with well-managed fleets of smart thermometers or hot water heaters in homes will provide reliable sources of flexibility for grid operators. Now that renewable energy is the cheapest option in many markets, new demand prospects for the utility industry as a whole mean new growth opportunities for renewables.
Trump Can’t Vanquish Renewables – Keeping a Close Eye on These Trends Can Protect Competitiveness
While we can’t dismiss Trump’s efforts to boost fossil fuel at the cost of renewable energy, the underlying economics of solar and wind keep improving, as coal becomes more uncompetitive in open markets . Renewable energy developers have opportunities to grow with these five serious trends, despite federal efforts.