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Solar and wind power are growing increasingly cost-competitive with their fossil-fuel rivals. Now, with a lift from the tax incentives and other spending in the Inflation Reduction Act, and sweetened further by select state help, U.S. renewable-energy strength will accelerate in 2023, a new report says.
Domestic renewable-energy growth
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slackened its pace in 2022 due to rising input costs and project delays linked to supply chain disruption, trade policy uncertainty, inflation, increasing interest rates and power-sector interconnection delays.
While many of these challenges will likely carry over into 2023, business consultancy Deloitte said in an outlook released Wednesday that renewables growth will likely accelerate next year, powered by demand and “the record-breaking raft of clean-energy incentives” in the IRA, the wide-ranging spending bill that President Biden signed into law in August.
Major factors spurring industry growth include cost-competitiveness, federal and state clean energy policies, utility decarbonization, corporate renewable procurement, residential solar and private investments, the report said.
Growing demand in 2023 could exacerbate supply chain constraints and interconnection bottlenecks, further boosting prices and extending project timelines, the consultants said.
And transmission limitations — moving more clean energy-generated electrical power
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into businesses and homes — could continue to hamper growth until capacity is significantly expanded, the outlook cautions.
Further, U.S. incentives are based largely on a domestic-only, pro-jobs manufacturing stance that President Biden used to sell the bill to a narrowly-divided Congress. Already, the U.S. has faced pushback from its global trading partners who don’t want to be shut out of renewable deals with the U.S., and meeting a surge in demand without globalization will be a challenge, Deloitte analysts said.
But the evolving trends and opportunities that follow could help the industry navigate headwinds as it grows in 2023 and set the stage for faster growth in 2024 and beyond.
Marlene Motyka, one of the Deloitte report’s authors, said renewable developers are regularly lining up projects given the multiple-year lead time that permitting and planning require. That means, the IRA is likely to push more projects into the planning stages next year, keep those already in the works moving along, and as a result, the U.S. can expect a flurry of projects up and running by 2025-2026.
Offshore wind
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in particular, has a significant build-out time. One of the IRA’s “most important provisions” is the energy investment tax credit (ITC), which provides a credit of up to 30% for projects that begin construction before 2026, analysts at the Atlantic Council wrote at the time of passage.
Projects must meet prevailing wage and apprenticeship labor requirements to receive the full credit. Further, the IRA opens up additional areas for lease in the eastern Gulf of Mexico and the Atlantic — off the coast of North Carolina, South Carolina, Georgia, and Florida —that had previously been placed off limits by the Trump administration.
The Deloitte report detailed expected growth in the following areas:
Rising clean energy component manufacturing could ease supply chain snags over time. U.S. manufacturing does not currently meet the renewable energy sector’s needs for clean energy components supported by secure and domestic supply chains. IRA incentives have already spurred growth, which will continue to gain steam in 2023.
Offshore wind industry addresses challenges to unlock rapid growth. By mid-2022, the U.S. offshore wind project development pipeline had grown to more than 40 gigawatts (GW) of potential generating capacity across 12 states. Currently, just 42 megawatts (MW) of capacity is operational, about 1 GW is under construction, and almost 19 GW is in the permitting phase. A further 20 GW is in the siting and planning phases and will likely take many more years to develop.
New clean hydrogen economics could open avenues for renewable providers. Interest in green hydrogen ignited with the IRA’s enactment in August 2022. The law’s $3 per kilogram production tax credit (PTC) for eligible “clean” hydrogen could make it price-competitive with higher carbon “gray” hydrogen in much of the country. Gray hydrogren is created from natural gas
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or methane, using steam methane reformation but without capturing the greenhouse gases made in the process.
IRA helps spur renewable providers to pursue opportunities in disadvantaged communities. Outreach to low-income and disadvantaged communities could accelerate in the coming year. About 44% of U.S. households are defined as low-income, and this group could potentially benefit the most from clean energy savings, since their “energy burden,” or share of household income spent on energy, at 8.6%, is about 3.5 times the national average, and can be as high as 30%.
Renewable energy industry focuses on managing increasing cyber risk. Cyber threats are expected to rise in 2023 and beyond as the clean energy transition progresses, focusing on both utility-scale and distributed renewable energy resources. The industry is preparing for the growing wave of distributed, often digitally-controlled, third-party owned and aggregated energy resources on the grid, about half of which are solar energy systems.
What’s more, renewable-energy growth projections are fed in part by expectations that investment in traditional fossil fuels
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will wane. That’s a view even repeatedly shared by one of the oil sector’s own representatives, the International Energy Agency.
Fatih Birol, executive director of the IEA, has stressed his belief that the golden era of natural gas is over.
Birol, speaking on the topic first last year, and yet again recently, said renewable power capacity has been substituted for a portion of gas demand in the advanced economies and that emerging countries will not make huge gas import infrastructure investments in times of much higher-than-average gas prices. Indeed, the 2022 IEA World Energy Outlook forecasts a peak in global fossil fuel demand by the end of the decade.
Birol argued that 2022-2023 will be a turning point in the energy transition because energy security has become a top political priority. That means more nations will look for renewable options at home that they can control, with less reliance on a global oil and gas market. When combined with new industrial policies and climate commitments, this can accelerate the energy transition, he said.
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