As the United States positions itself for a sustainable and greener future, the wind power and renewables industry faces a pivotal moment in 2024. Despite over a decade of unrestrained growth in new renewable capacity additions, sector headwinds have tempered that trajectory. The past year has shown how renewables are particularly influenced by the dynamic interplay of macroeconomic as well as hyper-localized forces – and navigating conflicting factors is key to achieving success in the energy transition.
Among those forces remain strong tailwinds encouraging growth and investment in the renewables industry:
1. Policy Support and Incentives: Robust policy support and incentives, such as the Inflation Reduction Act (IRA) and increasing renewable capacity targets like renewable portfolio standards (RPS) continue to provide wind at the back for renewables development globally. Nearly half of all growth U.S. renewable capacity since 2000 was driven by state policies such as RPS and, more recently, broader clean electricity standards (CES). Among the 29 states plus D.C. that have an RPS, 16 states target at least 50% of retail sales, and 17 have a 100% CES or RPS target. While most states have met their interim targets, continuing to do so in the face of growing electricity demand will require massive renewable build-out – approximately 300 TWh of new clean electricity supply by 2030 and 800 TWh by 2050.
At the federal level, the IRA extends incentives for traditional renewable technologies such as wind and solar, giving the industry certainty for the rules of the road for at least a decade. The IRA also expands incentives to clean fuel production, carbon capture and other technologies, and particularly benefits energy storage by making standalone facilities eligible for the ITC.
When the IRA was passed in 2022, the combined value of incentives was estimated at about $350 billion, while new studies estimate it could be well over $1 trillion across its 10-year lifetime. The landmark policy framework is leading to new and increasing sources of capital available for projects. Alternative monetization opportunities such as the transferability of tax credits allow projects and sponsors to recognize incentives outside of the traditional tax equity structures – broadening the pool of potential funding sources.
2. Growing Demand for Green: Increasing public awareness of environmental impacts and climate change concerns has translated into a rising demand for clean energy solutions. This surge in public consciousness – highlighted by political and climate disruptions such as the Ukrainian war or Winter Storm Uri in Texas – creates a market-driven impetus for renewables. This has given rise to its prominence with businesses – driving corporate sustainability goals and clean electricity commitments. More than 400 global businesses have committed to 100% clean electricity by joining the RE100 renewable electricity initiative, up from about 200 in 2019.
Utility-scale renewables stand to benefit from continued demand for clean energy from major corporations and utilities that have made sustainability commitments and need to meet growing energy loads due to the electrification of end-use sectors.
3. New and Improved Technologies: The continuous evolution of clean energy technologies has been a driving force behind the industry’s momentum. Improvements in turbine design, materials and efficiency have significantly reduced the cost of wind and solar energy to make it cost competitive with traditional energy sources. Technological advancements also offer owners of older assets the opportunity to upgrade and extend project lives, made more compelling by IRA incentives and the chance to avoid long interconnection queues.
Energy storage technologies – whose costs have followed a similar trajectory of wind and solar – are integral for grid reliability and resiliency. Enhanced by IRA incentives, major investments in storage and other less mature technologies such as carbon capture, utilization, and sequestration will allow these technologies to achieve scale in the near-term, helping shape the power generation landscape in 2024 and decades to come.
Despite policy support and growing clean energy demand propelling the industry forward, the sector faces major headwinds going into 2024.
1. Intermittency and Grid Integration: The existing grid infrastructure is not fully equipped to handle the incremental capacity required, let alone the intermittency of renewable resources. Growing energy demand, intensified by the electrification of the transportation and manufacturing sectors under the push for onshoring, puts further strain on the already congested and deteriorating transmission grid. Historically long interconnection queues and increased network upgrade costs have added time and expense to new renewable development, forcing the cancellation of countless projects, and raises uncertainty for those projects still in development. This is further exacerbated by investor demand for renewable development pipelines – incentivizing submission of speculative, redundant projects to the queues and overwhelming ISO’s planning processes, ultimately causing bottlenecks.
While it is encouraging to see more investments in storage, distributed energy resources, demand side management and innovative grid technologies, the existing grid still needs massive large-scale investment. A recent study indicated that the U.S. high-voltage transmission system would need to grow 60% by 2030 and triple through 2050 to achieve net zero goals – requiring an up to $2.4 trillion investment. Policy reform is essential to enable this proactive investment, and to expedite transmission projects and interconnection requests, ensuring efficient integration of clean power into the grid to serve demand.
2. Supply Chain Disruptions and Rising Costs: Like most industries in the post-Covid era, the renewable energy sector continues to face supply chain disruptions, as equipment suppliers try to keep up with soaring demand across the globe. Rising costs for labor, materials, construction and financing have slashed project economics – often only partially offset by incremental revenues or incentives under the IRA. While some projects have successfully renegotiated off-takes to compensate for rising costs, others have been less fortunate – as seen in recent weeks with offshore wind developers announcing failed negotiations, expensive contract terminations and writing-off of billions of dollars of investments altogether. Higher project costs must be offset by higher revenues (through electricity sales, renewable energy credits, etc.) to continue incentivizing new build – driving up consumer electricity bills. It remains to be seen how much consumers are willing to absorb for clean energy.
3. Conflicting Policy Narratives: Political and regulatory support have yielded astonishing growth in U.S. renewables. The expanded incentives available for clean energy technologies under the IRA is expected to do the same – once rules for incentives are published. Despite its namesake, inflation has persisted since whispers of the IRA began, driving higher costs for new project builds. By increasing interest rates in an attempt to ease inflation, the Fed has replaced one cost driver with another, with projects generally landing in the middle and having to absorb higher costs on all fronts. Additionally, while policymakers offer subsidies to expand local manufacturing capabilities, the immediate effect of the onshore push is increasing costs and stretched timelines.
While the IRA is a big step to bridge the funding gap of decarbonizing the power sector, a comprehensive policy that considers the full suite of challenges renewables face – deployment policies to facilitate market creation, reductions in technology costs and their scale up, incremental investments – is a must in order to achieve a timely and efficient energy transition.
The renewables industry has to navigate new and fluid headwinds, but the business case for more renewables is as strong as ever, and the benefits are widespread. Challenges related to grid interconnection, regulatory uncertainties, supply chain disruptions and rising costs underscore the need for strategic planning and collaboration. These challenges also show the maturing of the market and sheer growth in the demand to participate in the clean energy transition – and there will be abundant opportunities to do so in 2024 and beyond.
Todd Wynn is CEO of Skyline Renewables. With over 25 years of experience, Todd is a highly respected leader in the energy and renewables industries. He has a long track record of success in partnering with financial and strategic shareholders to build leading renewables platforms. Todd was formerly CEO at Hull Street Energy, a private equity firm focused on investing in the decarbonization of the power sector, where he served as Chief Executive Officer of Central Rivers Power, a national hydroelectric firm, and Milepost Power, a national power generation firm. Previously, Todd was Vice President, Operations at Brookfield Renewable and served as General Manager, Wind Operations at Enel Green Power.
Todd holds a B.S. in Mechanical Engineering (with Merit) from the US Naval Academy, a M.S. in Chemical Engineering from the University of Rhode Island, and an MBA from Cornell University. Todd also previously served in the United States Navy.
Olivia brings 8 years of experience executing and managing investments in infrastructure assets across the Americas. Prior to joining Ardian’s Infrastructure team in 2018, Olivia was a member of the Infrastructure and Energy group at Macquarie Capital where she focused on advisory and principal investments across environmental services and renewable energy. In addition to investing activities, Olivia is a member of Ardian Infrastructure Digital and Data Science Team, and serves on the board of directors of Skyline Renewables.
Olivia graduated from Villanova University with a Bachelor of Science in Civil Engineering.
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