U.S. renewable energy generation capacity has been growing rapidly for more than a decade, spurred on by technological advances and supportive government policies. However, present uncertainty in U.S. energy policies threatens to take the wind out of the renewable energy sector’s sails, according to a new report from the American Council on Renewable Energy’s (ACORE) U.S. Partnership for Renewable Energy Finance (U.S. PREF).
More than $300 billion has been invested in the U.S. renewable energy sector over the past ten years, as a growing number and range of private sector businesses capitalize on supportive policies and programs at the local, state and federal levels. That’s driven well-above average growth in “green” job creation and boosted economic development and growth in local communities and states throughout the nation, as well as enhanced social and environmental health and integrity, ACORE CEO Michael Brower highlights in a news release.
“Federal tax policy has worked, stimulating strong private investment in the past several years and significant system cost reduction, with wind down 43 percent and solar down 80 percent since 2008,” added Todd Foley, ACORE’s senior vice president for policy and government relations. “However, lack of policy certainty puts new investment and market momentum at risk.”
Financing renewable energy
Paralleling ongoing advances in the performance and manufacturing of renewable energy technologies — such as solar photovoltaic (PV) modules, wind turbines and arrays — greater progress is now being made to reduce the financing and other “soft costs” associated with developing and deploying small- and large-scale renewable energy systems. That’s driving ongoing development of a vast commercial-industrial renewable energy “ecosystem” and value chain, which is boosting job creation and sustainable economic development across the U.S.
Making it easier — and less costly — to finance renewable energy systems, whether at the utility or residential scale, is key to stimulating ongoing growth. U.S. renewable energy finance is moving beyond the success realized by tax equity financing of utility-scale wind and solar power project finance, Green Bonds, and the gains realized via third-party residential and commercial power purchase agreements (PPAs). In addition, Congress is considering extending tax-advantaged master limited partnerships (MLPs) to renewable energy companies.
Moving to expand its financing options and accelerate the growth of its third-party solar finance business, SolarCity pioneered the securitization of solar leases for sale to fund managers and institutional investors. Utilities, such as NRG Energy, have spun off renewable energy assets into “yield” companies, or YieldCos. NRG Yield holds solar and wind energy assets with a total capacity of 1.3 gigawatts (GW), U.S. PREF notes in its “Renewable Energy Finance, Market & Policy Overview” report.
“The success of the YieldCo, Green Bond and securitization structures shows the resiliency of the renewable energy finance market,” Timothy Kemper, U.S. PREF member and national co-leader for the Renewable Energy Industry Practice at CohnReznick was quoted in ACORE’s news release:
“New finance structures, coupled with policy certainty, will enable a strong, diverse market to see increased private sector investment and growth in U.S. renewable energy infrastructure in the coming years, contributing to economic development and job creation.”
In its white paper, U.S. PREF also highlights that although capital markets for renewable energy finance are strong, new investment fell by more than 30 percent from 2011 to 2013, “signaling a significant amount of private capital that has been sidelined as a result of an uncertain market.”
As has been true for numerous other economic sectors, including development and growth of the coal, oil and gas industries, supportive government policies are the core of the institutional framework from which renewable energy growth is being realized. Maintaining, improving and enhancing that energy policy framework the key to realizing further gains, ACORE emphasizes.
Among the key takeaways from ACORE’s renewable energy finance white paper:
Policy-Driven Investments in U.S. Renewable Energy
- The U.S. has implemented policies that have successfully attracted massive sums of private capital to the burgeoning renewable energy industry.
- Over $300 billion was invested in the U.S. renewable energy sector from 2004 to 2013.
- In 2013 alone, $36 billion was invested in U.S. renewable energy. This capital has been invested to create domestic supply chains that support both our domestic energy market and the global energy technology industry, which attracted $1.6 trillion in global new investment from 2004 to 2013.
- Global clean energy sector investment in 2013 alone is estimated at $214 billion.
Renewable Energy Cost ?= f (Industry Scale ?)
- Thanks to polices that have driven investment, and therefore industry growth, both wind and solar PV have reduced their respective equipment costs over the past 4 years by ~43 percent and ~80 percent respectively.
- Empirical data suggests that coal, natural gas, and nuclear generation technologies have required massive increases in scale in order to achieve current favorable cost structures. Solar and wind, by contrast, are continuing to experience significant improvements in their cost structure with relatively much smaller increases in scale.
Economic Impact: Job Creation
- The solar industry experienced a nearly 20 percent growth in employment from 2012 to 2013, 10 times the national average.
- The industry is forecasting jobs growth at 15.6 percent in 2014.
- At the end of 2012, over 80,000 wind-related jobs existed in the U.S.
Needed: Bi-partisan support
Bi-partisan support in Congress and among state governors and legislatures is required to remove the present, costly uncertainty in renewable energy finance policy incentives. Included in U.S. PREF’s white paper is a list of key policy initiatives the uncertainty of which threatens ongoing U.S. renewable energy growth. They include:
- Uncertainty regarding the renewable energy production and investment tax credits (PTC and ITC);
- The “Commence Construction Modification” to qualify for the PTC;
- The ability to depreciate capital costs via the Modified Accelerated Cost Recovery System;
- Federal support for state Renewable Portfolio Standards (RPS), which mandate increased renewable energy production in U.S. states;
- Authorizing the creation of MLPs by renewable energy companies.
U.S. PREF goes on to point out that both Republicans and Democrats have shown “strong leadership” and supported clean energy policies and incentives over the years.
- The Energy Policy Act of 1992 removed obstacles to wholesale power competition and established a program for federal support on a competitive basis for renewable energy technologies.
- The Energy Policy Act of 2005 established the Loan Guarantee Program for innovative energy technologies, the tax credits for residential solar investment, and the Renewable Fuels standard.
- The Energy Independence and Security Act of 2007 improved the Renewable Fuels Standard and Corporate Average Fuel Economy Standards.
- The Emergency Economic Stabilization Act of 2008 extended the PTC for one year and the ITC for eight years while also eliminating the $2,000 tax credit cap for residential solar electric installations.
- At the state-level for nearly 20 years, Democratic and Republican governors, state legislatures and regulatory commissions have established or enhanced many of the 37 state renewable portfolio standards and goals.
With renewable energy and clean technology investment fueling economic and job growth for this and coming decades, such bi-partisan support is particularly needed at present.
Image credit: ACORE
Graph credit: US PREF, “Renewable Energy Finance, Market & Policy Overview,” 2014
Renewable Energy Finance, Market & Policy Overview