In 2018, the core fundamentals that drove growth in the renewable energy sector included the declining costs of wind and solar generation, advances in battery storage technology and grid operators’ growing expertise and expanding tool set for integrating intermittent renewable power into the grid. And, perhaps most significant, there was robust demand for renewables from most market segments, including utilities, which demonstrated strong “voluntary demand,” as opposed to the demand driven by policy mandates we’ve seen in the past.
The fundamental drivers of renewable energy growth in 2018 are poised to continue in 2019, but we also see three trends coming into sharper focus that are likely to impact growth in the coming year. Those trends include emerging policies that support renewable growth, expanding investor interest in the sector and advancing technologies that boost wind and solar energy’s value to the grid, asset owners and customers.
Tax and trade policies will likely continue to impact renewable growth in 2019. Potentially accelerated project schedules ahead of tax credit phase-downs suggest a favorable outlook for renewable growth in 2019, while tariffs could continue to create headwinds.
New and renewed policies and initiatives at the local, state, and federal level will likely boost renewable growth in the coming year. Over the past two decades, nearly 50 percent of U.S. wind and solar development was driven by state mandates, especially renewable portfolio standards (RPS). Today, half of the states with RPS targets are poised to reach them by 2021, and several are mulling an increase. A few are even targeting 100 percent renewables.
Federal and state policies are also supporting battery storage development, which adds value to renewables and promotes further growth. In February 2018, the Federal Energy Regulatory Commission finalized order 841, which requires grid operators to remove barriers hindering participation of electric storage resources in the capacity, energy and ancillary services markets. Meanwhile, falling costs, commercial success in Europe and opportunistic buying by European developers have set the stage for offshore wind growth in the United States. Combine these trends with more supportive federal and state policies, and we may finally be on our way to seeing sustained growth in the U.S. offshore wind industry.
Renewable procurement and project investment is expanding among current buyers and spreading to new groups such as smaller companies, oil and gas companies and asset management firms. Corporations are continuing to procure increasing volumes of renewable energy, driven by sustainability goals and a growing variety of procurement options. As of early December 2018, 156 corporations across the globe, including many headquartered in the United States, had committed to achieving 100 percent renewable power as part of the RE100 campaign.
Climate change, corporate social responsibility, falling renewable costs and the drive to diversify have renewed many oil and gas companies’ interest in the renewable energy sector. Several companies have increased renewable investing in the last two years, including investment in wind and solar energy projects and companies.
Asset managers have started compiling portfolios of distributed commercial and industrial renewable projects, as well as community renewable projects. These portfolio projects provide an opportunity to manage transaction costs, thus allowing asset managers to increase the size of investments.
Accelerating deployment of renewables across the electricity value chain offers unique opportunities to revisit grid infrastructure and manage household energy usage. As part of this effort, digital solutions for forecasting renewable energy output, optimizing grid integration benefits and influencing smart home investments have been developed and are now widespread with proven return on investment. Looking forward, new digital applications that could promote or facilitate renewable growth are emerging across the electricity value chain. As solar-plus-storage installations gain traction, software platforms that enable aggregators to pool these resources and use them to offer grid support services in wholesale markets will likely gain popularity as well. Finally, as digital solutions developed for the renewable industry spread across the electricity value chain, renewables are at the vanguard of technology innovation that can open new revenue and business models in the electricity sector.
In sum, strong fundamentals, emerging policies, an expanding investment community and advancing technologies will likely underpin U.S. renewable energy growth in 2019. Increasing customer demand for renewable energy across almost all market segments continues to expand opportunities. While the current U.S. administration is not focused on decarbonization, states, cities, communities and businesses with increasingly ambitious sustainability goals are driving renewable growth. Market developments such as the entry of smaller corporations into the corporate procurement market, renewed interest from oil and gas players and greater involvement of asset management companies offer new opportunities for renewable growth.
EDITOR’S NOTE: This article is a synopsis of Deloitte’s 2019 Renewable Energy Industry Outlook.