The COVID Rollercoaster
The year 2020 was a roller-coaster ride for the renewable energy industry, presenting participants with more than the usual nail-biting loops, stomach-wrenching brakes, teeth-chattering dips and whiplash-inducing hairpin turns.
The following is a summary of how COVID affected the solar industry in 2020.
- Coming off a banner year in 2019 for both wind and solar project installations, as well as the impressive growth in battery storage, in early 2020 renewable industry analysts projected continued rapid growth in all sectors through 2050, while developers settled down to the pedestrian concerns of addressing lower electricity prices, securing international supply chains for equipment and the never-ending hunt for tax equity and debt financing. A February 3, 2020 Forbes article published two weeks after the CDC reported the first case in the US of the novel coronavirus, announced that “The Future of Solar is Bright” touting industry growth statistics and fundamentals.
However, within a very short time, a different, darker story was being told:
- In a March 27, 2020 report entitled “Coronavirus: US solar supply chain and utility-scale market risk,” the highly-regarded energy research and consultancy group Wood MacKenzie (“WoodMac”) stated that COVID “raised a significant amount of uncertainty across the global economy, including utility-scale solar.” In its best-case scenario, WoodMac stated that four weeks of supply delays would impact hundreds of MWs of modules and inverters, which combined with construction disruptions could result in an approximately 2 GW drop in project development delays in 2020. The report stated that mid-stage projects were at highest risk of project delays but thought pipelines would get pushed into future years with only marginal risk of project cancellations. The expectation was that projects in early development and those closer to completion might be able to weather the COVID storm. However, mid-stage projects were “betwixt and between,” potentially caught between a proverbial rock and a hard place. A veritable cottage industry of experts grew up overnight investigating the intricacies and arcana of the legal concepts of “force majeure,” foreseeability and impossibility. Mid-stage project developers were dealing with power purchase agreements executed years before the COVID onslaught which did not expressly address pandemics, public health emergencies and embargoes, while more recently executed supply agreements for modules, inverters and other equipment expressly all did. The concern was only heightened when major Chinese module manufacturers sent out blast force majeure notices to project developers globally.
- IHS Markit, a global data and information research company that closely follows the renewable energy industry, reported on March 31, 2020 that the solar industry was expected to deliver only 105 GW of capacity additions, a 16% year-on-year decline. The report asked the question “whether there would be a fundamental change in the outlook for solar worldwide under a new economic scenario with low-priced conventional resources.” This concern harkened back to energy markets of twenty years ago, when renewable energy growth prospects were highly correlated to commodity prices for oil and gas, a market dynamic that had changed dramatically with the renewable and fossil-fuel industries increasingly becoming de-linked. Ultimately, IHS Markit forecasted that, after a short-term disruption, installation growth in the solar industry would resume in 2021 and continue its growth trajectory of the last decade.
- According to reports in early April, COVID was believed to have a material impact on utility-scale installations in 2020 and perhaps 2021. The industry was confronted with various sources of risk: potential production shutdowns in Southeast Asia and the US, international shipping and logistics delays, and module bill of materials (BOM) shortages. Project risks involved shipping delays from closures of US ports, shipping delays of products, travel delays limiting or delaying the achievement of project milestones, and project site shutdowns due to “shelter-in-place” orders.
- In June, the Solar Energy Industry Association (SEIA) wrote a report addressing COVID impacts titled “The Novel Coronavirus Pandemic has caused Significant Economic Damage to US Solar Companies,” highlighting the “compounding issues” of supply chain delays, tightening tax equity markets, the fall-off of homeowner financial resources, effects of shelter-in-place orders and permitting challenges. At the end of 2019, the solar industry had employed over 242,000 people. The US Bureau of Labor Statistics had determined that solar PV installers would be the fastest growing job between 2018 and 2028. SEIA, which had forecasted over 302,000 solar industry jobs earlier in the year, reported only 188,000 employed by June 2020. Only 3 GW of additional solar capacity was installed in Q2 2020, well off the predicted pace.
- By mid-July, industry observers were reporting that utility-scale PV installations were up, but that the continuing pandemic was likely to dampen sentiments and mute project development for the remaining part of the year, due to disrupted supply chains. GlobalData, a global data and analytics company that follows the renewable industry, reported that industry growth was likely to see “lop-sided performance” due to COVID-related economic instability and lockdowns. While distributed solar post-COVID was anticipated to decline by a third compared to forecast (i.e., 60% growth over 2019), grid-connected utility-scale growth would see only 35-45% due to disruptions in the entire value chain, from manufacturing, sales, permitting, financing, installation and procurement. Small scale and residential solar segments were expected to be more severely impacted.
In short order, the worst effects of COVID were muted and project development continued.
- The solar industry was able to find workarounds that allowed for the continued development and deployment of solar projects despite the adverse impacts of COVID. While it became abundantly clear that all solar supply chains ran through China, either for the finished product or essential sub-assemblies, China was able to take the draconian lockdown measures that substantially reduced the effects of COVID on equipment supplies. Project developers were able to obtain waivers or extensions of guaranteed milestones under PPAs and other major development agreements. Many states deemed project construction workers to be “essential workers” and exempt from shelter-in-place and other lockdown restrictions. Nervous tax equity and construction finance lenders grew increasingly more comfortable with the active measures that allowed project development and construction to proceed. In Q3 2020, project development activity picked up considerably.
By year end, the solar industry proved its resiliency.
- In December 15, 2020, WoodMac reported that “while the solar industry has not returned to pre-pandemic prosperity,” it has “still grown to claim the largest share of electric generation in 2020,” i.e., 43% of total electrical capacity additions. WoodMac credited industry workarounds and pandemic-adjusted timelines for that result. Overall, the solar industry boosted Q3 installations 9% over “pandemic-constrained Q2” and predicted that 2020 would surpass 2016 as a record year for the solar industry. Specifically, the report cited the utility-scale segment for buoying overall solar development numbers. Utility-scale capacity additions represented 70% of all installations. The report referenced the November 1st announcement by Invenergy that it had started construction on a 1.3 GW phased project in Paris, Texas, the largest in the US. The residential segment of the solar industry had experienced more significant whiplash due to COVID. Installations had increased 14% from Q2 to Q3, after a 23% drop from Q1 to Q2, with the biggest fluctuations in those states with the strictest COVID shutdowns, including New York, California and New Jersey. While industry analysts predicted a 7% growth for the year for residential installations, the results were expected to be uneven. Sunrun and Sunnova had rebounded by year end with record sales and inquiries, while other residential industry players were plagued with layoffs. Sungevity announced its plan to auction off its assets.
In the final analysis, the solar industry was expected to experience 19 GW of new capacity additions in 2020, versus 13 GW in 2019. Ross Hopper, president of SEIA, stated that the rebound in the solar industry demonstrated the industry’s “resilience, even in the darkest moments.” There is no doubt that 2020 was a trying time for the solar industry, but ultimately the industry was able to grow due to its strong fundamentals, including cost reductions, the need for greater resilience and autonomy, low-carbon generation, distributed generation and scalability. Analysts predict 2021 to be a growth year independent of additional policy support from the new Biden Administration.
Growth in Corporate Renewables Procurement
2020 saw dramatic growth in the area of corporate renewables procurement. Corporations purchased a record 23.7 GW of clean energy in 2020, up from 20.1 GW in 2019 and 13.6 GW in 2018, according to Bloomberg New Energy Finance (BNEF). According to IHS Markit, corporate sector demand for renewables has reached a “tipping point,” fueled by “shareholder and consumer activism, the opportunity to hedge power costs and corporate renewable targets.” According to the Renewable Energy Buyers Alliance (REBA), “companies have a role to play in protecting the planet,” co-founding The Climate Pledge with corporate signatories committing to reaching net zero carbon by 2040, 10 years ahead of the Paris Accord. The increase came in the face of terrific headwinds, including a year wracked by the COVID-19 pandemic, a global recession and political uncertainty ahead of the US presidential election.1 Clean Energy contracts were signed by more than 130 companies in a variety of sectors ranging from oil & gas majors to big tech. Underpinning the market is surging interest in corporate sustainability and access to clean energy on a global scale. The US was once again the largest market, but somewhat less dominant than in previous years with companies announcing 11.9 GW of corporate PPAs in 2020, down from 14.1 GW in 2019. Latin American volumes of corporate PPAs also slipped, but volumes in Europe, Middle East and Africa tripled (from 2.6 GW in 2019 to 7.2 GW in 2020) as well as in Asia (2.9 GW). Taiwan established itself as a major corporate clean energy market and South Korea is expected to be the next major Asian corporate procurement market. In terms of companies, Amazon was the leading buyer of clean energy in 2020, announcing 35 separate clean energy PPAs in 2020 totaling 5.1 GW and 7.5 GW overall. Other corporates include Google (6.6 GW), Facebook (5.9 GW), French oil major Total (3 GW), TSMC (1.2 GW) and Verizon (1 GW). Some 65 new companies joined the RE100 in 2020, pledging to offset 100% of their electricity consumption with clean energy. BNEF estimates that the 285 RE100 members will collectively need to purchase an additional 269 TWh of clean energy in 2030 to meet their RE100 goals, with this shortfall being met almost exclusively with offsite PPAs and thereby catalyzing 93 GW of new incremental solar and wind project construction. According to an October 2020 report by IHS Markit, corporate buyers of renewable energy are expected to drive the development of 44 GW to 72 GW of new wind and solar projects in the US over the next decade. Corporate-driven power purchase agreements (PPAs) could represent 20% of all utility-scale renewable power additions from 2021 to 2030.
Policy Initiatives under the Biden Administration
The renewable energy industry generally views the Biden Administration and the resulting favorable federal policy support positively after a “less than supportive” Trump Administration. Trump Administration policies that adversely affected the renewable energy industry included the tariffs placed on solar cells, modules and racking under Section 201 and 301, which resulted in US prices for such equipment 50% higher than the global average, as well as the end of the Obama-era Clean Power Plan. In December 2020, before taking office, President-Elect Biden published his renewable energy and climate plan entitled “Plan for Clean Energy Revolution and Environmental Justice, and Plan to Build a Modern, Sustainable Infrastructure and an Equitable Clean Energy Future” (the “Biden Climate Plan”). Under the Biden Climate Plan, the newly elected President stated his intention to spend $2 trillion over four years to address climate change, the increased use of clean energy and strengthen infrastructure. Headlining the Biden Climate Plan were the twin pledges to achieve 100% zero-carbon power generation by 2035 and net-zero energy by 2050. Despite the narrow Democratic Party control of the US Senate, the hope and expectation of renewable energy proponents are that much of the Biden Climate Plan can be achieved through the legislative process since renewable energy has historically received bipartisan support. Industry trade associations, such as the American Clean Power Association (ACP) (into which the American Wind Power Association (AWEA) had merged), the American Council on Renewable Energy (ACORE) and the Solar Energy Industry Association (SEIA), all have proposed policy initiatives that called for stronger federal executive and legislative initiatives that track much of the Biden Climate Plan.
Portions of the Biden Climate Plan can be achieved by Executive Order and other executive action, while other elements require congressional approval. The following is a summary of each
Actions requiring no Congressional approval
- Offshore Wind. The Biden goal is to double offshore wind by 2030, which would be aided by encouraging the development of renewable projects on federal lands and waters and expediting approvals of offshore wind projects that had become stalled during the Trump Administration.
- Reversal of Trump’s Regulatory Policies. A number of environmental protections which former-President Trump eliminated through Executive Order are expected to be restored by President Biden through Executive Order, including limiting carbon dioxide emissions from new coal power plants and strengthening efficiency standards for appliances. By first day Executive Order, Biden directed federal agencies to procure carbon free energy and electric vehicles, spur commercialization of clean energy technology, accelerate clean energy generation and transmission and ensure disadvantaged communities get their fair share of economic and environmental benefits. The Biden Climate Plan and response to the climate crisis is centered on foreign policy and national security and attempts to create a “whole-of-government” approach to shifting from fossil fuels to low- or no-carbon energy. The Biden Administration pledged $400 billion towards federal procurement of renewables, batteries and electric vehicles. By way of reference, in fiscal year 2019, the federal government spent $18.37 billion on energy and $4.4 billion on its fleet of 450,000 vehicles. The Biden Administration will seek to encourage the development of microgrids and backup power systems, as well as accelerate clean energy and transmission projects by streamlining federal siting and permitting processes.
- Rejoining into the Paris Climate Accord. Hours after being sworn in, President Biden announced US plans to reenter the Paris Climate Accord, signaling Biden's urgency to address climate change. The US will now be represented at the COP26 conference to be held in November 2021 where the Paris Accord signatories will submit revised plans to achieve the Paris Accord objectives to limit global warming to below 2° Celsius compared to pre-industrial levels.
- Federal Government Procurement. The Biden Climate Plan calls for an increase of $400 billion to federal procurement aimed at increasing procuring “American-made, American sourced” electric vehicles for federal, state, tribal, postal and local government fleets.
- Moving away from Oil & Gas. The Biden Climate Plan calls for the imposition of aggressive methane pollution limits for new and existing oil and gas operations and a ban on new oil and gas permitting on federal lands and waters.
- Tariffs on Solar Panels. In 2018, former-President Trump imposed four-year tariffs on imported solar panels, adversely affecting the US solar industry’s access to foreign manufactured components. Under the original tariff, bifacial modules continued to receive the Section 201 tariff exemption. In October 2020, President Trump issued a proclamation that revoked the bifacial exclusion and increased the four tariffs from 15% to 18%. On November 19, 2020, the US Court of International Trade declined to apply preliminary injunction to the October proclamation on procedural grounds, paving the way for US Customs to collect tariffs on bifacial modules barring a separate injunction. Three-quarters of the solar modules used in the US are from foreign sources. China, which provides direct subsidies to its solar manufacturers, makes a case for more precise tariffs targeted against unfair subsidies. The Solar Foundation, a non-profit, non-partisan organization supporting solar use and technologies, reports that these broader tariffs significantly impacted and slowed the growth of solar installations overall and, since 2019, have resulted in the loss of 35,000 U.S. jobs in solar manufacturing and 162,000 in installation.
- FERC Appointments. On January 21st, President Biden appointed Richard Glick as the new FERC chair. Glick has long experience in the renewable energy industry and as a senior federal government energy policy advisor.
Initiative requiring Congressional Action.
- Renewable Energy Tax Credits. The Biden Administration is expected to propose the renewal, extension or expansion of existing or expired federal renewable energy income tax credits. The Production Tax Credit (PTC) is due to expire for wind projects which commence construction after the end of 2020. The Investment Tax Credit (ITC) supporting solar projects is in a scheduled phase down from its original 30% down to 10% in 2020 (0% for residential solar installations). Industry groups are pushing for converting the ITC into a refundable credit, which would have the effect of fundamentally transforming how solar projects are financed, including eliminating the need for tax equity. In addition, battery storage systems and storage technology are essential components of Biden’s energy policy. Currently, stand-alone battery storage systems are not entitled to the ITC and must be installed at the same time as its companion solar system. Given that over 2 million PV solar installations already exist in the US, extension of the ITC to include battery storage retrofits as well as stand-alone battery installations would greatly benefit battery storage deployments.
- Tax Incentives for Businesses. The Biden Climate Plan calls for supporting upgrades to equipment and processes, investments in expanded or new factories and the deployment of low-carbon technologies. Tax incentives for carbon capture, use and storage (CCUS) are expected to be broadened.
- Tax Incentives for Individuals. The Biden Administration is expected to restore the full electric vehicle tax credit for individuals.
- Carbon Pricing. The Biden Climate Plan calls for enforcement mechanisms to be established to curb greenhouse gas (GHGs) emissions. The Plan is not specific as to the preferred mechanism, but President Biden had previously stated that he did not favor a carbon tax.
According to the American Clean Power Association2, total operating wind capacity in the U.S. reached 122,468 MW (or 1.22 GW) in nameplate capacity as of the end of Q4 2020, with another 34.7 GW3 of wind projects in near-term advanced development. Total US operating wind capacity comes from over 60,000 wind turbines across 41 states and two U.S. territories and a combined output sufficient to supply 32 million homes in the U.S. and to avoid approximately 240 million tons of carbon dioxide emissions annually.4 2020 broke the record for wind capacity additions. The US wind industry installed 10.59 GW of new wind energy capacity in Q4 2020, the highest quarter on record.5 2020 was the wind industry’s banner year with 16.91 GW commissioned, representing an 85% increase over 2019. In Q4 2020, 54 new projects across 20 states were commissioned. Texas had the most capacity installed in the quarter with 2,197 MW installed, followed by Wyoming (895 MW), Oklahoma (866 MW), Iowa (861 MW) and Missouri (786 MW). For the full year 2020, the wind industry added 90 projects across 26 states totaling 16.91 GW with Texas leading installations for the year (4,235 MW), followed by Iowa (1,498 MW) and Wyoming (1,123 MW). The pipeline of projects under construction or in advanced stages of development grew by a record 34.75 GW in Q4 2020, including 17.3 MW of projects under construction and 17.4 MW of projects in advanced development.6
Three companies added more than 5.54 GW in 2020: The biggest players in the market in 2020 were NextEra, Xcel and Berkshire Hathaway, with NextEra leading the pack with 13 newly commissioned wind projects representing 2,898 MW in capacity. Xcel placed in service five projects in 2020, including New Mexico’s largest wind farm to date, the 522 MW Sagamore Wind project and the second largest single-phase wind project, Cheyenne Ridge (496 MW). Berkshire Hathaway brought nine projects online in 2020, eight of which came online in the fourth quarter of 2020 with a combined capacity of 1,162 MW. In addition to the top three, the top ten owners in 2020, which include Engie (1,108 MW), RWE Renewables (720 MW), Alliant Energy (684 MW), Orsted Wind (678 MW), Liberty Power (597 MW), Global Infrastructure Partners (569 MW) and ALLETE (513 MW), represent 62% of the total wind power brought online in 2020. According to the Energy Information Administration, the share of total U.S. generation from wind increased from 7% in 2018 to 9% in 2020. The Department of Energy forecasts that by 2050 total wind capacity in the country will exceed 400 GW.7
Increasingly, offshore wind is being viewed as a key component to leading the world to a more balanced mix of conventional and renewable generation sources. According to the Department of Energy’s National Offshore Wind Strategy Report, the US has an offshore wind power potential of more than 4,000 GW or more than four times the entire current generating capacity of the US,8 offshore wind has the potential to generate more than 2,000 GW of capacity per year, nearly double the U.S. current electricity use.9 In 2018, the American Wind Energy Association announced 2 GW of new offshore wind projects in the US. By 2019, offshore wind had seen a tenfold increase to 26 GW of planned projects, indicating that offshore wind may be at a tipping point. At present, the U.S. has only one operating offshore wind farm, but that is about to change dramatically. In 2016, only three wind turbines off Block Island, Rhode Island produced 30 MW powering electricity to the small island community. Through legislation, goals or executive orders, states are establishing offshore wind procurement targets that range from 21.4 GW to 23.7 GW by 2030. According to AWEA, more than half of those targets—12.3 GW—were set or increased in 2019. Offshore wind energy developers are increasingly seeking out leases from the US Department of the Interior’s Bureau of Ocean Energy Management (BOEM), the federal agency that assesses, identifies and leases areas for development in federal waters.10 BOEM has awarded 13 commercial wind energy leases in federal waters off the Atlantic Coast and recently announced two more areas off the coast of Massachusetts. States along the Eastern Seaboard, from Maine to Virginia, are planning major offshore wind projects. Today, more than 10,000 MW of projects are in various stages of development along the Eastern Seaboard. Avangrid, in a joint venture with Copenhagen Infrastructure Partners, owns the Vineyard Wind Project, located 15 miles south of Martha’s Vineyard off the coast of Cape Cod, Massachusetts.11 Although not as far along in development, offshore wind power is receiving significant interest on the West Coast, particularly Oregon and California. The U.S. is about to join Northern Europe, which has a total installed capacity of nearly 18.5 GW of offshore wind, in terms of growth engendered by technological innovation and lowering costs.12 2019 represented the year in which offshore wind has finally taken off as a result of technological improvements and falling costs, but challenges persist.13
Wind power, which currently produces about 9% of U.S. electricity, is expected to produce from one-quarter to one-third of the world’s electricity by 2050. Such dramatic growth presents several grand challenges, including the need for an improved understanding of atmospheric and wind power plant flow physics, according to the National Renewable Energy Laboratory (NREL).14 The wind industry continues to deal with other inherent challenges, including blade design, locational issues and the availability of land, grid connection, impacts on the environment, including wildlife, noise, and visual impacts, high cost of investment capital, limited investment channels, various regulatory, policy and social barriers, shortage of skilled professionals, and high operating and maintenance costs. Other challenges include dealing with the constraints on transportation that come from wind turbines of ever-increasing size and dealing with their recyclability,15 as well as structural integrity issues.16 Grid operators will need to find ways to deal with wind’s variability in order to integrate such a large volume of a variable resource.17 Finally, climate change, and the potential shifts in wind resources as a result, is a confounding and ultimately unknown problem that has the potential to impact cost-effectiveness and productivity of wind farms.18
Wind power is an important element in the global energy transition and has proven itself as a main source of new power capacity over the past half-decade. In addition, investors are increasingly betting on “green assets,” with the global sustainable debt market increasing from $5 billion in 2012 to over $247 billion in 2018.19 Industry observers believe that wind power could supply up to 34% of global electric power demand in 2040, up from 4% today. Such power generation would be equivalent to 14,000 TWh, or the total power generation of China, Europe and the U.S today.20
According to the Solar Energy Industries Association (SEIA)/ Wood Mackenzie Power & Renewables U.S. Solar Market Insight Report, dated December 15, 2020, in Q3 2020 the U.S. solar market installed 3.8 GWdc of solar photovoltaic (PV), a 9% increase from Q2 2020 as the industry experienced a recovery from the COVID-19 pandemic. Residential solar installations totaling 738 MW installed in Q3 were up 14% from Q2 to Q3 after shelter-in-place orders during the spring caused the largest quarterly decline in history in Q2. Non-residential installations (commercial, government, non-profit and community solar) totaling 429 MW were up 8% from Q2 but were still down 13% from Q3 2019. The lifting of pandemic-related restrictions helped accelerate project completions, but such restrictions complicated and delayed development timelines overall. There were 2.7 GWdc of utility-scale projects installed in Q3 2020, representing 70% of all solar capacity brought online in 2020. Utility solar has been only minimally impacted by COVID-19 related construction delays. Wood Mackenzie forecasts 43% year-over-year growth in 2020, with more than 19 GWdc of installations expected by year end 2020. A total of 9.5 GWdc of new utility PV power purchase agreements were announced in Q3 2020, bringing the contracted pipeline to a record 69 GWdc. As quarterly volumes demonstrate, more resilience to pandemic impacts than originally anticipated with a faster than expected recovery for distributed solar resulted in WoodMac increasing its outlook since its prior quarterly report. Despite setbacks from the pandemic, a record 11 GW of new solar capacity was installed in 2020 through Q3, positioning 2020 as the third-largest year ever. Solar accounted for 43% of all new electrical generation capacity added in the US through Q3 2020, beating out all other generation technologies. The three highest ranking states in terms of solar photovoltaic installations in the period of Q1–Q3 2020 are Texas (2,401 MW), Florida (2,040 MW), and California (1,808 MW).
The energy storage industry has passed rapidly from an initial pilot/pioneer stage, to a period of increased procurement for evaluation and now finally to a stage of widespread adoption driven in large part by the participation of utilities. In short order, battery storage has been reconceptualized from its role and use for niche applications—frequency response, remote and island projects, and emergency deployments—to something more approaching a mainstay in utility resource planning. In December 2017, there was only about 798 MW of large-scale battery storage operational in the U.S., most of which was operated by ISOs and RTOs, organizations responsible for balancing the power grid.21 The transformation in thinking by utilities has been dramatic. According to Wood Mackenzie Power & Renewables, in 2017, almost none of the 43 utilities surveyed by them expected to adopt any energy storage, suggesting that storage would not play a meaningful role in grid modernization during the 2020s.22 In 2018, six utilities made plans for some battery procurement. However, according to Wood Mackenzie, in 2019, everything changed, with 10 utilities planning to install storage in their integrated resource plans calling for five times the storage capacity than in their prior year’s plans. According to the U.S. Energy Storage Monitor, a joint publication of WoodMac and the US Energy Storage Association (USESM), published in March 2021, US deployments of grid-connected front-of-the meter (FTM)23 battery systems set a new quarterly record in Q4 220 of 651.1 MW, an increase of 37% from Q3 2020 and almost 3.5X compared to Q4 2019. The FTM segment’s surge is primarily coming from two projects totaling 400MW in California installed as four-hour capacity resources. As an indication as to just how dramatic this recent spike is, FTM installation in Q4 2020 is higher than the total installations across all segments in any other quarter over the past seven years. The residential segment saw its best quarter to date by a large amount in Q4 2020, setting yet another record quarter. Residential deployments climbed steadily quarter by quarter in 2020 and then shot up in Q4, beating Q3 numbers by 73%. The non-residential market segment grew slightly in Q4, up 13% in MW from Q3. The growth of battery storage in terms of MWh is even more remarkable, with the US market having deployed 2,156 MWh in Q4 2020. As the WoodMac/USESM report concludes quarterly MWh deployment totals in Q4 2020 “dwarf the scale of previous quarters, revealing exponential growth.” The top energy storage states for the full year in 2020 for FTM are: California (2,372 MWh), Texas (116 MWh) and New Jersey (42 MWh). California also leads in the residential and non-residential market segments. The Report forecasts that annual US energy storage deployments are set to grow 1.5 GW in 2020 to 7.8 GW annually in 2025, a fivefold increase, and representing a $7.6 billion annual market.
Storage and battery solutions are expected to propel rapid electrification of the transport, building and manufacturing sectors, allowing for the smooth integration of variable renewable resources and providing financial flexibility. According to DNV GL AS’s 2019 Energy Transition Outlook, the combination of storage for grid and storage available in vehicle-to-grid systems will exceed 40 TWh in 2050.24 Storage technologies increase the reliability of renewable generation smoothing out the variability of solar and wind resources. At the same time, storage and battery systems provide ancillary and support services to the power grid. In addition, they provide key components to an increasingly electric transportation sector (electric vehicles) and increase the opportunities and options for demand-side response and flexible rate regimes.
Advances in battery technology continue to accelerate. Lithium-based chemistries predominate, although flow batteries are demonstrating themselves for important applications. Energy densities are increasing, raw resource use and cell weights are decreasing, and battery lives are lengthening at increasingly dramatic rates. Storage costs have declined driven by increased and more efficient production. In the past decade, costs of energy storage, together with costs of solar and wind energy, have decreased dramatically. A Greentech Media Research report estimated that energy storage systems will fall 8% annually through 2022, largely due to the falling prices of lithium-ion batteries.25
The “rise of battery peaker power plants,” i.e., battery projects capable of supplying two to six hours of stored electricity to thousands of homes during periods of peak demand, have entered into a period of accelerated growth focused in the Southwest. Garrett Hering writing for S&P Market Intelligence in a February 25, 2021 article, points to two large battery storage facilities totally 400MW adjacent to Vistra Corp’s Moss Landing combined cycle natural gas power plant in Monterey Bay, California, Florida Power & Light Co’s 400MW Manatee Energy Storage Center, as well as NextEra’s plans to build dozens of similar plants nationwide as “forerunners of a new era in the power sector.” According to Hering, much of that growth is happening in Texas and California, where the recent severe weather events have highlighted the need to bolster the reliability of power systems. According to S&P Global Market intelligence data, over the next three years, utilities and developers plan more than 15,000 MW of energy storage additions that fit the battery peaker profile. According to IHS Markit, the US will add over 5,000 MW of energy storage in 2021, triple the 2020 additions and representing half of the global energy storage market. The potential for battery peakers could eventually exceed 100,000 MW in the US according to the National Renewable Energy Lab.
The Falling Costs of Renewables
The explosive growth of renewables, including wind, solar and batteries, has been driven in principal part by the rapid decline in the cost of equipment and construction costs.
According to the U.S. Energy Information Administration (EIA), the average U.S. construction costs for solar and wind generation had fallen dramatically for the period from 2013 to 2018.26 According to 2018 data from the EIA for newly constructed utility scale electric generators in the US, annual capacity-weighted average construction costs for solar PV systems and onshore wind turbines had continued to decrease, Natural gas generator costs also decreased but not as dramatically. From 2013 to 2018, costs for solar fell 50% (from over $3,600 per kW to $1,848 per kW), costs for onshore wind fell 27% (from nearly $1,900 per kW to $1,382 per kW) and costs for natural gas generation fell 13% (from just under 1,000 per kW to $837 per kW). Together, these three technologies accounted for more than 98% of total capacity additions in the US in 2018. The EIA found that the average construction cost for solar PV generation in 2018 was higher than onshore wind and natural gas on a dollar-per-kilowatt basis, although the gap was narrowing as the cost of solar was falling rapidly. Total US onshore wind capacity additions increased 18% from 2017 to 2018 as the average construction cost for wind turbines dropped 16% to $1,382 per kW. Compared with other generation technologies, natural gas generation received the highest US investment in 2018, accounting for 46% of total capacity additions for all energy sources.
More recent data shows that the cost of solar and wind power continue to fall, making them even more competitive in electrical generation as compared to fossil fuel generation. NREL data shows that the following declines in installed costs for various segments of the solar PV market for the period 2010 to 2020: residential solar ($7.53 to $2.71/kW), commercial (C&I) rooftop ($5.57 to $1.72/kW), utility-scale fixed tilt ($4.75 to 0.94/kW) and utility-scale one-axis tracker ($5.66 to 1.01/kW).27 According to an analysis by Bloomberg New Energy Finance (BNEF) in April 2020,28 solar PV and onshore wind had become the cheapest sources of new-build generation for at least two-thirds of the global population. On a levelized cost of electricity (LCOE) benchmark,29 the LCOE for onshore wind and utility-scale solar had fallen 9% (to $44/MWh) and 4% (to $50/MWh), respectively, since the second half of 2019. BNEF reported that the LCOE for battery storage fell to $150/MWh, half of the cost from two years prior. The conclusion from the BNEF data is that solar PV and onshore wind were at the time of publication the cheapest sources of new-build generation for more than two-thirds of the global population, representing locations that comprised 71% of the global gross domestic product and 85% of energy generation.
The effects of falling capital costs for renewable generation on current and forecasted capex spending is clear. According to IHS Markit,30 global capex spending on renewables is expected to rise 8.5% to $255 billion and to remain at those levels through 2025. The cumulative 2021-2025 renewable capex spend of $1.3 trillion represents a 9% increase over cumulative capex in the 2015 to 2019 period. IHS Markit was quick to point out that sharply declining capital costs across renewable technologies meant that just a 9% increase in spending will be associated with a 45% increase in cumulative gross renewable capacity additions in 2021 to 2025 compared to 2015 to 2019. IHS Markit forecasts that the global benchmark cost for solar PV, both utility-scale and distributed generation, in 2025 would be about 40% below 2017 levels, while the capital costs for onshore and offshore wind in 2025 would be 20% and 15% below 2017 levels. The net effect of these cost decreases is that overall growth in renewable energy capacity additions is expected to push global combined wind and solar installed capacity beyond that of global installed natural gas-fired generation in 2023 and installed coal-fired capacity in 2024. In terms of global electricity generation, renewables will rise from 18% in 2025 up from11% in 2019.
1BNEF, “Corporate Clean Energy Buying Grew 18% in 2020, Despite Mountain of Adversity” (Jan. 26, 2021).
2The American Wind Energy Association (AWEA), a national trade organization for the US wind industry, has merged into The American Clean Power Association (ACP). https://cleanpower.org/
3The near-term US wind development pipeline as of December 31, 2020 represents 1.73 GW under construction and 17.4 in advanced development.
4The wind industry in the US supports over 114,000 jobs, sustains 500 factories and results in over $1 billion in lease payments annually to landowners. Technological innovation has cut the cost of wind energy by 69% in the last decade alone.
5Wind capacity installations in Q4 2020 were up 94% in the fourth quarter of 2020 compared to the same quarter in 2019. More wind power was installed in Q4 2020 than in any year except for 2012.
6According to ACP, there are currently 10 states with over 10,000 MW in the near-term pipeline. Federal offshore waters represent 26% of the total development pipeline, followed by Texas (13%), Wyoming (10%), Oklahoma (7%) and Kansas (6%).
7US EIA, Annual Energy Outlook 2020 (with projections to 2050).
8US Dept. of Energy, National Offshore Wind Strategy: Facilitating the Development of the Offshore Wind Industry in the United States.
9B. Woods, “US has only one offshore wind energy farm, but a $70 billion market is on the way,” CNBC (Dec. 13, 2019). (“Woods”) The author points out that just 1% of such amount has the potential to power nearly 6.5 million homes.
10M. Bates, “Offshore Wind Power: Present Challenges and Future Realities,” North American Windpower (July 7, 2020).
11Once complete, the Vineyard Wind Project will deliver 800 MW or enough to power 400,000 homes.
12Woods; The author quotes Thomas Bostrom, US CEO of Orsted, a Danish offshore wind company, that costs for offshore wind have been reduced by 17% in the US since 2014. For a list of currently operational and proposed offshore wind projects, see, “List of offshore wind farms in the United States,” Wikipedia at https://en.wikipedia.org/wiki/List_of_offshore_wind_farms_in_the_United_States.
13M. Singh & S.M. Koshy, “Powerful winds of change: Offshore wind power has taken off but challenges persist,” DownToEarth (Nov. 12, 2019).
14K. Kowalski, “NREL engineer on the ‘grand challenges’ of supersizing wind power on the grid,” Energy News Network (Oct. 18, 2019) (“Kowalski”) at https://energynews.us/2019/10/18/west/nrel-engineer-on-the-grand-challenges-of-supersizing-wind-power-on-the-grid/.
15C. Stella, “Unfurling the Waste Problem Caused by Wind Energy,” National Public Radio (Sept. 10, 2019) at https://www.npr.org/2019/09/10/759376113/unfurling-the-waste-problem-caused-by-wind-energy.
16Kowalski. The author reports that these larger wind turbines need to be “as strong as an aircraft and last 10 times as long and [are] 10 times cheaper.”
19“The socioeconomic impacts of wind energy in the context of the energy transition,” KPMG Study conducted on behalf of Siemens Gamesa (October 2019) at
21Fact Sheet: Energy Storage (2019) (Feb. 22, 2019), Environmental and Energy Study Institute (“EESI 2019 Energy Storage Fact Sheet”), at https://www.eesi.org/papers/view/energy-storage-2019. PJM, a RTO located in 13 eastern states, including Pennsylvania, West Virginia, Ohio and Illinois, had the largest amount of utility-scale battery storage (278 MW) by the end of 2017, followed by California’s ISO (CAISO) with 130 MW. Id.
22J. Spector, “2019 Was the Year Everything Changed for Utilities and Energy Storage,” GreenTech Media (“GTM”) (Jan. 24, 2020) at https://www.greentechmedia.com/articles/read/as-time-goes-on-utilities-want-loads-more-energy-storage.
23The market for battery storage systems are differentiated between “in-front of the meter” (FTM) or “behind-the-meter” (BTM). FTM batteries are interconnected to distribution or transmission networks or in connection with a generation asset. FTM batteries provide applications required by system operators, such as ancillary services or network load relief. BTM batteries are connected behind the utility meter of commercial, industrial or residential customers, primarily aiming at electricity bill savings. The size of a BTM battery can typically vary from 3 kilowatts (kW) to 5 megawatts (MW).
24DNV-GL, “2019 Battery Performance Scorecard (December 2019).”
25EESI 2019 Energy Storage Fact Sheet.
26EIA, Today in Energy (Sept. 16, 2020).
27NREL, “Solar Installed System Cost Analysis” Solar Installed System Cost Analysis | Solar Research | NREL
28As reported in Forbes “Solar and Wind Costs Continue to Fall As Power Becomes Cheaper and Cleaner” (April 30, 2020).
29LCOE reflects the cost to build and operate a power plant per unit of generation, annualized over a cost-recovery period.
30IHS Markit, “IHS Markit reports renewable industry will recover in 2021” (December 28, 2020).
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm of approximately 700 lawyers practicing throughout a network of 12 offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology, and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.