SNW Impact Insight: Renewable Energy Growth Faces a Possible Headwind

Friday, April 22nd, marked the 46th time that Earth Day was commemorated in the United States. It also marked the day on which 175 countries signed the Paris Agreement at the United Nations. The Paris Agreement, also known as COP21, was adopted in December 2015, and is one of the most comprehensive and far-reaching treaties related to climate change in history. The signatories to the agreement have each consented to significant reductions in greenhouse gas emissions as well as other required actions to attempt to mitigate, and perhaps reverse, the long-term impact of anthropogenic activities on this planet's climate. These commitments depend on a combination of GHG reduction strategies, including an increased emphasis on renewable energy.

Renewable energy use continues to grow at a strong pace in the United States, with 16 gigawatts of clean energy production being installed in 2015, representing 68% of all new capacity. Of this increase, 8.5 gigawatts were the result of new wind farms coming online. In contrast, 14 gigawatts of capacity from coal powered plants were taken offline over the same period. Meanwhile, MidAmerican Energy, a subsidiary of Berkshire Hathaway, announced recently that it plans to invest $3.6 billion in the installation of another 2 gigawatts of wind energy production in Iowa. This would boost Iowa's sourcing of power from wind generation from 31% to over 40% of total power generation, continuing their leadership in renewable energy production.

Source:  U.S. Energy Information Administration, Monthly Energy Review (April 2016)

These developments are unfolding before the backdrop of both the U.S. Supreme Court's recent stay of the implementation of the U.S. EPA's Clean Power Plan (CPP) until a full review has been completed and the extension by Congress of the federal Investment Tax Credit (ITC) for solar power and the federal Production Tax Credit (PTC) for wind generation. The latter actions indicate that the current trend of increased renewable energy production installation will continue at least through 2020, although the pace beyond that is still unclear. That lack of clarity is the direct result of the uncertainty created by the Supreme Court's action on CPP.

Currently, state governments are reacting in very different ways to the stay of implementation of the CPP. The CPP seeks to cut pollution from the power sector by 32% by 2030 and spur investment in clean energy. The seventeen states that have come out in support of the CPP announced that they will continue to work on CPP compliance. This group includes states such as California, Washington, Oregon, Massachusetts and Iowa. The majority of the 27 states in opposition to the CPP are continuing on their current policy paths, with most taking no action at all. However, some opposition states, such as Wyoming and Colorado, have announced they will continue to work on compliance while the issue is being decided.

These two conflicting paths, increased power production from renewable sources and the opposition to the Clean Power Plan by state and local governments, have a direct impact on the commitments made by the U.S. under the Paris Agreement. The GHG reductions outlined in the CPP are a core component of the United States’ commitment to address climate change, and failure to make these reductions will almost guarantee that the stated goals are not met. The longer there remains uncertainty regarding the long term demand for renewable energy, the greater the chance of a slowdown in new capacity installation. Such a slowdown would also lead to problems for the U.S. in achieving the goals outlined in the Paris accord. There is currently no timetable for the completion of the review of the CPP, although no concrete actions by the court are expected until at least the end of 2016.

Source: U.S. EIA