Beyond conventional power: Green energy picks up across the US

18 Jun 2018

The delayed adoption of renewable energy could be an unexpected benefit for the US as the sector prepares for significant expansion.

Over the past five years, renewable power generation in the US has grown by 32% and now constitutes over 17 per cent of the market. By comparison, wind1 and solar alone have nearly doubled in the US in the same time period.

While this is still well below countries such as Spain and Germany, where renewable energy accounts for up to one-third of consumption, the US has avoided the high costs associated with renewable energy in the early years of its development.

Already ranked second to China with 229.91 gigawatts of installed renewable energy capacity, the US is now set to capitalise on falling production costs and increase its renewables exposure.

Chris Archer, Head of Green Energy, Americas, at Macquarie Capital says while there are opportunities for growth, industry participants need to be aware of the market dynamics.

“There is no one market for renewables in the US," Archer says. “There are significant differences from region to region depending on climate, geography, demographics, grid capacity and regulatory policies, creating separate markets with distinct characteristics.

"To explore the US opportunity effectively, market participants and investors need to understand how regional differences affect renewables strategies."

Archer sees three key opportunities in the US renewables market:

Solar power

A relatively cheap renewable energy source, utility-scale costs in the US have dropped from $US4.57 per watt in 2010 to $US1.03 in 2017, while residential photo-voltaic costs dropped from $US7.24 to $US2.80 per watt over the same period.

As improving technologies and economies of scale drive costs lower, Macquarie is working with companies to identify potential solar sites, purchase needed land, evaluate the best available technology and develop appropriate capital structures.

"In some regions, we are at the point where solar power makes economic sense without subsidy. Just as we saw with cell phones as costs fell in the 1990s, what was once a niche product is now going mainstream and is poised for exponential growth," says Archer.

Offshore wind power

Offshore wind facilities are an attractive option for major metropolitan centres, which are typically located near coastal areas.

The shallow Northeastern coastal seabed is suitable for offshore wind farms, potentially serving areas of high population density such as New York and New England and easing pressure on the Northeastern grid, which is stretched to near-capacity.

In some regions, we are at the point where solar power makes economic sense without subsidy. Just as we saw with cell phones as costs fell in the 1990s, what was once a niche product is now going mainstream and is poised for exponential growth.

In addition, the ability for offshore wind to connect directly into load centres such as New York City reduces the requirement for additional transmission infrastructure.

Late afternoon thermal wind patterns make offshore wind an option for California but local political, environmental and regulatory considerations make this unlikely until floating offshore wind technology becomes more readily available.

In the meantime, Californians are installing residential solar facilities to help offset some of the nation's highest utility bills.

Recently, California became the first state to require solar power installations in all new homes, with the law to take effect in two years.

Waste to energy

Waste to energy technology can help diversify energy sources and address the increasingly difficult issue of waste management.

New approaches to waste reduction, waste incineration and high-tech composting of agricultural waste will help governments lower costs and mitigate environmental problems, while creating new revenue sources.

The US Department of Energy estimates that burning municipal garbage can reduce waste volumes by about 87 per cent and decrease the release of methane into the atmosphere, a greenhouse gas that is 20 times more potent than carbon dioxide.

Challenges remain but mainstream adoption on the horizon

Archer concedes some obstacles to renewable energy remain, particularly the difficulty of storing energy that's generated.

“The US has been blessed with abundant renewable energy sources and low power generation costs," Archer says, "but the ability to store renewable generation efficiently and at scale will be critical to enabling renewable energy penetration rates to continue to grow."

He expects greater interest in the US renewables sector as policy and environmental concerns dovetail with new technologies and lower costs to make solar, wind and waste increasingly attractive alternatives to fossil fuels.

“There is a compelling long-term case for the continued development of renewable energy, especially as falling technology costs make it more cost-competitive with other energy sources," he says.

"This has created a major opportunity for participants with the expertise and flexibility to adapt to varying regional conditions and requirements."

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1. BNEF Future of Energy Summit, April 2018.

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