US Solar Soars in 2023, Leading Record-Breaking Renewables Growth
The U.S. smashed solar installation records in 2023, adding a whopping 31 gigawatts (GW) of capacity – a 55% jump from 2022. This surge, despite supply chain challenges, solidified solar as the fastest-growing power source, accounting for half of all new utility-scale generation in the first three quarters of the year. With this growth, the total installed solar capacity in the U.S. now reaches 161 GW, enough to power roughly 5% of the nation's electricity according to the Solar Energy Industries Association. Battery storage followed suit, experiencing significant growth in 2023 with installations surpassing all of 2022 within the first three quarters. This trend is expected to continue, with projections indicating a doubling of storage capacity by 2024.
Wind power saw more moderate growth in 2023, adding around 8 GW of capacity, falling short of 2022 installations. However, total installed wind capacity reached 147 GW by Q3, contributing roughly 11% of the nation's electricity generation. Forecasts predict an increase in wind projects this year, with an estimated 17 GW of new capacity expected in 2024. Combined, renewables and energy storage dominated new utility-scale generation, accounting for over 75% of the total added capacity (see graphic). Notably, renewables, including large hydropower, provided approximately 25% of the electricity generated in the U.S. during the first half of 2023.
Electric Vehicles Hit Record Sales in 2023 Despite Growth Slowdown
Electric vehicles (EVs) defied headlines of a slowdown, setting a new sales record in 2023 with a staggering 1.2 million units sold. This represents a significant jump from 2022, capturing 7.6% of the total U.S. auto market share compared to 5.9% previously. Momentum remained strong throughout the year, culminating in a record-breaking fourth quarter. Over 317,000 EVs found new owners, representing a remarkable 8.1% share of all vehicles sold in that period. Notably, this reflects a 40% increase in sales compared to Q4 2022.
While the growth rate may have shown some moderation, news outlets reporting a slowdown miss the bigger picture: EV sales are still experiencing significant growth and reaching unprecedented levels. Meanwhile, progress continues on building crucial EV charging infrastructure with the backing of a $7.5 billion investment allocated by the Bipartisan Infrastructure Law. The National Electric Vehicle Infrastructure (NEVI) program, a key component of the law, is designed to support the development of new charging corridors and fast-charging stations across the country. The program saw its first installations completed in Ohio in late 2023, with additional stations planned to open in New York, Pennsylvania, Vermont, and Maine in the coming months.
Slow Progress on Grid Upgrades, But Clean Energy Manufacturing Booms
While the clean energy transition hinges on a robust and upgraded grid, progress on transmission and grid improvements remains slow. Despite the need for significant expansion, 2023 saw continued activity, with federal agencies taking several steps:
Congress: Actively debated permitting and policy reforms to expedite grid modernization.
FERC: Continued action on proposed rules reforming planning processes and finalized an interconnection rule for faster grid access.
DOE: Implemented provisions from the Bipartisan Infrastructure Law and Inflation Reduction Act, designating key transmission lines for faster federal approval and launching incentive programs.
Although ten transmission lines initiated years ago have begun construction (potentially adding 20GW of new generation), they still face challenges. Additionally, 26 high-capacity projects are underway nationwide, but their completion hinges on uncertain policy reforms. However, the U.S. is experiencing a boom in planned domestic clean energy manufacturing. The Inflation Reduction Act has sparked a surge in new facilities, reversing years of declining investment. As of early 2024, American Clean Power reports a staggering $421 billion in planned investments across 113 new or expanded facilities for domestic, utility-scale clean energy production.
Clean Energy Hurdles: Supply Chain Struggles and Policy Uncertainty
Despite significant progress in clean energy development, several headwinds are dampening deployment rates. These include:
Supply Chain Snags: Global supply chain issues continue to plague renewable energy projects, causing delays and hindering growth. Shortages of transformers, crucial for connecting clean energy to the grid, are a major bottleneck. Delivery times have ballooned from 50 to 150 weeks, significantly impacting project timelines.
Financial Challenges: Rising interest rates and other financial hurdles add to the development complexities.
Transmission Lag: Slow progress on grid upgrades further restricts the ability to integrate new clean energy sources effectively.
While solar supply chain disruptions eased somewhat in 2023, with falling module prices allowing some delayed projects to proceed, a new challenge loom. The expiration of President Biden's solar tariff pause in June 2024 could significantly increase the cost of imported solar modules. Adding to the uncertainty, the Commerce Department's recent decision imposes trade duties on modules using Chinese materials from Southeast Asia, a source of the majority of U.S. solar imports. These policy shifts could further complicate future clean energy development.
Rising Interest Rates Cast Shadow on Clean Energy Deals
The Federal Reserve's recent interest rate hikes have thrown a wrench into the clean energy sector. These increases significantly raised borrowing costs, disproportionately impacting clean energy projects that rely heavily on upfront capital investment. Unlike traditional sources of power generation fueled by volatile fuel prices, clean energy benefits from low operational costs and long-term price stability. The combination of higher project costs, persistent supply chain issues, and rising interest rates has had a chilling effect on renewable energy deals. Power purchase agreements (PPAs), which are long-term contracts between energy producers and buyers like major corporations, have been particularly affected.
Large companies like Amazon, Meta, and Google, previously major drivers of clean energy adoption through corporate PPAs, are reevaluating their strategies in response to price increases and renegotiations. Corporate clean energy purchases in the first half of 2023 plummeted to 6GW compared to nearly 17GW for all of 2022. By the third quarter of 2023, solar PPA prices had soared 21% year-over-year, with wind PPA prices following closely at 16% higher. Overall blended PPA prices rose by 18%. While some signs of price stabilization emerged in the latter half of 2023, costs remain significantly higher than pre-rate hike levels.
Financial Strains Hit Clean Energy Sector, Offshore Wind Faces Uphill Battle
Financial pressures are taking a toll on some clean energy companies, leading to stock price declines. This is particularly evident in the offshore wind sector, which has faced significant challenges in 2023. Rising costs and supply chain disruptions have forced companies to delay or cancel projects representing nearly half of the planned U.S. offshore wind pipeline. While the New York South Fork project, poised to become the nation's largest upon completion (132 MW), achieved initial operation in 2023, other regions are experiencing setbacks. Developers have cancelled 5.5 GW of offshore wind contracts in New Jersey, Connecticut, and Massachusetts, with renegotiations underway for another 6.5 GW. As a result of these challenges, Bloomberg New Energy Finance (BNEF) has revised its estimates for U.S. offshore wind capacity by 2030. BNEF now predicts only 14.5 GW of offshore wind will be operational, falling short of the Biden administration's ambitious goal of 30 GW.
Transmission Bottleneck: Slow Progress Threatens Clean Energy Goals
The buildout of the U.S. transmission system, crucial for integrating clean energy sources, is lagging far behind what's needed. This is especially concerning for interregional transmission lines, which face significant hurdles in crossing state borders.
Several factors are contributing to the slowdown:
Approval Delays: Gaining permits from multiple states for interregional projects is a complex and time-consuming process.
Cost Allocation Challenges: Determining how to fairly distribute the costs of these projects among beneficiaries in different states presents another obstacle.
Planning Shortcomings: Existing planning processes lack the capacity to adequately assess the benefits of interregional transmission.
These delays have a major impact. The 36 major transmission projects currently proposed for near-term construction represent only a fraction (around 10%) of the total investment required nationwide. Further compounding the issue is the lengthy construction timeline for new power lines, often exceeding 10 years. While technologies exist to increase the capacity of existing lines more rapidly, they cannot fully address the current shortfall. Several analysts estimate that U.S. transmission capacity needs to double or even triple to meet future grid demands and support President Biden's ambitious 2035 clean energy goals. For interregional transfer specifically, estimates suggest the need for a fourfold increase in capacity.
Key Questions About the Future of US Clean Energy Development
1. Matching Electricity Demand with Clean Energy Generation
Rising demand from data centers, AI, crypto mining, manufacturing, and EVs challenges the ability to generate sufficient clean energy. Grid planners have nearly doubled forecasts for electricity demand growth in the next five years. Managing this growth is crucial for a clean energy transition, requiring collaboration between regulators, utilities, large energy users, and grid operators.
2. Stringency of Federal Emissions Regulations
Federal agencies are crafting regulations to reduce emissions from fossil fuel power plants. The EPA's proposal faces pushback due to concerns about reliability and technology availability. The Treasury Department's proposed guidance on clean hydrogen production tax credits is critical for promoting clean production methods. The Supreme Court's potential overturning of the Chevron doctrine could weaken regulatory power for emissions reduction.
3. Impact of New Funding and Tax Credits:
The Inflation Reduction Act's $27 billion Greenhouse Gas Reduction Fund is expected to mobilize clean energy projects in 2024. The timing and pace of disbursement, along with potential interest rate cuts, will influence the level of investment boost. New tax credits incentivize clean energy projects, but final guidance from the administration is awaited. Learning curves exist for implementing new funding and financing mechanisms (e.g., "direct pay" provision).
4. Progress on Transmission Reforms for New Lines:
Congressional action on permitting reform is uncertain, but other initiatives aim to advance regional transmission. FERC finalizing a strong transmission planning rule is crucial for streamlining the process. Initiatives under the Inflation Reduction Act and Bipartisan Infrastructure Law could stimulate transmission investment and upgrades. DOE's designation of National Interest Electric Transmission Corridors (NIETCs) can unlock federal financing and expedite permits.
5. Effectiveness of Interconnection Queue Reforms:
Backlogs in project interconnection approvals are a major barrier to clean energy growth. FERC's Order No. 2023 aims to improve wait times with a "first-ready, first-served" approach.
The effectiveness of these reforms and the need for further measures remain to be determined.
