The Growing Opportunity for U.S. Renewables

January 23, 2017- According to a recent Credit Suisse research report, there is great opportunity in the U.S. for renewables to gain more market share thanks to the noteworthy drop in wind and solar costs. This decrease could give renewables a chance to be more cost-competitive with conventional power generation sources.

As the economics of renewables is vastly improving, there is justification for the case for using more. Wind utilization rates have increased by 15 to 20 percentage points. New wind energy machines yield 50 to 55 percent utilization rates thanks to improvements in turbine design, taller towers, bigger blades, and better wind modeling. This higher utilization has led to dramatic drops in levelized costs.

Solar capital costs have also continued to improve. Today’s utility scale PV tracker is about $2,000 per KW of capacity, down from $3,250 in 2010. Solar has also boasted lower levelized costs, from beginning at well over $100/MWh and lowering down to $65 to 80/MWh.

The Credit Suisse report purports that renewable standard compliance will put downward pressure on power prices in deregulated markets. It suggests that the risk to power markets will be rooted in slower market recovery as more renewable generation is added. This will lead to a step down in power prices – $1 to 2/MWh or about 5 percent relative to a scenario without significant renewables growth.

However, renewables can negatively impact the earnings outlook for competitive generators – particularly in PJM. Credit Suisse sees this resulting because of deterioration in future expected power prices, with the impact of a $1.50/MWH drop in PJM power prices.

Demand for natural gas will still grow, but at a slower rate than once believed. Credit Suisse estimates that annual gas demand growth from power will run at less than 0.5 bcf/d annually through 2020.

Lastly, a significant capex is required. Total direct investment in renewables using an 80/20 percent energy split between wind and solar would require $216 BN through 2025, assuming that, on average, wind and utility scale solar both cost $2,000/KW. Additionally, meaningful capex is expected for transmission investments, particularly associated with connecting new wind. Meanwhile, solar will require less, as utility scale projects shrink to the 20 to 50 MW size that can be built closer to customers than the mega farms built in the desert.