This is an extract from a recent report “US 2022 Power Sector Outlook” by the Institute for Energy Economics and Financial Analysis (IEEFA)

Surging global energy prices have been a central theme over the past year, as rebounding economic activity vied with new waves of COVID infections, and the shock of Russia’s invasion of Ukraine has roiled oil and gas markets in particular. But the soaring cost of fossil fuels and unexpected disruptions in energy security are now supercharging what was already a torrid pace of growth in solar, wind and battery storage projects.

IEEFA predicted last year that wind, solar and hydro’s share of the U.S. electric power market would approach 30 percent by the end of 2026. IEEFA now believes the forecast reflected the low end of possible growth, given the significant acceleration in expected solar and wind (particularly offshore) capacity installations through 2026. We now expect that clean energy’s share of the electric generation market could hit 33 percent or more. Together with existing nuclear generation, this would push the U.S. share of carbon-free electricity to well over 50 percent—a massive transition from just five years ago.

Some of the most notable recent developments include:

  • Construction has begun on the first two commercial-scale offshore wind farms in the U.S., which has lagged far behind development efforts in Europe. A recent federal lease auction brought in a record $4.4 billion for development areas off the New Jersey/New York coasts, and underscored investor enthusiasm for the resource’s economic potential over the coming decade. Offshore wind will have an increasing impact on power markets up and down the East Coast.
  • A significant shift among several of the largest, traditionally coal-based utilities to completely move away from the fuel. Georgia Power, Duke Energy, and the Tennessee Valley Authority have all recently embraced plans for a 2035 coal plant phaseout.
  • An end to the decade-long run of annual increases of gas-fired electric generation. IEEFA projected last year that the increase in gas-fired capacity had plateaued; we now think that total annual gas-fired electricity generation has peaked as well. IEEFA believes that gas-fired generation in the U.S. peaked in 2020, and we expect it to decline this year and into the future as rapid growth in solar and wind output displaces both coal and gas generation. The challenges for gas have been exacerbated by the recent runup in prices and growing concerns about methane emissions from gas production and distribution, which significantly reduce the fuel’s supposed environmental benefits.
  • Corporate renewable energy demand is climbing quickly as American businesses embrace net-zero goals, pushed by consumer demand, higher electricity prices and the rise in fossil fuel costs. This could drive the construction of as much as 94 gigawatts of renewable energy capacity by 2030.
  • Real-world experience and research increasingly show that high levels of green energy with battery storage can be integrated into the U.S. power grid while maintaining system reliability. A recent report from the National Renewable Energy Laboratory concluded that with sufficient storage, renewable generation (including solar, wind, hydropower, geothermal and biofuel resources) could meet as much as 94% of demand on an annual basis with “no unserved energy and low reserve violations, indicating no concerns about hourly load balancing through the end year of 2050.”

The compelling economics and proven reliability of renewable energy and storage have changed perceptions in utility and corporate boardrooms across the U.S., driving a buildout of wind and solar generation portfolios and prompting businesses and consumers to push for greater access to green energy. With fossil fuel price volatility and energy security currently among the top concerns of executives and policymakers, IEEFA finds the energy transition is tipping even more strongly toward renewables and battery storage, and expects this trend will continue to drive fossil fuels out of the power market.

Solar and wind capacity build out will break records

Installed utility-scale clean energy capacity hit a milestone in 2021, passing 200 gigawatts (GW). It took the sector 16 years to hit the 100 GW capacity mark, but just five to double that total. The next 100 GW likely won’t even take that long. According to estimates from the American Clean Power Association, there are 120 GW of renewable energy capacity in the development pipeline. Of that total, 37.8 GW is already under construction, with the remainder in advanced development.

Looking just at solar, the Solar Energy Industries Association, in conjunction with Wood Mackenzie, projects that 123 GW of utility-scale solar will be added to the gird by 2027 and 244 GW by 2032. The estimates do not include the potential impact of the Build Back Better incentives now stalled in Congress. Should those be adopted, SEIA says an additional 210 GW of solar would be installed by 2032, pushing the total increase for the decade to 454 GW.

On the storage side, the outlook is just as positive. The Energy Storage Association, also in conjunction with Wood Mackenzie, expects 63.4 GW of battery storage capacity, the bulk in utility-scale projects, to be installed by the end of 2026. Even the Energy Information Administration expects that 66 GW of utility scale clean energy will be added to the U.S. grid just in the next two years. EIA estimates are conservative since they only include projects that have officially filed with the agency’s monthly electric generator inventory and do not track corporate announcements on future developments or power purchase agreements.

In other words, the clean energy sector is booming, and will be for years. This is going to have a major impact on the U.S. grid, with the new clean generation pushing out fossil fuels essentially on a one-for-one basis.

Offshore wind becomes a commercial reality

Recent developments have changed the conversation regarding offshore wind in the U.S., which has badly lagged the ongoing buildout in Europe and the recent surge in capacity installations by China.

In a milestone, construction work is now underway on two large-scale projects in the Atlantic, finally moving the sector from talk about future potential to near-term commercial operation. The first project, Vineyard Wind I, is being built by Avangrid and Copenhagen Infrastructure Partners (CIP) off the Massachusetts coast. Work on the 800 MW project began in November, with full commercial operation expected in late 2023 or early 2024. The second project, South Fork Wind, is being built by Orsted and Eversource off the New York coast. Groundbreaking for the 132 MW project was in February; it is expected online in 2023.

The record-shattering federal auction for several leases off the New Jersey/New York coasts in an area known as the New York Bight cemented the change in tenor. The February auction attracted winning bids totalling $4.37 billion for six areas with an estimated generation potential of 7,000 MW.

The result speaks for itself, but as important is the level of interest throughout the bidding process. According to the Interior Department, 25 companies prequalified for the auction, including major players in offshore wind, the utility arena and the oil and gas sector. Among the participants were: Orsted, Equinor, Avangrid, RWE, National Grid, Engie SA, EDP Renewables, Shell, EDF, TotalEnergies, CIP and Invenergy. The serious corporate interest also was manifest in the 64 rounds of bidding spread over the three days it took before winners were selected for the separate lease areas.

These developments give backing to the Biden administration’s push to have 30 GW of offshore wind capacity installed in the U.S. by 2030. A project tracker compiled by IEEFA shows there are 21 projects already in active development (including the two mentioned above). The installed capacity of the projects is estimated at more than 19 GW, and could well be more if turbines with
higher rated capacities than originally planned are used during construction and if already noted expansion plans are added to the current announced project sizes. Coupled with the 7 GW of capacity in the recently concluded auction, this puts the country on a path to reach 30 GW.

If it doesn’t happen by 2030, it almost certainly will happen soon thereafter. Nationally, states have set offshore wind capacity targets that now top 44 GW and include areas both in the Gulf of Mexico and on the Pacific Coast. But Atlantic Coast projects will drive this first round of U.S. offshore activity, with announced state targets totalling almost 40 GW. New York and New Jersey alone have plans to install 16.5 GW of offshore wind by 2035; of that total, 8 GW is already under contract.

Corporate green energy demand drives development

The corporate sector is becoming an increasingly important driver in the transition away from fossil fuels. Pushed by consumer demand and internal clean energy goals, businesses worldwide signed power purchase agreements for a record 31.1 GW of green power in 2021. Of the total, contracts topping 20 GW of capacity were signed in the U.S.

The 2021 results continue a run that has seen the volume of renewable energy PPAs climb to 120 GW from essentially zero less than a decade ago.

Importantly, this growth is set to continue. The RE100 group, a global initiative by corporations pledging to transition to 100% renewable energy, reported recently that its membership climbed by 58 in 2021. The group now has 349 members using a combined 340 terawatt-hours of electricity annually—more than the total consumption in the UK, the world’s 12th-largest consuming country. Currently, according to RE100, its members obtain 45% of their electricity from renewable resources. In other words, there will be significant continued growth in the group’s demand for clean electricity.

BNEF estimates that an additional 94 GW of wind and solar capacity would be needed just to transition the current RE100 membership to 100% clean electricity. As the number of RE100 members grows, the amount of new renewable energy capacity will grow as well.

Another measure highlighting corporate America’s growing interest in clean energy is the rising amount of private investment in the sector. According to the Business Council for Sustainable Energy, a record $105 billion in private capital flowed into clean energy in 2021, up 11% from the previous year and 70% over five years.

Developments to watch

Green hydrogen: The potential for green hydrogen, which is hydrogen produced via electrolysis powered by renewable energy, to play a major role in the transition away from fossil fuels increased significantly in the past year. IEEFA mentioned it briefly in our
2021 power outlook, and developments since have shown that green hydrogen is likely to be a key option for meeting at least some of the power needs of a decarbonized grid.

The cost of green hydrogen is derived largely from two factors—the capital cost of the electrolyzer and the price of the renewable energy used to run it. Current green hydrogen projects are small and the electrolyzer costs are high, but those prices are expected to drop significantly in the coming years, benefiting from a development curve similar to that of the wind and solar industries.

Electric vehicles: Sales of EVs soared in the U.S. last year, almost doubling to 608,000 vehicles despite continued supply chain issues that slowed parts deliveries across the sector. In contrast, overall vehicle sales rose just 3% during the year.

Rising EV sales will clearly have an impact on the electric utility sector. As with the sales forecasts, the effects on the grid remain highly uncertain. Conventional wisdom holds simply that rising EV sales will lead to higher energy demand. What is likely to matter much more is how and when those new EVs are charged.

The complete report can be accessed here