This is an extract from the 58th edition of EY’s Renewable Energy Country Attractiveness Index (RECAI) titled “Can we avoid gridlock on the road to carbon neutrality?”. This particular extract focuses on a leading market – the United States – that is the most attractive country for renewable energy and ranks second for renewable energy corporate PPAs after Spain.

Solar installation to overtake wind in 2022

Large-scale solar installation will exceed wind power installation in the US for the first time in 2022, predicts the Energy Information Administration (EIA). With government support diminishing for onshore wind power, utility solar capacity installation is expected to dwarf wind with 16GW vs. 6GW. In 2021, the EIA expects new wind installation to narrowly edge solar by 18GW to 16GW. With solar installation accelerating, the US passed 100GW of total installed capacity in the first quarter of this year.

Utility-scale renewables are expected to increase their share of the electricity mix this year to a record 21%, with further growth to 23% projected in 2022, boosted by the country’s infrastructure bill allocating US$73bn for clean energy. Meanwhile, because of project delays caused by the COVID-19 pandemic, the Internal Revenue Service will allow wind and solar companies one to two years longer to finish construction of existing projects and to qualify for federal tax credits on projects where construction started between 2016 and 2020.

As part of the path to net zero, US$52.5m of support for 31 next-generation clean hydrogen R&D projects has been announced under the Energy Earthshots scheme. The projects have been selected for their potential to bridge technical gaps in production, storage, distribution and utilization, and the technologies range from electrolysis innovation and new fuel cell designs to domestic supply systems.

Transitioning to carbon-free energy amid extreme weather events

In the US, 40 states, including territories, currently have a renewable portfolio standards (RPS) or a carbon emissions reduction target.

At the US federal level, one of the milestones set to achieve a global decarbonization economy is to transition to a carbon-free electric grid by 2035. Today’s US energy mix representing 40% is carbon-free from nuclear and renewables generation. Pathways for the remaining 60% of carbon-emissions based power energy mix will require scaling existing commercially viable carbon-free power generation sources and a full array of emerging decarbonization technologies.

US renewables development has surged in recent years to meet this potential demand, but it is proving difficult to connect to the grid system. Of at least 755GW of generation currently stuck in interconnection queues, about 680GW is zero carbon, according to a recent U.S. Department of Energy-funded study by Lawrence Berkeley National Laboratory. The study also estimates that only 13% of this capacity has an executed interconnection agreement. As a result, the US grid cannot move the new power that is coming online to the areas of growing demand. Significant investment in transmission infrastructure, therefore, will be a factor in meeting US emission reduction goals.

The complex nature of the US grid system is a large part of the reason for such bottlenecks. In the contiguous US, the grid is divided into three parts: the eastern and western interconnections, and the Electric Reliability Council of Texas (ERCOT). The complexity goes further than that, however. “Transmission and distribution (T&D) grid development is typically a multidimensional issue because the regulations of how we run the grid vary at a state level,” explains Kimberly A. Johnston, EY Americas Power & Utilities Regulatory Leader.

Contemplating this complex system has also caused stakeholders to begin to consider how to “take their energy into their own hands,” she says. Large power users — such as municipalities, industrial companies and universities — that are concerned about the social and financial devastation of climate change are looking to become “energy islands” by turning hyper-local electricity or electric vehicle networks into distributed energy resources.

“In less than 10 years, the EY organization projects that more than half of electricity customers will become energy distributed resources, operating as an emergency reserve or producing excess capacity that goes back onto the grid,” Johnston says.

These energy islands will still require a connection to an overarching macro grid for regulation and protection against cyber attacks or other risks. As a result, Johnston describes US grid development as progressing along two parallel paths. “One is amending the historical, highly complex, multidimensional regulatory framework,” she explains. “The new, parallel path relates to the need for a whole new ratemaking framework for a customer-centric macro grid, to provide safe, reliable and affordable energy delivery services.”

Like many other parts of the world, the US is also reckoning with the physical impact of climate change on its power sector infrastructure, as well as the need to strengthen and expand the grid to withstand increasingly extreme weather events, such as the disruption caused by Storm Uri and Hurricane Ida in 2021. In Texas, Uri’s impact was most extreme because its grid operates almost entirely separately from the eastern and western interconnections. This means that, while other states can trade power, Texas has very little ability to do so. So, as the storm impacted almost every generation source, the Texas system ran out of power supply options.

Johnston believes the havoc caused by the Texas freeze of 2021 has created a ripple effect among US policymakers and regulators, particularly in light of the rise of renewables. “There is a heightened awareness of the need to ensure grid reliability, public safety and customer affordability, particularly when we have rising extreme weather. And, of course, this is also happening at a time when we need to transition at an accelerated pace to a net-zero carbon grid by 2035,” she says.

While the US grid remains highly fragmented on a state basis, recent federal efforts to address resilience and the need to connect renewables are likely to have a significant impact. A bipartisan infrastructure bill passed by the Senate in August 2021 earmarks US$113b for power and grid-related projects, including those that address reliability and resiliency, as well as the creation of a national Grid Deployment Authority. The package includes other major sectors impacting the grid which includes US$15b for electrification of the transportation sector which will prompt T&D infrastructure investment to prepare for increased electricity demand from EVs as well as the US$25b for the modernization of transit, airports, rail, roads, and safety along with US$65b for 5G fiber deployment to solve the digital divide in communities. The US$21b to brownfield and super fund sites will prompt potential repurpose uses for emerging decarbonization energy sources.

The US Federal Energy Regulatory Commission (FERC), which regulates wholesale power and gas trading and transmission, also launched a consultation on transmission reform in July 2021. It will focus on issues such as improving planning and cost allocation — major roadblocks to transmission development at present — as well as generator interconnection processes. FERC and State Public Utility Commissions have opened hearings and commenced studies on distributed energy resources to assess and determine the forward- thinking regulatory frameworks needed to ensure reliability while progressing towards a customer-centric carbon-free electric grid.

The complete report can be accessed here