On June 2, 2016, the U.S. Energy Information Administration released a preview of its Annual Energy Outlook (AEO) report for 2016, highlighting a marked increase in its projection of wind and solar generation capacity over the coming decades.
This update, on the “Today in Energy” page of the EIA website, describes two projection scenarios in the 2016 AEO report. The reference case, a business-as-usual projection, assumes that the Clean Power Plan will be implemented with the 2022 compliance deadline. The alternative case assumes that the Clean Power Plan is not implemented.
As Figure 1 shows, regardless of the scenario, there is a significant jump in the projected amount of renewable capacity development over the 2015 projection. Why? Primarily because of the extension of the Investment and Production Tax Credits (ITC and PTC) for solar and wind respectively.
In December 2015, Congress passed the Consolidated Appropriations Act to extend both of these tax credits. Prior to the extension, the ITC was set to expire in 2016 and the PTC had expired in 2014. Now, the ITC will provide a 30% tax credit for costs to develop solar energy projects until 2019, then decrease until 2022 when it will expire for residential projects and remain at 10% for utility and commercial projects. The PTC will provide 2.3 cents/kWh for the first ten years of production for any wind project that begins construction by the end of 2016. The value of the credit will decrease each year after 2016 until 2020.
The change between 2015 and 2016 projections is striking. The extension of the federal tax credits provides long-term financial security and risk mitigation for renewable generation developers.
With only until the end of 2016 to begin construction on a wind farm project to capture the full PTC, proposed wind projects are lining up to take advantage of the credit. For example, MISO’s queue currently has almost 30,000 MW of wind active in its Generation Interconnection Queue, 10,000 MW of which has been added since the start of 2016.
It usually takes between six months and a year to build a wind farm and bring it online. As Figure 2 shows, there was a substantial increase in wind capacity in the second half of 2015, about six months after the original PTC expired. As developers now have a more certain regulatory environment to work in, we may see another large jump in wind capacity in mid-to-late 2017.
There are certainly other drivers of capacity expansion for renewables throughout the country. Hawaii, California, and Vermont all increased their state-level Renewable Portfolio Standards, and market rules and planning processes in MISO and other RTOs are increasingly enabling wind energy to come online quickly and participate in regional wholesale energy markets. Costs for developing wind and solar resources are also rapidly falling compared with costs for other technologies in the electric power sector.
By 2020, the EIA expects utility scale wind costs to drop 9%, utility scale solar costs to drop by 32%, and residential and commercial scale solar costs to drop 2-5%.
Supreme Court’s stay on the implementation of the Clean Power Plan has caused some uncertainty. However, the EIA analysis shows that regardless of whether the CPP is implemented or not, we can expect robust development of renewable energy generation in the country for the foreseeable future.
One of the limiting factors EIA identifies to sustained wind development beyond 2022 is the limited regional availability of valuable wind resource. As EIA states, “Because the most favorable wind resources are located in a few regions in the country, increased adoption of wind technology in these regions may be limited by the ability of regional grids to handle high levels of intermittent generation.”
GPI is working to solve this issue on two fronts:
- We are working to make the grid more flexible by modifying market rules for demand response and energy storage technologies, which will help grid operators maintain reliability with higher penetrations of wind.
- We are working to improve interregional planning processes between MISO and its neighbors to the east and west to enable more wind energy generated in MISO’s footprint to be exported to other parts of the country.
With these improvements, the country as a whole will be able to tap more fully into the Upper Midwest’s abundant wind resources.