Under the right conditions, financial institutions say they could double their planned investments in the U.S. renewable energy sector, with the potential to mobilize $1 trillion in cumulative private capital by 2030.
In a business-as-usual case, investor confidence in the U.S. renewables market is expected to remain high over the next three years, according to a new survey by the American Council on Renewable Energy (ACORE). Looking further out, growth will depend on getting a strong set of policies and market signals in place.
The survey, which took place in April 2018, collected data and insights from senior-level respondents across banking institutions, asset managers, private equity firms and other financial firms that together represent around $15 billion in annual U.S. renewable energy investment.
Two-thirds of respondents said they plan to increase their investments in U.S. renewables by more than 5 percent in 2018 compared with 2017, and half plan to increase their investments by more than 10 percent. None said they plan to decrease renewable energy investment by any more than 5 percent.
The longer-term outlook is a little less sunny — unless policy and market structures shift.
More than half of respondents, 58 percent, identified the lack of a federal policy driver after the sunset of the wind Production Tax Credit and solar Investment Tax Credit as a hurdle for continued renewable energy growth.
“We’re looking at a world where in the early 2020s, business-as-usual projections have the renewable sector’s growth rate dipping dramatically,” said Gregory Wetstone, ACORE President and CEO, in an interview. “At that point we’re in a world where there are no federal tax incentives of any kind, and virtually every other sector has permanent...tax incentives baked into the code. Dealing with that is an important part of getting to higher investment numbers.”
ACORE launched a new initiative this week that aims to boost new private-sector investment in renewables and enabling grid technologies to $1 trillion between 2018 and 2030. To reach that goal, ACORE released a set of proposed policy reforms and market drivers deemed essential to driving growth.
According to John Eber, adviser to the $1T 2030 campaign and former managing director and head of energy investments at JP Morgan, policy and market reforms are the investment community’s top priority.
“From an investor’s perspective, I’d argue that the current commercial renewable energy technologies are already performing very well, and we are happy to continue our investments there,” Eber wrote in an email. “Further innovation and related cost reductions will help, but that next level of growth really comes down to policy and market reforms.”
“I’ve been in this business for over 15 years, and every time I turn around, more and more investors want to get into renewables,” he continued. "The capital available is significant, and it will continue to grow each year if we find ways to eliminate the barriers to development, improve our transmission system and build on renewable portfolio standards.”
ACORE’s specific set of policy changes include:
- A long-term federal policy commitment to support carbon-free electricity generation. According to Wetstone, this commitment could take different forms. A price on carbon is one option; a technology-neutral tax credit is another.
- Federal, state and regional policies to promote modernization of the nation’s electrical grid, including fair access for renewables in electricity markets, and new incentives for energy storage and other grid technologies.
- Increasingly ambitious state renewable portfolio standards.
- Streamlined siting and permitting processes for renewable energy and transmission projects.
Market drivers include:
- New business models and improved economics to scale up the energy storage market.
- Increased corporate renewable purchasing through diversified procurement options and new market incentives for middle market and industrial companies.
- Increased public awareness and support for renewable energy and electric vehicles.
- Continued financial innovation as capital stacks evolve to replace tax equity as a key source of project financing, and as the industry seeks a more standardized approach to finance new project offerings.
Under the right set of circumstances, a majority of investors that took ACORE’s survey, 89 percent, said they would double their companies’ cumulative investments over the period 2018-2030.
Seventy percent of respondents projected that cumulative private investment in U.S. renewable energy would reach $500 billion over the same period, while 26 percent projected it would reach $1 trillion.
“We think it is really important to provide the opportunity for the U.S. to take full advantage of the tremendous growth and economic opportunity in the renewables sector, to keep building on the momentum that we have, and to stay within striking distance of U.S. climate objectives [under the Paris Agreement],” said Wetstone.
He acknowledged some of the policy and market reforms will be more attainable than others. Increased state renewable energy goals, for instance, have become a promising policy driver, particularly in the absence of federal leadership. Ninety-five percent of survey takers said expanded state renewable energy portfolio standards are important or very important growth policies.
Achieving a federal policy commitment to support carbon-free electricity generation is likely to be harder — but despite that, efforts to advance a price on carbon are already underway. Eber underscored that an effort to address the carbon externality is “essential" to driving meeting ACORE’s $1T by 2030 investment goal.
“At this point it’s premature to project which specific carbon price or regulatory mechanism will be most viable, but what is clear that the societal costs of greenhouse emissions will need to be addressed in one fashion or another in the early part of the next decade,” he said. "Market-oriented approaches appear to offer the most efficient mechanisms — and have potential to boost our economy, increase employment, and enhance U.S. competitiveness in the booming global marketplace for renewable energy.”
Wetstone said he’s optimistic the investment community can build support at the federal level over the next few years.
“It’s easy to overlook the reality of investment in renewable energy has been the No. 1 source of private-sector infrastructure investment in the U.S. for each of the past seven years,” he said. “So what we’re really talking about is continuing that momentum and continuing that growth and being able to take advantage of all the benefits that brings with it from an economic perspective, an investment perspective, and a jobs perspective.”
“A lot of this growth is in red areas of the country, rural areas where there aren't a lot of other…opportunities,” Wetstone added. "So I think we have a history of bipartisan support, and we’re determined to maintain and build on that.”