Significant Increase in Federal Support To Boost US Renewables Sector

By Fitch Solutions

Key View

• We have revised up our forecasts for the US wind and solar power sectors as a result of an expanded project pipeline, and now expect more than 74.7GW of wind and 127.7GW of solar to come online by 2030.
• Recent actions by the Biden administration, including efforts to expand and extend tax credits and the establishment of offshore wind and net-zero emissions targets in the power sector, pose significant upside risks to our forecasts.
• We highlight that the impacts of a more supportive federal policy approach on the non-hydro renewables sector will be magnified by increasing support from states, cities, utilities and corporations, further boosting our growth outlook.

We have revised up our forecasts for the solar and wind power sectors in the US, boosting our outlook for non-hydro renewables growth within the market through 2030. We maintain a bullish outlook for the market’s already robust solar sector as a result of a rapidly expanding and progressing utility-scale solar for the near-term as well as continually growing momentum for solar plus storage, residential and commercial solar systems. The outlook for the US wind power sector also continues to strengthen through expanding onshore and offshore project pipelines. As such, we now forecast non-hydro renewables capacity will increase from 231.6GW in year-end 2020 to 435.1GW in 2030 – an upward revision from our forecast last quarter for 420.5GW in 2030. Wind power capacity is forecast to increase from 122.3GW in year-end 2020 to 197.0GW in 2030, while solar capacity is forecast to increase from 89.8GW in 2020 to 217.6GW by the beginning of the next decade.

Additionally, we note significant upside risks to our forecasts, particularly over the medium- to long-term, given recent actions by the administration of President Joe Biden. Since taking office on January 20 2021, President Biden has taken significant steps towards re-establishing the US as a global leader for action on climate change, including rejoining the Paris Agreement on climate change and hosting a Leaders Summit on Climate where he announced a new US commitment to reduce economy-wide net greenhouse gas (GHG) pollution by 50-52% from 2005 levels by 2030. These actions solidify our view that Biden will prioritise policies aimed at accelerating the reduction of US GHG over the coming years, and we expect that the power sector, the source of 25% of US emissions in 2019 according to the EPA, will be a key area of focus. We highlight that the Biden administration has also established a target for a carbon-free power sector by 2035 and has been significantly boosting government efforts towards accelerating the energy transition over the past few months. The Biden administration has taken the following actions which present the greatest upside risks to our forecasts:

• Planned extended and expanded tax credits through the American Jobs Plan: On March 31, US President Biden unveiled his American Jobs Plan (AJP), a proposed USD2.3trn spending plan including funding for physical infrastructure as well as research, manufacturing, workforce training and home and community-based care for the elderly and disabled. Among the planned spending is USD100bn in funding for power and energy infrastructure, a considerable portion of which would go towards a ten-year extension of an expanded direct-pay investment tax credit (ITC) and production tax credit (PTC) for renewable energy and storage projects. Wind and solar developers currently can access these at the rates listed in the table below, although developers must find tax equity investors to take advantage of the credits. As such, a switch to direct pay tax credits would eliminate the need to find a tax equity investor and would allow developers to access the tax credits directly, while a 10-year extension would provide longer-term visibility – further incentivising developments within the non-hydro renewables sector. While we have yet to factor investments proposed in the AJP into our offshore wind forecasts, we expect to see a considerable increase if the proposed investments are passed into law later in 2021.

Wind And Solar Tax Credits Set To Phase Down In Near-Term, 10-Year Tax Credit Extension Under Consideration

Tax Credit	Who Benefits	Federal Spending Plan 2021 Extension	Tax Credit Phase-Down
Production Tax Credit	Onshore wind developers, as offshore wind developers generally opt for the ITC	Extended for one year through 2021.	The PTC has been phasing down since 2017 and – prior to the one-year extension – was set to expire on December 31 2020. The credit is an inflation-adjusted per-kilowatt-hour tax credit, with the total amount becoming less as a result of planned phase-downs. With the one-year extension, the phase-down schedule for wind facilities beginning construction in the following years is as follows: 2017: The PTC amount was reduced by 20%. 2018: The PTC amount was reduced by 40%.2019: The PTC amount is currently reduced by 60%. 2020: The PTC amount stays at the 60% reduction level. 2021: The PTC amount stays at the 60% reduction level for projects that begin construction in 2021.
Investment Tax Credit	Solar project developers (residential, commercial, utility-scale); offshore wind developers	The phase-out schedule is extended by two years and a new 30% tax credit is available to any offshore wind project that begins construction by December 31 2025.	First enacted in 2006, the full tax credit has been at 30% for residential, commercial and utility-scale solar systems. In 2015, congress passed a multi-year extension, with phase-downs expected to begin in 2020. The schedule is as follows: Present to year-end 2022: All solar systems can apply 26% tax credit that begin construction by 2022 (excluding those which have secured safe-harbour clauses through 2023). 2023: Solar ITC steps down to 22% for all solar systems. 2024: Solar ITC steps down to a permanent 10% tax credit for commercial and utility-scale solar systems, while residential solar systems no longer qualify for any tax credit. 2025: Offshore wind projects have through year-end 2025 to begin construction in order to secure the full 30% tax credit.

Source: SEIA, DOE, DSIRE

Source: SEIA, DOE, DSIRE

• Substantial support for the offshore wind sector: In February 2021, we revised up our capacity growth forecast for the US offshore wind power sector as a result of an expanded offshore wind project pipeline, with our forecast including 11.5GW currently set to come online by the end of the decade. That said, increasing support for the sector at federal level under the Biden administration, in combination with continued strong support by states, points to upside risks for further growth. Most notably on March 29 2021, the White House released a joint statement from the Interior (DOI), Energy (DOE), Commerce (DOC) and Transportation (DOT) Departments which outlined a set of actions aimed at rapidly advancing the development of the US offshore wind industry. In the statement, the DOI, DOE and DOC announced a shared goal of deploying 30GW of offshore wind in the US by 2030 – a significant ramp up from the 42MW of offshore wind capacity in operation as of May 2021. There are several actions that we expect help the industry meet its target. These include new lease sales by the Bureau of Ocean Energy Management (BOEM), an acceleration in federal project and permitting reviews by BOEM, increased federal funding for developments within the offshore wind sector and increased potential for an extension and expansion of tax credits available to offshore wind developments. The Biden administration started preparing environmental impact statements for the construction and operations plans of the 90MW South Fork, 1,100MW Ocean Wind and 700+MW Revolution Wind offshore wind projects, while BOEM has completed the process for the 800MW Vineyard Wind project – the project is set to be the first large-scale offshore wind farm in the US.

• Increased focus on building out transmission and distribution infrastructure: On April 27 2021, the White House released a statement titled, ‘Biden Administration Advances Expansion & Modernization of the Electric Grid,’ which outlines two financial tools and new guidance to enable the construction of new high voltage transmission lines throughout he US over the coming years. The first financial tool mentioned is the Western Area Power Administration Transmission Program, which will grant USD3.25bn towards transmission infrastructure projects that will support the expansion of non-hydro renewables capacity in the Western US. In addition, the DOE’s Loan Programs Office will grant up to USD5bn in loan guarantees for innovative transmission projects such as high voltage direct current (HDVC systems), offshore wind transmission infrastructure and projects which utilise rights-of-way along rail and high way routes as well as those which are owned by tribal nations. A key focus for the administration is the utilisation of rights-of-way along public highways and other transportation routes to speed up permitting for large transmission infrastructure projects, with the DOT issuing guidance for state DOTs that will help speed up the expansion and modernisation of the grid. We note that progress has remained slow in recent years for the advancement of multi-state and interregional transmission infrastructure projects – largely due to permitting challenges – resulting in substantial grid bottlenecks and hindering renewables development in many regions such as the Central US and Midwest. As such, an accelerated development of high voltage, interregional transmission and distribution infrastructure would support a significantly larger amount of capacity additions over the coming decade. The build-out of an offshore wind transmission and infrastructure network will also be key in supporting the nascent offshore wind sector’s rapid forecasted growth over the coming decade.

The impacts of a more supportive federal policy approach on the non-hydro renewables sector will be magnified by increasing support from states, cities, utilities and corporations. While federal-level support will be key in boosting nascent clean energy technologies such offshore wind power and energy storage, we note that local and state governments, utilities and corporations will continue to be primary drivers of growth in both the wind and solar power sectors. Over the past several months, new state legislation has provided a boost to the non-hydro renewables policy landscape, reaffirming our view that state-led initiatives will drive sector growth. Most recently in April 2021, Rhode Island Governor Daniel McKee signed into law a climate bill that requires the state to reach net-zero greenhouse gas emissions by 2050. In March 2021, Massachusetts Governor Charlie Baker signed a bipartisan bill into law which boosts the state’s offshore wind procurements through 2027 by an additional 2.4GW – the state now aims to bring online 5.6GW of offshore wind capacity over the coming decade. In October 2020, Arizona utility regulators voted 3-2 to approve a plan for utilities within the state to get 100% of their electricity from carbon-free sources by 2050, with intermediate targets of 50% and 75% by 2032 and 2040 respectively.

Corporations and utilities are also stepping up their sustainability and clean energy initiatives, with some of the largest corporations committed to reaching 100% renewable electricity in the coming decades. The RE100 initiative, launched in 2014, is a leading global corporate initiative that aims to help companies commit to and achieve 100% sourcing of renewable electricity for their operations. As of May 2021, there are 309 RE100 members, up from 242 members in August 2020, including Google, Facebook, Apple, GM, Johnson & Johnson, Starbucks and AstraZeneca, and more than one-fourth of the companies are headquartered in the US. Utilities which have announced strengthened renewables targets and procurements in recent months include Duke Energy, Alliant Energy, Southern California Edison, Xcel Energy and Dominion Energy.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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