By Fitch Solutions
- The US energy transition will see considerable new renewable capacity added over the decade, yet significant challenges remain to the sector’s growth.
- While the market waits for federal and utility-scale support, hybrid solutions coupling renewables with power storage will remain a key space of innovation in the market.
- Declining fossil fuel capacity will leave legacy infrastructure, which is being repurposed, offering an easier deployment of renewables.
- Hydrogen will act as a capacity growth enabler unlocking grid constrained regions and reducing curtailed generation.
The US energy transition will see considerable new renewable capacity added over the decade, yet significant challenges remain to the sector’s growth. Non-hydropower renewables will continue to be the largest capacity growth segment in the US power market with over 200GW of new capacity expected between 2022 and 2031. We expect the segment’s share of total generation to rise from 17% to 27.7%. We have made marginal upwards revisions due to strong near-term growth. We highlight, however, that mounting challenges are being faced by the sector. This is due to a lack of clarity on congressional support for the Biden administration’s attempts to sharply increase federal funding for renewables, attempts to make significant expansion to the renewable tax credit system and ongoing grid bottlenecks.
We expect greater grid management and interconnection to remain one of the top priorities and challenges in the US power market. A 2021 review of US grid connection queues by Lawrence Berkeley National Laboratory (LBNL) found that 930GW of low carbon power generation capacity was stalled due to grid connection roadblocks. Over 670GW of applications seeking connections were solar, far higher than the previous 2020 year-end figure of 462GW. This analysis has highlighted that while renewable investor interest in the US has grown significantly over the past year, inadequate grid connectivity was stalling project growth.
Grid Connection Being Pursued At Multiple Levels
Connection backlogs are a core challenge being targeted at various levels. A coalition of three industry trade bodies including the Solar Energy Industries Association (SEIA), the American Clean Power Association and Advanced Energy Economy are lobbying the US Federal Energy Regulatory Commission (FERC) to make these issues a top priority. However, we expect that USD20bn in proposed funding from U.S. Department of Energy (DOE) Building a Better Grid Initiative will be targeted at modernising key areas of the US network. Furthermore, funding from the approved Infrastructure Investment and Jobs Act will also add support to alleviating grid connection challenges. Renewed legislative action is being taken with a federal push to address connection issues with the Connecting Hard-to-reach Areas with Renewable Energy (CHARGE) bill. The bill will seek to enhance connection capabilities in rural areas to incorporate renewables by rebuilding networks across judications and connecting fractured parts of the US grid. We highlight that should these initiatives become reality, significant bipartisan cooperation will be required and therefore we highlight these as upside risks to our outlook.
It was reported over April 2022 by Edison Electric Institute, an industry trade group, that utilities across the US have outlined plans that amount to approximately USD140bn in investment over both 2022 and 2023. The aim of this substantial spend is to upgrade and modernise grid networks to allow for greater adoption of electric vehicles and inclusion of renewable power generation. We highlight that California’s grid operator recently approved a 10-year plan costing USD3bn to increase grid reliability and support the state’s 2045 energy targets for carbon free power generation. The plan will also aid in the delivery of an expected 3GW per annum connection of new renewables. These utility lead plans will work to address grid connection issues in order to speed up renewable growth over the long term. However, this may result in further regional fracturing as utilities shore up their own networks.
While the market waits for federal and utility-scale support, hybrid solutions coupling renewables with power storage will remain a key space of innovation in the market. Renewable plus storage solutions or hybrid systems continue to offer the renewable market and in particular the solar industry a unique solution to dealing with grid connection challenges. The use of storage technology will mean older grid systems can facilitate renewable power due to the mitigated variability of power supply. This has been seen across a number of projects recently, including the case of Primergy Solar‘s USD1.2bn Gemini solar-plus-storage project in the US state of Nevada. Primergy selected Singapore-based Maxeon Solar Technologies to deliver bifacial modules, while IHI Terrasun Solutions will be the battery storage integrator. The complex will feature a 690MW solar capacity with 1.4GWh of battery storage capacity under a 25-year power purchase agreement and is slated for completion in 2023.
US Battery storage systems have grown significantly in recent quarters with 3.5GW of growth over 2021. We continue to expect battery storage to grow over the coming decade at a regular pace with 3.2GW of utility-scale projects in various stages of development in our Key Infrastructure Projects Database, with expected completion targets within one to two years. One such development is the 15-year resource adequacy agreement signed between Vistra Energy and Pacific Gas and Electric to expand the Moss Landing battery storage system in the US state of California. The firm plans to add a 350MW/1.4GWh extension to increase the storage capacity from 400MW/1.6GWh to 750MW/3GWh. The California Public Utilities Commission will review the contract and a conclusion is expected within 180 days. Construction of Phase III is slated to begin in May 2022, with the new battery due to become operational by June 2023. Over February 2022, the California Public Utilities Commission (CPUC) approved the state’s plans to add 25.5GW of renewable capacity to the grid with 15GW of combined storage by 2032 at a cost of USD49bn. This adds further support to our forecasts and presents an upside risk for battery deployment in the market.
Declining fossil fuel capacity will leave legacy infrastructure, which is being repurposed, offering an easier deployment of renewables. We continue to see state coal companies seeking to divest power portfolios and operate in low carbon sectors such as non-hydropower renewables. Over March 2022, US coal firm, Peabody Energy announced it was forming a joint venture with Riverstone Credit Partners and Summit Partners Credit Advisor to develop hybrid solar systems. The firm will seek to deploy 3.3GW of Solar PV coupled with 1.6GW of battery storage systems over the coming five years. The use of Peabody’s existing assets and grid connection infrastructure will enable faster delivery of projects. The use of storage technology will also mean older grid systems can facilitate renewable power due to the mitigated variability of power supply. We highlight that as more coal power is taken offline in the market, this system could become more prevalent, speeding up renewable deployments as grid connection challenges continue to hamper growth. This could have a particularly strong impact on the growth of renewables in Midwest states and those seeing coal plant closures as outlined in the chart below.
Hydrogen will act as a capacity growth enabler unlocking grid-constrained regions and reducing curtailed generation. Green Hydrogen International (GHI) has unveiled plans to develop a green hydrogen production and storage hub in South Texas, US. Called the Hydrogen City, the proposed facility will be supported by 60GW of behind-the-meter solar and wind power plants. The facility will turn hydrogen into green ammonia, sustainable aviation fuel and other products, including green methane rocket fuel. The facility will be developed in phases, starting with 2GW of production and two storage caverns at the Piedras Pintas salt dome planned for 2026. The facility is expected to provide 2.5mn tonnes of green hydrogen per annum. GHI has also stated that the storage facilities could be increased to 50 caverns with 6TWh of energy storage. Additional major green hydrogen developments in the market are underway with the Southern California Gas Company submitting plans for a series of electrolyser projects, known as the Angeles Link, totalling between 10 to 20GW. The system will seek to create the market’s largest unified hydrogen network supplying the Los Angeles area, utilising 25GW to 35GW of additional renewable capacity as well as generation that was curtailed due to grid bottlenecks and weak demand. The development will also seek to incorporate 2GW of power storage facilities to enable greater flexibility in the Californian grid network, which has faced significant challenges with supply reliability.
The article has been sourced from Fitch Solutions and can be accessed here