2023 Outlook: Renewables Take Center Stage

2023 Outlook: Renewables Take Center Stage

2022, now in the rear-view mirror, was quite a year in energy. Once again, wildfires, more powerful hurricanes and tornadoes, crippling western drought, devastating locational floods, and attacks on substations inarguably brought attention to the fragility and lack of capacity of our nation’s power grid. But just as clearly, renewables showed well, with great promise for this year and years beyond. Let’s take a look.

At a high level, the Russia-Ukraine war has exposed many holes in the energy supply of Europe as well as the US energy producers and markets. The executive director of the International Energy Agency, Fatih Birol, acknowledged as much, telling a group of world leaders at Davos “the biggest driver of renewable energy growth today is energy security” rather than climate issues. Nevertheless, the environmental reasons for deploying clean energy technologies are equally important as we move to decarbonize the electric grid.

First, let’s take the levelized cost of energy (LCOE), an important way to compare the cost of producing electricity by various means. The US Energy Information Administration defines LCOE as “the cost (in real dollars) of building and operating a generating plant over an assumed financial life and duty cycle.” Although that definition leaves out the typically lower operating costs of plants already in service, it’s still a good way to predict the ability to finance new generations—including renewables—and the likely cost of power purchase agreements (PPAs) that directly affect ratepayers. And remarkably, BloombergNEF says “for the first time, the LCOEs for onshore and offshore wind, and fixed-axis and tracking solar are now all lower than for coal and natural gas.” This is good news for renewable energy developers.

Utility-scale Solar power is making a comeback. Bloomberg Intelligence says “global solar demand rose about 40% in 2022 with industry revenues increasing about 50%” and “it is the fastest-growing energy sub-segment in 2023 with demand set to increase 20-30%. Globally, Bloomberg said 2022 was a “record” year for solar, “during which global solar capacity additions expanded about 47%.” One obstacle for solar developers is simply to identify and access sites large enough to accommodate the planned capacity. Still, many American companies are taking it upon themselves to install large commercial solar on their facilities.

Electric vehicles are increasingly popular and becoming more so, especially as new market entrants roll out charging stations and many more fast chargers, with a $7.5 billion boost from the U.S. bipartisan infrastructure law. Unfortunately, inflation, supply chain, and political instability issues have raised the price of key metals lithium, nickel, and cobalt needed for lithium-ion batteries, the heart of the current type of all-electric vehicles (EVs). Still, the EV market in the US is far from mature, with a strong growth forecast, and new OEMs such as Polestar are starting to carve space in the American market. Recent price cuts from Ford and Tesla will help accelerate adoption as well. According to TechCrunch, JD Power analysts “expect the market share of EVs in the U.S. to reach 12% next year, up from 7% today.”

Offshore wind—which hardly exists in the US, except for small projects off Rhode Island and Virginia, for a total of 42 MW—has generated a lot of enthusiasm among the climate crisis and renewable energy communities in the US, and the country is poised for a boon in offshore activity. There are projects in one stage or another off the coasts of nine northeast states including Maryland, Massachusetts, New Jersey, and New York, though only two are actually under construction: the 132 MW South Fork (Long Island) project and the 800 MW Vineyard Wind off the coast of Martha’s Vineyard in Massachusetts. But there’s plenty of wind for that 40,000 MW of other projects to harvest; the National Renewable Energy Laboratory (NREL) has said that there’s enough to power all of the US twice over. And according to Canary Media, last February the US Bureau of Ocean Energy Management sold a record $4.37 billion in leases for six offshore wind areas near New York and New Jersey. The lease areas cover 488,000 acres and, once fully developed, are expected to support roughly 5.6 GW of offshore wind development.

Geothermal energy is the harnessing of heat in the earth's interior for heating, cooling, and generating electricity. Often overlooked, this renewable resource has tremendous potential, especially in particular areas. Although currently only 2% of U.S. renewables, geothermal is feasible in far more than the seven states that today have such power plants. And ironically, oil and gas drillers already have the skills required to drill geothermal plants. And homeowners are going geothermal by installing heat pumps.

Finally, energy storage is growing by leaps and bounds. It is precious in backing up wind and solar generation when the wind is not blowing and the sun is not shining. But it’s also a great asset, for “peak shaving” and preventing asset shedding during periods of extremely high electricity demand. According to S&P Global Market Intelligence, “about 25 GW is planned to come online through 2023, including 9.4 GW this year (2022) and 15.6 GW in 2023, Market Intelligence data shows.” Although supply chain problems and inflation have pushed up the price of Li-Ion batteries, innovative technologies, and Sodium-Ion batteries may create a new path for long-term storage.

So while the outlook for renewables is certainly positive, we face the hard reality that the United State’s power grid is fraying, and in many places lacks the capacity needed now, much less when even a fraction of planned generation projects come online. Fixing this will require political willpower and financing for new transmission, which in most cases will take years. In the meantime, grid operators must wring every bit of capacity out of our existing bulk-power system. Fortunately, there are proven grid-enhancing technologies (GETs) such as Dynamic Line Ratings (DLR) that can increase the throughput of transmission conductors, supporting reliability and minimizing costs to ratepayers.

Here are some quick takeaways:

  • The LCOE of renewable generation per MWh will continue to fall compared with fossil-fueled generation.
  • More wind and solar farms will be paired with utility-scale, fully-dispatchable storage.
  • Offshore wind will make some notable advances in the northeastern United States.
  • More people will adopt electric vehicles by taking advantage of tax abatements.
  • Technologies such as Dynamic Line Rating exist today to build capacity on the existing grid to make room for more renewable energy