TODAY’S STUDY: U.S. New Energy Now
2018 Factbook – Sustainable Energy in America
February 15, 2018 (Bloomberg New Energy Finance)
The massive and historic transformation of the U.S. energy sector clicked into a higher gear in 2017, despite some new headwinds including policy uncertainties. Renewable deployment grew at a nearrecord pace. Energy productivity and GDP growth both accelerated, demonstrating that the U.S. economy can grow at a reasonable rate even as total energy consumption actually declines. Liquefied natural gas export capacity expanded, allowing the U.S. to become a serious player in global exports for the first time. Power and gas infrastructure build continued to support grid performance and natural gas delivery. All of this combined to bring U.S. greenhouse gas emissions to a 25-year low while creating jobs and keeping costs in check for consumers. We draw out the key highlights below. New U.S. wind and solar build, combined with an easing drought in the West, drove renewable generation up from 15% to 18% of the total electricity mix in one year, while contributions from natural gas and coal tapered modestly.
• Renewable generation (including hydropower) soared 14% to an estimated 717TWh in 2017, from 628TWh in 2016. The expansion brought renewables to 18% of total U.S. generation – double their contribution a decade ago. Renewables achieved new heights partly due to a rebound in hydro (up 13%, or 36TWh) as reservoir levels on the West Coast recovered after a severe, prolonged drought. At the same time, a chart-busting number of wind and solar projects built in 2016 (nearly 23GW worth) had their first full year of operation in 2017, bolstering non-hydro renewable generation by 15% to 413TWh. The surge further establishes renewables’ critical role in the U.S. power mix – renewable technologies now contribute nearly as much electricity as the nuclear fleet.
• With 18.4GW of new additions, 2017 marked another boom year for renewables build, second only to 2016’s record of 22.7GW. Overall, renewables have contributed 55% of total build in the past 10 years. Non-hydro renewables continued to represent the largest share of all U.S. new installations, hitting roughly 62% in 2017.
• Build in other renewable sectors (biomass, biogas, waste-to-energy, geothermal, and hydro) continued to stall without long-term policy support. Geothermal added only 24MW through one new project. Large-scale biomass, biogas and waste-to-energy combined added 176MW, while hydro commissioned 208MW.
• Renewables’ rise came as natural gas-fired generation decreased by an estimated 8.1% (113TWh). This brought gas’ share of total U.S. generation down from 34% in 2016 to 32% in 2017. Recovering gas prices, as well as a 1.7% year-on-year fall in total generation (including estimates for distributed solar), may have also contributed to the drop in natural gas-fired generation.
• Nonetheless, natural gas retained its position as the number one producer of U.S. power, as electricity production from coal slipped as well (although to a smaller extent – 37TWh, equivalent to a 3% decline). Continued changes to the structural make-up of the U.S. fleet will likely cement its role here for some years: natural gas build boasted its best year since 2005, as new installations reached 10.7GW in 2017. Further, by end-2017, owners of coal plants – which directly compete with gas in many areas of the country – had announced 12.5GW of planned retirements for 2018, foreshadowing the largest year for coal decommissioning since the 15GW of retirements in 2015.
Consumers devoted a smaller share of their spending towards electricity than at any time ever recorded, while the total share of household expenses dedicated to energy costs also hovered near an all-time low. Power and natural gas prices remain subdued across the country, and contract prices for wind and solar continued to plunge.
• American consumer spending on electricity shrank slightly in 2017 to 1.3% of personal consumption expenditures, down from 1.4% in 2016. Greater energy efficiency and the continued availability of cheap fuels likely contributed to keeping electricity costs a modest part of total consumer expenditures. Spending on natural gas also remained muted, as consumers directed just under 0.4% of their outlays to this resource, similar to 2016 levels.
• A rebound in spending on other energy goods, especially gasoline and motor fuels, counterbalanced the drop in the share of expenditures devoted to electricity bills. Households put 2.1% of their total consumption towards gasoline and motor fuels, up from 1.9% in 2016. However, overall, Americans continue to direct just under 4% of their outlays to energy-related costs – only 2016 has seen a smaller share.
• Retail power prices remained subdued in the U.S. But unlike 2016, when prices fell across the country (on the back of waning wholesale power prices), average retail prices rose modestly in 2017 across most regions. They picked up by 0.5% in New England and the Northwest; around 1% in New York, MISO and the Southeast; 1.2% in SPP; 1.5% in the Southwest; 3.5% in California; 4.8% in Florida; and 6.4% in Alaska. However, average retail prices also dipped by roughly half a percent in PJM and ERCOT.
• In the wholesale power market, average prices rallied in 2017 across the U.S. on the back of natural gas prices, which rose 18% to average $2.96/MMBtu at Henry Hub.
• Electricity offtakers secured renewables at ever cheaper price points. The most competitive power purchase agreements (PPAs) came in at just over $20/MWh for solar, while wind PPAs executed in the U.S. wind belt averaged an estimated $17/MWh in 2017. Utility-scale PV capex costs in the U.S. have declined 49% since 2013 to $1.1m/MW from $2.2m/MW, with projects in regions such as the Southeast breaking through the symbolic “dollar-per-watt” threshold. Wind turbine prices have descended to an estimated $0.99m/MW, down 21% over the same time period. At the same time, taller turbines and improved capacity factors have boosted the productivity of new wind facilities, driving down prices in $/MWh terms at an even faster clip.
• Natural gas has become increasingly affordable for consumers. Retail prices for the commercial sector averaged just $8/mcf in 2017, down 42% over the past decade and near the recent trough observed in 2016. Gas prices for the industrial sector have followed a similar trajectory but continue to undercut commercial rates, averaging just over $4/mcf in 2017.
The U.S. remains competitive globally for energy-intensive industries, thanks to low industrial power prices.
• Industrial power prices in the U.S. have historically been among the most affordable in the world (averaging 6.76¢/kWh in 2016, according to the EIA). The U.S. remained competitive even as exchange rate fluctuations—and market reforms, in the case of Japan—brought down the dollar cost of energy for industrial consumers in China, Japan, and Mexico. Canada, with its strong stock of cheap legacy hydro, hovered at or below U.S. prices. (Canada averaged 5.46¢/kWh in 2016.) These two countries offered the least expensive electricity for industrial users out of the G7 countries.
The renewable, energy efficiency, and natural gas sectors employed approximately three million Americans in 2016. Energy efficiency was the top employer within the sustainable energy sectors, and solar was the fastest growing job-creator among all electricity generation technologies.
• Energy efficiency provided 2.2 million jobs in 2016, according to the January 2017 report from the Department of Energy. Efficiency was the top employer within the sustainable energy segments tracked in the report.
• Among sectors associated with electricity generation, solar employed the highest number of workers in 2016. The solar job count topped nearly 374,000, more than double those from fossil generation, which numbered 151,000 for coal, natural gas, and oil-fired sources combined (not counting employment associated with fuel supply). Solar is still a labor-intensive field and one where a boom in new installations is driving employment.
• Solar also added almost 74,000 jobs from 2015 to 2016, marking a 25% growth year-on-year and again taking top place out of all electricity generation sectors. Wind was second in terms of employment growth, adding 24,650 jobs.
• Fossil fuel-fired generation also creates upstream employment (i.e., jobs related to the extraction, production and transportation of fuels). For natural gas-fired generation, the vast majority of jobs are actually upstream; accounting for these positions brings employment tied to natural gas to an estimated 362,000, up from around 52,000 for downstream jobs at natural gas power plants.
• The electricity storage sector also supported nearly 91,000 jobs in 2016, with just over half affiliated with battery storage. Storage is a burgeoning sector: in 2017, the U.S. added an estimated 251MW in non-hydropower storage capacity, which drove up total commissioned capacity by 33%.
American economic growth is picking up steam – without a parallel jump in energy consumption.
• The U.S. economy advanced 2.3% in 2017, up from 1.5% in 2016. At the same time, U.S. total energy consumption dipped 0.2% to 97.2 quadrillion BTU. Energy productivity, which is the amount of GDP produced by a unit of energy, climbed 2.5% in 2017 as economic growth continued its long-term trend of decoupling from energy use. Since 2008, energy usage has shrunk 1.7% even as GDP has accelerated by 15.3%.
• Annualized electricity consumption, excluding consumption of distributed energy resources, fell 2.6% in 2017 despite stronger economic growth. From 1950 to 1990, demand for electricity increased at an annual average rate of 5.9%. From 1990 to 2007, that dampened to 1.9% growth per year. Since 2007, electricity demand has actually contracted by an average of 0.2% per year.
• Energy efficiency has clearly contributed to this ongoing trend; however, the growth in utility spending on efficiency for electricity has slowed, advancing only 1.6% in 2016 (the latest year for which data is available) to $6.3 billion. This slowdown comes in part because fewer states are introducing new energy efficiency resource standards, while other states’ existing mandates have matured.
• Investments to boost the efficiency of natural gas usage have also paid off. The number of residential customers using natural gas expanded 21% to 69 million in the 20 years from 1998 through 2017. But consumption stayed roughly the same during that period, likely due in part to efficiency gains
Emissions from the electricity sector plummeted again, allowing transportation to retain its place as the largest-emitting sector for the second year in a row.
• U.S. GHG emissions fell to their lowest levels since 1991, shrinking to an estimated 6.4GtCO2e in 2017 after contracting another 1.4% year-on-year. The power sector continues to drive the economy’s de-carbonization – emissions from this sector ebbed 4.2% in 2017, this time on the back of declining load and greater renewable generation (rather than coal-to-gas switching, a primary driver of 2016’s 5.8% downturn).
• Power-sector emissions now sit 28% below their 2005 peak, which puts the U.S. only 4 percentage points away from achieving its former Clean Power Plan target of 32% below 2005 levels by 2030. The rapid emissions reduction in the power sector has also helped to bring the U.S. halfway to its abandoned Paris Agreement target of slashing economy-wide emissions to 26% below 2005 levels by 2025.
• In 2016, the transportation sector overtook power as the largest greenhouse gas emitter, thanks mostly to lower power-sector emissions and an absence of abatement opportunities within the transportation sector. It expanded the lead to 108MtCO2e in 2017, up from 21MtCO2e in 2016. Power and transportation account for approximately 60% of emissions, with agriculture, industry, and the commercial and residential sectors typically accounting for the other 40%.
The U.S. is solidifying its role as a global liquefied natural gas (LNG) exporter, and for the first time was a net exporter of natural gas for every month of the year.
• Export activity stepped up at the Sabine Pass LNG terminal, which doubled its capacity in 2017 to 2.5Bcfd. LNG exports totaled 625Bcf from January through November 2017, a value of roughly $2.8 billion (out of a $90 billion/year global LNG market). The U.S. now exports LNG to 25 countries, with Mexico, South Korea, China, and Japan serving as lead offtakers. A second export terminal opening in Maryland (Cove Point) is scheduled to begin commercial operations in early 2018.
• Average pipeline exports to Mexico also rose, climbing 11% to 1,407Bcf as of end-November, compared to 1,265Bcf over the same period in 2016. Together, LNG and natural gas pipeline exports to Mexico have elevated average net export volumes to 2Bcfd as of end-November 2017, compared to an average 0.03Bcfd of net imports for the same period in 2016.
• The growth in foreign demand came as domestic gas demand dipped 2.8% year-on-year, in large part due to the 7.2% drop in natural gas used for gas-fired power generation. Strengthening exports helped to propel an estimated 1.5% uptick in total gas demand from 2016 to 2017.
Utilities and independent developers continue to invest in infrastructure to improve grid operations and support the growth of clean energy.
• Investor-owned utilities and independent transmission developers spent an estimated $22.9 billion on electric transmission in 2017, according to figures collected by the Edison Electric Institute (EEI). This represents a 10% rise above the $20.8 billion spent in 2016, and a 91% boost over 2011’s levels. Investments have targeted replacing aging equipment, improving reliability, and bringing renewable generation to end-use consumers, among other purposes.
• The Midwest’s system operator, MISO, is overseeing a large build-out of its wires infrastructure, seeking to replicate Texas’ success in reducing wind curtailment rates. The construction of the Texas Competitive Renewable Energy Zone (CREZ) transmission lines brought wind produced in breezy west Texas to demand centers farther east, slashing curtailment rates from a peak of 17% in 2009 to under 2% for 2016. MISO, alongside New England, experiences curtailment rates of around 4%, some of the highest currently seen in the U.S. Five of the 17 transmission projects under development through MISO’s Multi Value Project have already come online, alleviating bottlenecks and cutting curtailment rates by 21% between 2015 and 2016.
• Gas transmission infrastructure is also set to expand, after protracted delays on several major pipelines caused by the lack of a FERC quorum, project-specific setbacks, and regulatory hurdles. An estimated 14Bcfd of capacity was completed in 2017. Although this undershot the 33Bcfd developers originally planned to complete, it was a notable step up from the five preceding years, in which gas transmission build ranged from 5Bcfd to 9Bcfd a year. The pipeline expansions in 2017 included 4.1Bcfd in takeaway capacity from the Appalachian Basin; however, only 1% of this went towards relieving the natural gas constraints in New England.
• Investment in midstream gas infrastructure (e.g., transmission, distribution and storage) climbed 19% from 2015 to 2016, with distribution accounting for nearly half of the escalation in spending. Total investment in distribution hit its highest level yet at $13.4bn, a 16% expansion from 2015 levels.
• On the consumer side, smart metering infrastructure has reached 51% of U.S. households, although regional penetration rates vary widely. As regulators and utilities begin to undertake more activity on grid modernization and dynamic retail tariffs, even players who have traditionally stayed away from smart meters are beginning to assess the technology’s benefits. Utilities have also begun to offer rebates to incentivize the adoption of smart thermostats, which can be used to control peak demand. In 20 states, over half of households are eligible for rebates on smart thermostat purchases.
Global clean energy investment rebounded to the second-highest amount on record. U.S. investments tracked 2016 levels but saw a shift in capital deployment.
• Global new investment in clean energy advanced to $333 billion in 2017, second only to the $360 billion spent in 2015. A 24% escalation in Chinese investment more than offset the 26% contraction in European flows, while the U.S. contribution held its ground at $57 billion, or about 17% of the global total.
• The relatively stable headline figure for U.S. clean energy investment masked shifts in how capital was deployed. Solar investment slumped 20% as policy uncertainty delayed projects and leading residential solar vendors pulled back from the market. Meanwhile, energy smart technologies attracted 25% more funding in 2017 than in 2016 and wind investment expanded 19%.
New sales of battery, plug-in hybrid, and hybrid vehicles accelerated, driven especially by new, longer-range versions of existing models. Meanwhile, the price of lithium-ion battery packs, a key cost component for battery electric vehicles, plummeted 23% year-on-year.
• U.S. sales of electric vehicles (EVs), including battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV), jumped to over 194,000 units in 2017, up 23% from the year prior. PHEV sales leapt 24% year-on-year on the back of affordable, longer-range offerings like the Toyota Prius Prime. BEV sales surged 22%, also as a result of longer-range affordable models, including the Chevrolet Bolt, and offerings in new car segments such as the Tesla Model X. In all, EVs made up 1.1% of new vehicle sales in the U.S. in 2017, up from 0.9% in 2016. It is estimated that around 749,000 EVs are on the road in the U.S. as of end-2017.
• On a subsidized, lifetime basis, BEVs can cost up to one-third less than equivalent vehicles with conventional internal combustion engines (ICE). PHEVs, on the other hand, tend to cost more than midsized ICE vehicles. This results from a combination of higher prices and fuel costs, as well as lower subsidies.
• The price of lithium-ion battery packs, a key driver of BEV pricing, crashed 23% in 2017. Pack prices tumbled 65% between 2013 and end-2017, bringing average prices down to $209/kWh. Cells, which contribute roughly 70% of the total cost of a pack, experienced a more rapid decrease (26%) last year than the other cost components, thanks to economies of scale, increasing energy density, and transitions to more efficient chemistries.
• Retail gasoline prices rallied 13% over the course of 2017, finishing at an average of $2.50/gallon compared to $2.21/gallon at end-2016. But prices remained historically low, and consumption ticked up by an estimated 0.7% relative to the previous year.
• Start-stop technology, which cuts vehicle fuel use and idling emissions by automatically shutting off the car engine when the car is stopped, continued to gain traction in the auto industry. The share of vehicles sold with this system in the U.S. leapt to 16.8% in 2017, up 75% from the penetration rate in 2016.
The federal government backtracked from national and international engagement on climate change issues, prompting greater climate commitments from sub-national and private sector players. Federal-level actions ranging from trade cases to tax reform also caused uncertainty in the market for clean technologies.
• On June 1, 2017, President Donald Trump announced his intention to withdraw the U.S. from the Paris Agreement, an international, non-binding climate change accord signed by 195 other countries and jurisdictions. In October 2017, the Environmental Protection Agency (EPA) also proposed to rescind and replace the Clean Power Plan. On the transportation front, President Trump ordered EPA to reconsider the upcoming tightening of corporate average fuel economy (CAFE) standards, covering model years 2021-2025.
• In response to the U.S. withdrawal from the Paris Agreement and fading federal-level climate action, sub-national actors have created alliances to support continued progress on the U.S. greenhouse gas reduction targets. The “We Are Still In” movement involves 2,642 mayors, governors, CEOs, college presidents, faith organizations, and tribal leaders (as of the time of this writing). Another group, the U.S. Climate Alliance, includes 16 governors representing over 40% of the U.S. population and $7.4 trillion in economic output. Separately, the U.S. Climate Mayors (founded at the signing of the Paris Agreement) saw its membership swell after the U.S. withdrew from Paris. It now encompasses 383 cities covering 23% of the U.S. population, half of which are in states that have not additionally joined the U.S. Climate Alliance. Together, these entities represent 2.7Gt in emissions (for comparison, total U.S. emissions stood at 6.4Gt for 2017). However, the level of ambition between different entities’ emissions reduction commitments, plus the voluntary nature of such commitments, render it difficult currently to assess the expected impact from the movement. The America’s Pledge initiative will aggregate the commitments made under these initiatives and attempt to measure their impact across the U.S.
• In October 2017, the U.S. Department of Energy (DOE) requested that the Federal Energy Regulatory Committee (FERC) create rules to subsidize “secure-fuel” power plants within competitive power markets that maintain 90 days’ worth of fuel supplies on site. This would have mostly benefited coal and nuclear plants. FERC ultimately declined to implement the proposed rulemaking, citing insufficient evidence that price distortions or retirements were affecting resiliency or reliability in the targeted power markets. The DOE itself had previously reported that, while there might be challenges to come, wholesale power markets have ensured reliability to date, even as the electricity sector has transformed rapidly due to factors such as flattening demand, growing natural gas penetration, and policy interventions (including renewables support). FERC did ultimately call on system operators to study grid resiliency – that is, power systems’ ability to recover from major service interruptions.
• In January 2018, President Trump instituted a 30% tariff on imported crystalline silicon solar modules and cells, which is scheduled to step down to 15% by 2021. The safeguard measure was imposed in response to a trade complaint submitted by two bankrupt domestic solar module manufacturers. The case, lodged by Suniva and SolarWorld, alleged unfair competition from Chinese manufacturers, but the resulting tariffs will apply to practically all countries of origin. These tariff will increase all-in project costs by an estimated 4-10%.
• Tax reforms passed near the end of 2017 also promise change for clean energy. While the EV, wind, and solar tax credits remain unchanged from prior law, the corporate tax rate dropped down to 21% from 35%. This tax cut raises after-tax earnings for renewable projects, but also reduces the supply of tax equity available for supporting renewable build. Additionally, the tax cut may free up utility money for infrastructure investments or for lowering retail electricity rates. Further, under the new law, multinationals with overseas profits are now required to pay a minimum level of taxes on foreign transactions under the so-called “BEAT” provision. Although this can also limit tax equity supply, the negative impact is curbed by a provision that allows corporations to use 80% of the Investment Tax Credit (ITC) and Production Tax Credit (PTC) to offset BEAT. Finally, the introduction of immediate, 100% depreciation of most capital expenditures can benefit providers of long-lived assets such as energy saving building materials or technology.
• In February 2018, Congress passed the Bipartisan Budget Act, which impacted a range of energy incentives. Energy efficiency credits and non-wind PTC technologies (biogas, biomass, waste to energy, active geothermal, hydropower, marine and hydrokinetic) received one-year retroactive extensions. Several non-solar ITC-eligible technologies (fiber-optic solar, microturbines, fuel cells, combined heat and power, and small wind) received five-year extensions with phase-downs. The budget law also lifted the end-2020 in-service deadline for nuclear plants to qualify for the nuclear production tax credit. In addition, it expanded credits for qualified carbon capture and sequestration (CCS) facilities.
• States also explored reforms to some of their renewables support programs in 2017. Most customers in 40 states, plus DC, could access net metering at the full retail rate as of August 2017. But states across the country are looking at potential reforms to the scheme: over the past year, Arizona, Indiana, and Maine finalized plans to move away from net metering. The replacement options vary but generally offer lower compensation rates or set a deadline by which small-scale PV owners can still qualify for net metering.
Corporations are playing a stronger role in the energy transformation, increasingly demanding cleaner energy and seeking to capture gains from energy efficiency.
• Corporations continued to turn their attention to sustainability in 2017. The “EP100”, an initiative launched in 2016 through which companies promise to double their energy efficiency, has gained 13 pledgees. On the renewables front, 119 companies globally had pledged by end-2017 to source 100% of their energy from renewables under the “RE100” initiative. In the U.S., corporate clean energy deal volumes for off-site PPAs rose to 2.9GW in 2017, the second highest on record behind the 3.2GW of new contracts signed in 2015. Companies have also looked increasingly to source clean energy in the same service territory as their load, leading to new engagement with utilities via green tariff programs. These contributed 19% of corporate procurement in 2017