12 Biggest Developments in the Past 12 Months
The renewables landscape is in a constant state of change, whether it be from new technologies, shifts in policy, creative financing methods, or any number of other variants.
We’ve cut through the noise to bring you the most impactful developments of the past 12 months.
February 13, 2020
1.) U.S. corporate renewable PPAs set another record in 2019
2019 was by far the biggest year ever for corporate renewable power procurement. U.S. corporations contracted for 13.6 GW of renewable power last year, 60% above the previous record set in 2018 and 4x the level seen in 2017. Google retained its title as a top corporate off-taker by signing contracts for 2.7 GW of global renewable capacity. Facebook, Amazon, and Microsoft rounded out the top corporate renewable buyers. It wasn’t just tech giants though, McDonalds and Hormel Foods each signed their first deals in 2019. Wind deals dominated the PPA market for much of the past decade but, for the second consecutive year, solar was the most common resource type.
U.S. corporates are now driving the market for new renewable energy development. Investor demands for ESG reporting and GHG reduction continue to get louder, and we expect to see many new entrants announce inaugural PPA transactions this year.
2.) Battery storage is now replacing gas peaker units
The age-old practice of maintaining oil or gas “peaker” plants to meet high demand on the coldest and warmest days of the year, sitting idle much of the rest of the time, flipped on its head in 2019. Falling battery prices are making the economics of utility scale storage a viable alternative. In March 2019, Florida Power and Light announced plans to build the world’s largest solar-powered battery to replace two aging natural gas fired plants. The new installation is expected to be in service in late 2021. In April 2019, Southern Cal Edison announced that it is contracting for a 400 MWh battery installation, along with several smaller installations, in place of a small natural gas peaker it had previously planned. When the project is complete in late 2020, it will be the largest of its kind in the world.
We expect the trend of back-to-back-to-back record-breaking storage projects will continue for the foreseeable future, though to achieve renewables penetration above 30-40% nationally, the next generation of technologies will need to address longer-term storage options. Several promising technologies are being developed around the globe, though none have reached commercial viability and scalability -yet.
3.) Offshore wind gains real momentum in the U.S.
Wind generation may not be just for the Great Plains states anymore, as Massachusetts, Connecticut, and Virginia look to collectively add 5 GW of offshore wind in the next 6 years. The timetables are ambitious and plenty of red tape remains in the way, but 2019 was a big year for the nascent U.S. offshore wind industry. In October, the governor of Massachusetts announced that Mayflower Wind Energy, a JV between Shell and EDP, had been selected as the winner of its 800 MW offshore wind RFP. The project was able to successfully come in below the price ceiling set by the state of $84.23/MWh and is expected to achieve commercial operation in 2025. Mayflower will complement the Vineyard Offshore Wind development already in process by Copenhagen Infrastructure and Avangrid. In December, the same JV behind the Massachusetts Vineyard Offshore development was selected to build its Park City Offshore Wind project for the state of Connecticut. Like the other New England projects, it is expected to be fully operational by 2025. Earlier in the year, Dominion Energy announced it filed with PJM to connect up to 2.6 GW of wind energy generation off the Virginia coastline by 2026. Dominion has teamed with Ørsted Energy of Denmark for a pilot project that is currently underway. The longer-term project is expected to cost nearly $8 billion and be completed by 2026.
The largely untapped U.S. offshore wind resource presents huge opportunity to deliver clean energy to major population centers. Announcements like these are a positive step forward for a developing market which will lay the groundwork for the policy, regulation, and supply chain required for widespread adoption.
4.) Minimum Offer Price Rule (MOPR) creates uncertainty in PJM’s capacity market
The Federal Energy Regulatory Commission (FERC) voted on December 19, 2019 to drastically expand PJM’s existing MOPR rules in its capacity auctions. The decision comes after nearly two years of back-and-forth negotiations and lobbying by independent power producers, public power producers, and renewables advocates. At a high level, the ruling would impose a bidding floor for new or existing generation resources offering capacity into PJM if that resource receives state subsidies (unless an exemption applies). Opponents are calling this Federal overreach that violates states’ rights to shape local generation resources. They note that the ruling will serve to increase power prices in the nation’s largest organized power market and will slow the transition to a lower carbon future. Independent power producers, which remain heavily weighted toward coal and gas, applaud the ruling as a win for the free market and one that will restore competitive forces to a market that has been distorted by wind and solar renewable portfolio standards, as well as zero-emission credits for nuclear. PJM has until mid-March to submit its plan of compliance with the order.
The various interests involved continue to lobby both the FERC and PJM, as there is a high likelihood of a rehearing and, even without a rehearing, the implementation methodology of the ruling is still largely undefined. In the meantime, developers will likely be more conservative when pricing PPAs given the high degree of uncertainty around the future of the capacity market.
5.) ESG investors increase level of activism on the heels of huge fund inflows
Funds focused on Environmental, Social, and Governance (ESG) investing pulled in a record $20 billion in 2019 and now tout more than $137 billion in Assets Under Management. This level of inflow is almost 4x the previous record annual inflow and is being led by industry stalwarts like T. Rowe Price and BlackRock. In January 2020, BlackRock CEO Larry Fink penned an open letter stating that his firm will exit investments with high sustainability-related risks, specifically siting thermal coal producers. He also said the $7 trillion money manager would use its influence to hold board members accountable at companies that aren’t doing enough to disclose and address sustainability issues.
ESG initiatives are reshaping the way public companies do business, from supply chain management to energy procurement. Much of the activity we see in the corporate procurement space today is a direct competitive response to the pressure being applied by these types of proactive institutional money managers.
6.) Texas summer power prices spike to all-time highs, grid holds up to demand
August 2019 was an extremely hot month in Texas, causing power prices in ERCOT to jump to an average of $182/MWh, up 380% from a year earlier. Day ahead prices reached more than $750/MWh on August 16th and spot LMP prices reached $9,000/MWh at times. All of those air conditioners cranking in unison led to a record ERCOT system peak of 74,666 MW on August 11th. While the power grid’s reserve margin was stretched close to its limit on peak days, it held up to the extreme conditions. ERCOT is an energy-only power market, meaning there are no steady capacity payments to incent generators to remain operational, like in PJM and other organized markets. Further complicating the issue, ERCOT has more renewable generation (particularly wind) than most of the country and grid operators around the world will be watching to see how the system performs in future extreme conditions.
For now, ERCOT’s grid design passed the test, but increased dispatchability and better pairing of solar and wind will be needed to keep up with growing peak demand and an increasing share of renewables.
7.) Canadian Investors chase returns in U.S. renewables
While Canadian investors spent much of the past decade taking U.S. utilities private, they shifted their focus in 2019 to U.S. renewables companies with large operating portfolios of wind and solar assets. After months of an extended “strategic review” process by management, Pattern Energy announced in November 2019 that it will be taken private by the Canadian Pension Plan Investment Board (CPPIB) at a $6.1 billion valuation. As part of the transaction, the company will consolidate its already private 10+ GW development arm, Pattern Development, into its 4 GW operating portfolio of wind and solar. In January 2020, Brookfield Renewable Partners offered to buy out the remaining interest in TerraForm Power, a New York based operator of 4 GW of wind and solar. Brookfield acquired its original 51% stake in 2017 as a result of the SunEdison bankruptcy and has since increased its ownership to approximately 65%.
The U.S. market for renewables dwarfs that of Canada and these acquisitions are consistent with the broader trend we’ve seen of institutional investors shifting from traditional energy assets to renewables. This source of low-cost competitive capital remains critical to the industry as projects continue to gain scale and tax incentives phase out over the next several years.
8.) Sunnova completes the first U.S. solar IPO in years
Sunnova Energy (NYSE: NOVA) raised $168 million in July 2019 via a U.S. listed IPO. The market reception was tepid, with shares pricing at the bottom end of an already downwardly revised range. This was the first major U.S. solar IPO since competitors Sunrun and Vivint, in 2015 and 2014, respectively. Sunnova is a residential solar provider with a footprint that covers half of the country. They’ve been growing in recent years, despite a lull in the residential rooftop solar market, partially because their dealer network model has allowed them to undercut competitors’ prices.
Although NOVA’s 2019 stock price performance was lackluster, the Company has recorded an impressive start to 2020. In addition to the capital raised in last year’s IPO, the Company recently secured just over $400 million through a 2-tranche securitization transaction and $150 million of secured debt and convertible senior notes to fund their growth targets.
9.) Blue chip players move into renewable natural gas
Even in a scenario where energy storage becomes commonplace, natural gas generation is going to be required to backstop renewables and flex with customer power demand, but that doesn’t mean the gas being burned can’t be greener. Dominion Energy and Smithfield Foods announced the formation of a $500 million JV, Align Renewable Gas. The company will capture methane emissions from hog farms to be used for heating and power generation. Initial projects are set for Virginia, North Carolina, and Utah. Southern California Gas (Sempra) recently announced an expansion of a similar methane collection program it runs with 10 dairy farm operators.
Agricultural methane collection is nothing new, but technological advancements are improving collection efficiency and end market access. Decarbonizing traditional combustion generation will become an extremely important piece of the puzzle, especially as renewables account for a larger portion of the overall generation mix.
10.) State lawmakers step up demand for renewable energy
Tech and consumer companies like Google, Microsoft, Facebook, and Target have been contracting for renewable power for years, despite a lack of action on the part of most public utility commissions and state legislatures on the subject. States got ambitious about carbon reduction in 2019, with seven (plus Washington D.C and Puerto Rico) passing laws requiring at least 50% of electricity be sourced from carbon neutral sources. Also, four states established similar standards via executive order. We’ve grown used to the renewables drum beat from blue states like California and Vermont, but 2019 saw the traditionally red state of Wisconsin and the now “purple” state of Virginia adopt meaningful long-term renewables goals. Somewhat ironically, outside of California, the most significant renewables penetration has occurred in the solid red breadbasket of the country where the wind resource is too economical to ignore.
Our view is that while policy-driven renewables support is an important piece of the puzzle and one we expect to accelerate, eventually economics and technology will win the day. With solar and wind now the cheapest form of electricity generation and storage quickly solving intermittency issues, renewables penetration will continue to accelerate independent of legislative action.
11.) Wind tax credit gets extended for a year, solar left unchanged
In December 2019, congress and the president passed a spending bill that included a one year extension to the wind generation production tax credit that was set to expire for projects starting construction in 2020. The legislation did not include an extension of the solar investment tax credit, which has now begun to step down from its original 30% to a constant 10% for projects starting construction after 2021. Utility scale solar and wind now offer the lowest cost electricity of any generation source, even on an unsubsidized basis.
The general feeling within the industry is that tax incentives achieved their purpose of supporting adoption while technology and economies of scale were bringing down costs. Obviously, having financial incentives remain in place would be advantageous, but they are no longer required for renewables to compete. There is even a sub-set of the developer community that would be open to these incentives being eliminated more quickly in order to reduce the amount of financial engineering required and streamline the structuring process.
12.) Renewables surpass coal in the U.S. power mix (at least for the month of April anyway)
In the month of April 2019; solar, wind, and hydro facilities generated 68.5 million MWh of electricity, as compared to only 60 million MWh from coal facilities during the same period, according to the EIA. A combination of several long-term trends and some routine coal plant maintenance in the month led to this milestone. The U.S. has added more wind and solar generation capacity than fossil fuels nearly every year for the past decade. At the same time, utilities continue to shrink their coal fleets in favor of cheaper natural gas because of the general consensus that the glut of U.S. shale gas will keep prices low. Ten years ago, 45% of the county’s electricity came from coal; that number is now down to about 25%. While Renewable Energy represents just 17-18% of total U.S. generation, it is by far the fastest growing segment.
The EIA now forecasts these sources to overtake both nuclear and coal generation share, becoming the nation’s second largest source of electricity by 2021. In the windiest power market in the country, SPP South (Nebraska, Kansas, Oklahoma, and portions of Northern Texas), wind can supply as much as 70% of electricity on certain days.