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BCSE In The News

Despite bumps, US generation continues transition to renewables, natural gas
By: Michael Copley, SNL Energy 
Published: February 5, 2014
While there were a number of nuanced — and perhaps temporary — "detours" in U.S. power generation in 2013, the sector continued to shift broadly toward renewable energy and natural gas-fired generation, Bloomberg New Energy Finance analysts said Feb. 5 as part of the release of the group's second industry "fact book." 
Between 2007 and 2013, electricity generation from renewable sources, including large-scale hydropower, grew from 8.3% to 12.9% of the total U.S. power load. Gas-fired power plants provided 28% of the country's electricity last year, up from 22% in 2007, BNEF said. 
Industry leaders said the results show the kind of evolving energy industry that President Barack Obama outlined in his State of the Union address Jan. 28. But analysts also said renewables continue to need federal support to grow, as evidenced by the steep drop-off in wind installations in 2013 after the late one-year extension of the production tax credit. 
"It's clear that analysis, independent analysis ... and the marketplace together are telling us that our nation's energy future is going to be built on a healthy combination of natural gas, renewables and energy efficiency," American Gas Association President and CEO Dave McCurdy said Feb. 5 at an event in Washington, D.C., held in conjunction with the release of the report. "And anyone who says these things cannot coexist, that our energy choices are either or ... obviously is reading from an old playbook."
Yet within the narrative BNEF presented are signs of subtler shifts in the evolving industries.
Since 2004, investors have made the rounds of renewable energy technologies. First it was biofuels, which drew 40% of all asset finance between 2004 and 2007, BNEF said in its 2013 report. The money then moved on to wind and then solar, where investors have lingered, though their money is focused now on small-scale distributed generation.
"This was a science experiment in 2008, and now it's an industry norm," Michel Di Capua, BNEF head of North American analysis, said of third-party solar financiers who have raised about $6.7 billion in equity, tax equity and debt since 2008. 
At the same time, money is funneling into the renewable energy industry from new sources: public markets are contributing more while venture capital lately has retreated from the clean energy space.
Di Capua said the development appears to be more cyclical than a long-term trend. 
BNEF reported in January that U.S. investment in clean energy fell 8.4% in 2013 to $48.4 billion, though BNEF head of policy analysis Ethan Zindler noted at the time that the WilderHill New Energy Global Index, or NEX, rose more than 50% last year. 
"The good news is more companies are raising money over the public stock exchanges," Zindler said. But "if you look five to 10 years down the road, that is potentially a worrisome trend for the industry in the sense that those investments take a long time to pay off, and those are the kinds of things that could continue to advance the technology going forward." 
Analysts also saw a leveling out of renewable energy costs in 2013, particularly on the capital expenditure side, though they said there are areas where costs could still decline, notably in financing and customer acquisition. 
"Some of the heaviest lifting has taken place," Zindler said. "This isn't rocket science. ... These are not technology problems. These are solvable problems."  
Rhone Resch, president and CEO of the Solar Energy Industries Association, blamed an ongoing trade dispute with China for solar module prices that have not fallen as much as they could have in recent years. A lawyer for SolarWorld, the company at the center of the case that has frustrated much of the U.S. solar industry, warned the industry in 2013 that the case could remain active for five to 10 years, though Resch said he is hopeful that a resolution can be brokered in coming months. 
"Trade lawyers love trade cases that last for five or 10 years. It is a billing machine for these guys," Resch said. "We think that there is a deal to be made, a deal that both addresses SolarWorld's concerns about competitiveness of U.S. manufacturers as well as makes sure that the markets are open." 
He added later that the case SolarWorld brought is "really focused on SolarWorld's best interests" and not the broader industry.  
Yet even with cost declines in solar and other renewable sectors, Resch said it is shortsighted to ask when renewables will be ready to compete in the market without government support.  
Fossil fuels have a long history of federal subsidies, he said, adding that renewables will continue to fight for tweaks and extensions to the production and investment tax credits. "We're not at scale large enough to have those go away," Resch said. 
In analyzing 2013, there were also developments that seemed to defy the broader currents BNEF highlighted. 
Energy consumption rose by 1.4% after declining by 6.3% between 2007 and 2012; renewable power generation additions slowed to 5.4 GW in 2013 compared to 18 GW the year before; and natural gas generation declined from 2012 to 2013 as a percentage of the total U.S. electricity load, BNEF said. 
Analysts said, however, that the deviations can be explained by isolated events rather larger trends: uncertainty around the PTC stifled wind development in 2013, which dragged down renewables generally; and rising natural gas prices after an unusually warm winter in 2012 made coal more cost-competitive in 2013. 
But McCurdy argued that a year-over-year analysis does not provide an accurate picture of the state of the natural gas industry. These "are long-term trends, and anyone who deals with economic markets realizes that you're going to have some peaks and valleys in there." He admitted, however, that 2012 gas prices, which were around $2/MMBtu, "were probably not sustainable." 
Di Capua put the price of natural gas moving forward in the $3.50 to $5 range.