Renewable Energy 2005: A Mid-Year Review

"Solar photovoltaics (PV) enjoyed its best year ever on a global basis in 2004."

- Michael T. Eckhart, RE Insider

As we enter into mid-2005, the prospects for renewable energy development in the United States are good overall, even if still fragmented into many state-level minimarkets. This brief article gives an overview of the markets today.

Renewable Electricity

The key drivers for new renewable electricity installations in the United States are the Renewable Portfolio Standards (RPS) that exist in 18 states plus the District of Columbia, which compel investor-owned utility companies to supply a minimum percentage of electricity from renewable sources by a selected date. At the Federal level, the Senate recently passed a national 10 percent RPS. It is quite uncertain, however, whether the measure -- let alone the broad energy bill --will end up on the President's desk.

Other drivers include the emergence of "green power" markets in which utilities offer green pricing programs; deregulated markets where "green tags" and carbon credits are being issued, traded, and bought; green power purchasing programs organized by EPA and the World Resources Institute for industrial companies; and system benefit funds that subsidize and encourage new renewable energy projects.

The wind industry installed 389 MW of capacity in 2004, giving the United States an installed base of 6,740 MW in 30 states. The 2005 market is overheated, as developers rush to get projects online by the Dec. 31, 2005 expiration date for the Production Tax Credit (PTC). More than 1,500 MW, and as much as 2,500 MW, should be installed this year. The boom-bust scenario around the PTC for the past six years has made it difficult to maintain a viable wind power development and supplier industry. Shame on the Congress for this unconscionable loss of jobs and business every other year. We face the same situation in 2006 if the PTC is allowed to expire. The current strategy by the American Wind Energy Association and major wind companies is to get a PTC extension by pulling it out of the pending energy bill, and attaching it to a budget resolution that must go through. We have confidence that the PTC will be extended. The question is whether it will be for the 1-2-3 years that the government is proposing or the 5-10-20 years that the industry is proposing.

Solar photovoltaics (PV) enjoyed its best year ever on a global basis in 2004, with Germany demanding something between 350 MW and 600 MW of new installations (the data is still unclear). Japan continued its strong commitment to solar PV, yielding a $7 billion global industry. The United States has only two good markets, in California and New Jersey, where there are strong cost-buy-down incentives in place. U.S. installations totaled about 75 MW in 2004, and the key applications were distributed generation (DG) commercial rooftops and residential rooftops.

Solar thermal-electric power generation, for central station applications, showed new signs of life in 2004, with a new commitment by the Western Governors Association, led by Governors Richardson (NM) and Schwarzeneggar (CA), for 1,000 MW of concentrating solar power. The first new U.S. project, in Nevada, made progress in structuring its financing, with cooperation from the State of Nevada to overcome week credit ratings of the utility companies, and might start construction in 2005.

Other technologies in the renewable electricity sector made progress in 2004 and are expected to develop further in 2005. These include hydropower, for which there are important provisions in the energy bill for licensing reform, and geothermal energy, for which the new Interior Department initiatives could open up new opportunities. There is also new interest in ocean and tidal energy, as the United Kingdom has set out to lead the world in this area, and there are several new companies in the United States.

The $5 billion solar water heater market continues strong on a global basis, in China (about 40 percent of the world market), Germany, Austria, Greece, and Israel, but with much less happening here in the United States. With recent high natural gas prices, renewed growth in solar water heating is expected in the United States in 2005 and beyond.

Renewable Fuels

The other major category of renewable energy is renewable fuels, specifically ethanol and biodiesel. The number one driver for biofuels today is the political imperative to address oil imports and the attendant threat to our national security. A new Renewable Fuels Standard is included in the House version of the energy bill currently under debate in the Senate. It's also included in the Senate version, but the overall bill has yet to pass. Both measures would create targets of 4 billion gallons of ethanol in 2006 and 8 billion gallons soon thereafter.

The biodiesel fuel side of biofuels is also coming on strong, although at a much lower level of production today. Europe is big on biodiesel, because they have so many diesel cars, in addition to the trucks.

The combination of hybrid engines and ethanol or biodiesel presents the possibility of a revolutionary change in the transportation sector. Others are looking into the prospects for so-called plug-in hybrids, which will rely more on electric charging.

Outlook

The renewable energy industries and markets in the United States are starting to jell. The American Council On Renewable Energy (ACORE), in collaboration with Pennwell and the renewable energy trade associations, produced a very successful POWER-GEN Renewable Energy (PGRE) conference and exhibition on March 1-3 at the Las Vegas Hilton Hotel, with more than 1,500 attendees and 112 exhibiting companies. The utility industry was there.

The finance community is starting get involved in a serious way as well. ACORE will be hosting the Renewable Energy Finance Forum - Wall Street coming up this week June 23-24, 2005 at the Waldorf Astoria Hotel in New York City, anticipating over 600 lenders, investors, developers and corporate players.

Policy is lagging, especially in Washington, so it is difficult to predict a "take off" scenario for renewable energy in the United States. In the meantime, state-level policy is creating markets, the industry is responding well, the financial community is engaged, and each year looks brighter.

About the author...

Michael T. Eckhart is President of the American Council On Renewable Energy and President of Solar International Management, Inc. (aka SolarBank). Eckhart has worked in the private sector side of the renewable energy and conventional power generation fields since 1976 with Booz Allen & Hamilton, General Electric Company, Arete Ventures, and United Power Systems, Inc, among others.

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