Renewable energy 2012: A year of transition

Renewable energy enjoyed substantial progress in 2012, but the market in general is still struggling to balance the potential benefits of green power with the challenges of managing renewable energy regulation, integration and cost. 

Windmills on a California hilltop.

New-era energy sources stymied by aging grid

Renewable power from sources such as wind, solar, hydro and geothermal has always been plentiful. But despite the fact that 38 states have comprehensive energy regulations, renewables remain a minimal percentage of the U.S. energy supply. And the U.S. Energy Information Association (EIA), projects that renewable energy consumption will fall by 2.6 percent in 2012 after increasing 14.0 in 2011.

The main problem is that the current U.S. electric grid was not designed to handle a significant amount of renewable energy, and this poses very real reliability concerns for utilities. Regulations that encourage renewable energy do not account for the intermittency challenges of mixing that power with traditional, sustainable combustible power. As such, some states remain wary of moving too quickly with renewables.

For example, 64 percent of Michigan voters in November rejected a proposed renewable energy plan, which would have mandated state utilities to get 25 percent of their power from renewable energy by 2025. The state still has a requirement of 10 percent renewables by 2015.

As 2012 draws to a close, utilities and their commissions will need to address the health of the grid and make sure that it is prepared to transmit and distribute what is sure to be an even higher percentage of renewable power in 2013.

Grim outlook for government incentives

The biggest black cloud for renewables is the unlikely extension of the production tax credit (PTC).

Chris Mele, policy advisor at the National Association of Regulatory Utility Commissioners, called the decision a coin-flip. The PTC has generally found support across the energy industry and is seen as one of few renewable energy incentives. The American Wind Association in February said that inaction on extending the PTC would risk 37,000 U.S. jobs. The American Energy Alliance, however, recently described the program as "taxpayer-funded welfare for wind."

Whether it's extended or not, the PTC has had a big impact since its introduction nearly 20 years ago. U.S. installed wind capacity has grown from 1.5GW in 1992 to more than 45GW in 2011. The impending expiration has impacted wind development in 2012 with 6GW of wind generation installed through October and another 6GW projected for completion by the end of the year, according to EIA estimates.

PTC expiration would certainly cause the price of renewables to rise, but either way, pressure to develop more renewables is coming from other federal sources as well. Environmental Protection Agency regulations came under fierce debate in 2012, with utilities grappling over how to comply with Mercury Air Toxics Standards (MATS), among other rulings. Although these standards are driving utilities away from coal generation, the low cost of domestic natural gas looks to be a much more popular option than building new renewable generation.

Utilities, businesses take initiative on renewables

Government incentives have the potential to really drive renewable development, but utilities aren't holding their breath for obvious reasons. This doesn't mean, however, that nothing is getting done on renewables. Many utilities and businesses took the opportunity in 2012 to both secure new renewable energy generation and expand upon existing capacity.

Solar in particular saw widespread implementation in 2012. One of the best examples is Georgia Power, which recently scored regulatory approval for 200MW of new solar capacity – a move that will triple the utilities solar over a two year period. . In addition, the California Public Utilities Commission approved Southern California Edison's agreement with BrightSource Energy to build 1.3MW of concentrated solar generation.

On the other hand, residential and commercial solar subsidies plummeted in California in 2012, reaching $0.20 per installed watt in September. New Jersey is one state facing similar problems, and lawmakers there have introduced legislation aimed at boosting solar renewable energy credits and spur investment.

Most encouraging for the renewable energy industry is the fact that large international businesses such as Apple, Walmart, Ikea and Google are taking the initiative to build out their own on-site renewables as well as invest in renewable development projects. This ranges from solar installations and wind turbines to geothermal and landfill-to-gas installations.

Still room for progress

The bottom line is that while lawmakers and utility commissions made strides in 2012, they still haven't found the "sweet spot" for renewable energy legislation. Costs and reliability issues are top concerns for utility companies, and they are feeling the squeeze of renewable energy legislation on the existing grid, all without receiving a whole lot of financial help. Next year will bring further maturation of EPA regulations, and, while new federal policies are unlikely, renewable energy policy seems likely to continue expanding at the state and local level.