CAPEX Declines and Innovation Spur Resilience of Renewables

The global electric power industry is moving from a model that relies on large fossil-fired centralized power plants owned by utilities to one more diverse in generation sources and ownership of generation assets. As a result, price deceleration and regulatory and legislative incentives continue to encourage deployments as renewable penetration increases. Financial incentives and subsidies have long been the cornerstone of renewable energy investments. Such incentives provide the much-needed economies of scale while also encouraging investments by helping renewable energy costs achieve grid parity. 

Recent legislation from the US Congress is spurring this trend in North America. As part of a COVID-19 recovery package, legislators agreed to implement a new 30% investment tax credit (ITC) for offshore wind farms. This was just as the US Department of Energy (DOE) announced an ambitious new target to cut the cost of solar energy by 60% within the next 10 years—in addition to nearly $128 million in funding to lower costs, improve performance, and speed the deployment of solar energy technologies. Renewable energy will continue to strengthen its position as a mainstream energy source across both utility-scale and distributed energy generation. 

Solar and Wind Deployments Surge

Resilience of renewables has been discussed across many energy forums; however, the exponential surge in solar and wind deployments in 2020 caught global power and energy stakeholders by surprise given that the world is still reeling under the nth wave of the ongoing pandemic. According to Guidehouse Insights, a record high of over 100 GW each of solar PV and wind capacity were deployed globally. The trend is unlikely to slow as both renewable technologies are expected to continue this rapid acceleration as governments are choosing green technologies to support the economic recovery from the pandemic across key economies globally. 

The value of renewable energy technologies is primarily effected by changes in capital and operational costs. These costs are influenced by improvements in industry efficiency, component supply, and changes in material costs, market demand, and commodity prices. Technology or equipment cost declines are projected to be the main cost reduction drivers effecting adoption of renewable energy generators around the world. Cost declines and economies of scale across wind turbines, PV modules, inverters, and balance-of-system components are expected to continue. In the wind energy market, market-oriented support mechanisms such as auctions are more likely to push wind prices down through competition. However, incremental investments in R&D into innovative turbines, supply chain optimization, transmission, and monitoring and control technologies will add the most cost optimization across the renewable energy value chain. 

As the market for renewable technologies has grown in the past decade, it’s fair to say that the need for transparency and grid stability required state and regional governments to adopt new processes and regulations. Coupled with accelerating decline in technology CAPEX, these processes and regulations are expected to drive overall deployments of wind and solar PV around the world.