After a Bumpy Year, Renewable Energy Looks Poised for Boom Times

Net additions of renewable electricity rose to an estimated 352 gigawatts of capacity in 2022, up from 286 GW in the previous year, according to the International Energy Agency. The IEA boosted its five-year capacity expansion forecast by nearly 30% this year, its largest-ever annual increase, buoyed by supportive policies and a renewed appreciation for energy security. What is more, by early 2025, the IEA said it expects renewable energy to be the largest source of electricity in the global power mix, surpassing coal.

Driving the IEA’s rosier outlook: First is the global energy crisis caused by Russia’s invasion of Ukraine that led European nations to try to build more renewable energy capacity within their borders to improve their energy security and replace Russian fuel imports. And second, more supportive renewable policies in Europe, the U.S., India and China.

Here is a look back at the solar and wind installations, the power-purchase agreements and other advances in renewable energy this past year, as well as expectations for 2023 and the years ahead.

Solar

Utility-scale solar remains the cheapest option for generating power. And with commodity costs pushing up the price of electricity, solar will be on pace to overtake coal as the largest share of electricity capacity globally by 2027, the IEA said, and natural gas by 2026.

Efforts are under way in India and the U.S. to make more solar components within their own borders, but the IEA said China will still be the dominant player with $90 billion in investments from 2022 to 2027. Even so, investment in solar manufacturing in India and the U.S. will reach nearly $25 billion combined over 2022 to 2027, a sevenfold increase compared with the past five years, the IEA said.

The U.S. solar industry added capacity in fits and starts this year because of trade impasses. A dispute over tariffs between the U.S. and China significantly slowed solar installations in America, leading President Joe Biden to lessen the impact somewhat by signing an executive order in June that put additional tariffs on pause for two years. Shipments and equipment orders resumed, but supply remained constrained and pricing was higher than usual. Separately in June, the enforcement of the Uyghur Forced Labor Prevention Act further hit supply and caused more equipment to be detained at ports.

The trade issues played a significant role in driving down the installation of new U.S. solar capacity to around 15.7 gigawatts in 2022 from 24.1 gigawatts in 2021, according to Wood Mackenzie. Still, the energy-research firm expects growth to recover next year.

Wood Mackenzie analyst Michelle Davis points to the August passage of the climate-and-spending bill called the Inflation Reduction Act as a boon for the solar industry, though she said the benefits of the law probably won’t be seen until at least 2024 because of current supply constraints.

But those supply difficulties should abate sometime next year once importers work through various new requirements, Ms. Davis said. “Next year the industry will return to growth,” she said. “While the timing is still uncertain, volumes are expected to pick back up.”

Wind

Wind installations edged up this year as the industry struggles with inflation, permitting, grid infrastructure and continued supply-chain disruptions from the Covid-19 pandemic.

The IEA forecasts that worldwide wind capacity will almost double by 2027 from 2021, with offshore projects accounting for one-fifth of the growth. But additions of onshore wind projects won’t break the yearly record set in 2020 until closer to 2027 because they continue to face lengthy permitting and poor improvements to the grid.

In the U.S., analysts at Wood Mackenzie say the wind-power capacity added in 2022 was in the range of 12.6 gigawatts, well below the 18 GW of 2020. Despite that downturn, this year’s growth was strong and the passage of the climate-and-spending bill should deliver long-term stability, in particular the extension of a 10-year tax credit for wind power, said Luke Lewandowski, director of power and renewables for Americas at Wood Mackenzie.

Still, Wood Mackenzie said it expects new installed wind capacity to fall 10% quarter over quarter in 2023 as developers, manufacturers and others in the industry wait for guidance from the U.S. Treasury on the tax credit. In the long term, developers will seek to maximize the tax credit and install substantial additions in 2028 before a phaseout of the credit begins in 2032.

Power-Purchase Agreements

Historically, prices for power-purchase agreements, or PPAs, have decreased along with the comparable cost of projects—the so-called levelized cost of energy. But the prices that corporations are paying for long-term renewable-energy deals in the U.S. have risen because of inflation, supply-chain problems, the risk of solar tariffs and new rules on forced labor.

The average U.S. market price for PPAs around 20 years in length for both wind and solar rose to around $46 per megawatt hour in the third quarter of 2022 from around $30 per MWh in the same period of 2020, according to consulting firm Bain & Co. Coal and gas prices also went up, helping push up costs for renewable energy.

For solar, PPA prices are likely to remain higher over the next year, thanks largely to uncertainty generated when the U.S. Commerce Department found that four major Chinese solar-cell makers circumvented U.S. tariffs, said Aaron Denman, who leads the Americas utilities and renewables practice at Bain.

But the climate-and-spending bill’s support for growth of the solar industry should reverse the recent spikes in PPA costs, he said. PPA pricing past 2030 remains unclear, according to Bain.

In the case of wind, Mr. Denman said, inflation, supply-chain problems and rising interest rates have helped send U.S. PPA prices for such projects up around 60% over the last two years.

“We have seen projects get renegotiated, but projects are unlikely to go forward unless previously agreed terms can be restructured,” Mr. Denman said, pointing to the case of Avangrid Inc., which recently paused a wind project off the coast of Massachusetts.

Grids

Long waits for permits and permissions to build new grid infrastructure remain a challenge to getting more renewable energy.

As of this year, a record 1,400 gigawatts of total generation and storage capacity are seeking interconnection to the grid, which is more than the current U.S. generating capacity of 1,200 gigawatts, according to the Lawrence Berkeley National Laboratory, part of the U.S. Department of Energy.

No significant progress has been made yet to speed up the process, and politics is a big culprit. An effort by Sen. Joe Manchin (D., W.Va.) to overhaul permitting has hit roadblocks after both progressives and conservatives opposed the measure for different reasons.

Energy Storage

Prices for battery packs reversed their downward trend this year, but energy storage units that help better maintain wind and solar power are still spreading at a rapid clip.

After more than a decade of declines, average prices for lithium-ion battery packs rose to $151 per kilowatt-hour in 2022 from $141 per kWh in 2021, according to data-provider BloombergNEF. Higher raw-material and component costs sent battery prices higher, but the firm said it expects costs to begin dropping again in 2024 as more mining and refining comes online.

Even so, the U.S. grid grew to 7,828 megawatts of battery storage capacity through October 2022, up from 4,752 MW at the end of 2021. The growth in battery storage bodes well for more flexible power grids and wider use of wind and solar electricity, said Noel Bakhtian, executive director of the Berkeley Lab Energy Storage Center.

She said battery storage is getting a boost from the passage of the climate-and-spending bill, as well as from a separate infrastructure-investment bill amid a national focus on securing supply chains.

“The next few years look more promising than any time in history for expanded energy-storage deployment, which is vital to meeting our global climate goals,” Ms. Bakhtian said.