Renewables Enter an Older and Wiser Phase

Last year showed that renewables are not fated to always and everywhere get steadily cheaper. But if 2023 was a year when the industry was hampered by inflation, high interest rates, and lingering supply chain issues, then maybe 2024 could be a year of normalization — when governments, utilities, and energy companies have at least started to figure things out.

“There’s optimism going into 2024,” Allegra Dawes, an associate fellow at the Center for Center for Strategic and International Studies, told me.

The difficulties of 2023 were nowhere more obvious than in offshore wind, where rising costs led to cancellations of projects as states and developers couldn’t agree on new contracts. This year already has seen the scrubbing of one New York offshore wind project, Empire Wind 2, although developers Equinor and BP will likely rebid under a new system that better accounts for the possibilities of costs rising.

At (nearly) the same time, though, power customers on New York’s Long Island were the first in the U.S. to receive utility-scale offshore wind power at the end of last year, while New Englanders enjoyed their first offshore wind power just this week. The turmoil of 2023 doesn’t mean that offshore wind — or any other part of the energy transition — is completely off track, just that it’s entering a different, more mature phase.

“What we’re all learning is that building out renewable sources will likely be more expensive,” Dawes said. Repeated and rapid cost declines in solar — far beyond experts’ annual projections — may have lulled investors and policymakers into thinking that all renewable energy sources would forever follow the same trajectory. If so, the awakening was a rude one. “Those cost declines we saw in solar are not going to be easily replicable in all technologies,” Dawes said.

High interest rates have particularly bedeviled renewable projects, as they typically need a large amount of upfront financing for years before they can start generating power. This, at least, is one place the industry can expect relief: Federal Reserve officials have predicted that the central bank will cut rates three times in 2024, which could bring partial relief to renewable developers. Traders, meanwhile, predict a much faster pace of easing. And as laws like the infrastructure bill and Inflation Reduction Act are further implemented, meaning that funding for specific provisions begins to flow in earnest and newly written rules come into effect, investors and businesses will be able to make informed decisions as to how best to take advantage.

“We have massive amounts of projects in the queue,” Dawes said. “Announcements of solar and wind continue.” Just in solar, the Energy Information Administration expects 37 gigawatts of new capacity, on top of the 23 gigawatts it expects when the figures for 2023 are tallied up. Solar and wind, the EIA projects, will, all-told, generate more power than coal for the first time ever.

All this renewable energy will need new transmission capacity to meaningfully affect the carbon intensity of electricity generation in the United States. The difficulties of building new transmission — especially long-distance transmission — and the never-ending queue of new projects waiting to be connected to the grid have long been considered a major hold-up in the decarbonization process. While the nation’s grid and transmission problems won’t be solved in 2024, incremental progress will likely be made, with billions of dollars in federal funds available for grid planning and investment. One massive transmission project to bring wind power from New Mexico and Arizona that’s been in the works for literally decades finally started construction late last year, indicating that these types of projects can get financed.

And there are signs that, despite the rocky recent past, investors are beginning to believe in the long-term future of renewables. “The impact of unprecedented investment in renewable infrastructure will likely become more apparent in 2024,” Deloitte analysts said in a report. “Regulatory boosts to renewable energy and transmission buildout could help address grid constraints.”

There are still any number of bottlenecks beyond financing and costs. One is actually getting federal government programs to begin to build. As of early December, the $7.5 billion allotted for building out an electric vehicle charging network, for instance, had produced precisely zero chargers. But that, too, could begin to change this year, with Ohio breaking ground on chargers.

If we were to say any one thing about the energy transition story in 2024, it’s that it won’t be all about huge new laws or policies, but instead about steadily chipping away at implementation. That’s not fun or sexy, but it is what grown-ups do.