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Energy Currents
A Blog by Enerdynamics

Renewable Growth Supercharged by High Gas and Oil Prices plus the IRA Act 

by Bob Shively, Enerdynamics President and Lead Facilitator

The U.S. Energy Information Administration (EIA) reports that new renewable capacity is dominating new capacity additions in the U.S. In the most recent year reported by EIA (2020) renewables represented 80% of new capacity. For the period 2021-2025, EIA projects renewables will make up 70% of new capacity, with the rest made up of natural gas and nuclear facilities. 

Source: EIA

While some of the growth in renewables is driven by environmental goals, much of it is due to price decreases resulting in renewables being the lowest-cost new generation source. And while solar and wind are variable resources, the cost of battery storage has also begun a dramatic decline, thus providing new tools for dealing with variability. The decline in price was recently shown by the following Tweet from @ScienceisStrategic:

EIA’s projections for 2021-2025 were made prior to the recent dramatic run-up in fossil fuel prices and prior to Congress passing the Inflation Reduction Act (IRA). Let’s look at these two developments:

Here is how natural gas prices have increased:

Source: EIA

And meanwhile, the IRA will provide incentives that dramatically drive down the cost of renewables. An analysis by consulting firm ICF concludes that wind, solar, and battery levelized costs will further decline by up to 50% while natural gas generation costs will increase as a result of the IRA. It seems clear that renewables are the economic generation source of choice. In many cases, electricity from new renewable projects will be cheaper than supply from existing coal or natural gas units. Indeed, we now hear discussion of numerous utilities or utility regulators that may require revised Integrated Resource Plans to take these developments into consideration. 

Of course, analyzing costs in studies and actually getting facilities in operation are two different activities. Factors that will slow renewables development include permitting difficulties, extensive interconnection procedures, lack of transmission capacity, and supply chain issues. We will need some fossil fuel generation for several years to keep our grids energized. But it has become more and more evident that the amount of fossil fuel generation we need will quickly become less and less. 

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renewable energy , Inflation Reduction Act , Generation capacity ,