A recent market report indicates robust renewable energy demand in the United States and Europe as 2025 and 2030 emissions targets approach despite high interest rates, concerns over U.S. domestic solar manufacturing capacity, and changing policies that continue to influence the rapidly growing industry.
The 2023 fourrth quarter Global Renewables Market Update from Edison Energy, Alfa Energy, and Altenex Energy shows that renewable energy certificates (RECs) prices decreased starting at the end of 2023 and coming into the new year. Demand has also reportedly increased for alternatives such as retail-delivered renewables, and the report claims this indicates corporate buyers may benefit from taking a portfolio approach to cost-effective carbon reductions. In Europe, power purchase agreement (PPA) pricing reportedly fell in the fourth quarter across most renewables markets, with Spain leading the PPA market for wind and solar.
Despite lowering REC and PPA costs, high interest rates have driven higher financing costs for energy projects, and the levelized cost of electricity for wind and solar generation has risen for the first time after decades of sharp price declines. The report explains that in the U.S., the Inflation Reduction Act (IRA) should provide developers with increased flexibility for handling wind- and solar-related tax credits, providing some relief from these rising costs.
The report explains that there has been recent relief in the solar panel supply crunch, but some parties are concerned that U.S. domestic solar manufacturing will not reach expectations.
By 2026, about 112 gigawatts of solar manufacturing is planned, but only half of this capacity will reportedly be operational by that time. The report explains that if domestic supply is unable to meet demand, lower-cost imports may still drive the industry forward in the states.
Panel imports were up significantly in the third quarter of 2023 and year-over-year, which prompted the industry to call for federal assistance to support domestic manufacturers as they compete with foreign suppliers. Financing from the IRA has gone to support domestic manufacturing, such as two new agreements made with First Solar earlier this month for $500 million and $200 million in advanced manufacturing tax credits.
The report says that previously inaccessible funding options from the IRA will be made available in the coming year, and projects may now choose between the Production Tax Credit and the Investment Tax Credit to offset the cited the high interest rate environment, for solar projects especially. The IRS released guidance on tax credit transferability in June of 2023 that may become a major contributor to clean energy project financing as well.
Policy-related changes for Europe include revisions to renewables guidance that seek to limit greenwashing claims and guidelines that will require companies to change their procurement strategies.
For instance, corporations will need to procure renewable electricity from projects that have been commissioned or repowered within the last 15 years. The European Union’s regulatory framework for Renewable Fuels of Non-Biological Origin is also expected to increase PPAs for renewable hydrogen production for the next several years.
