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Renewables at a Crossroads

Investment opportunities in an evolving environment.

Fortnightly Magazine - June 2011

module manufacturers.

Biomass: Wood combustion, the predominant biomass generation technology, is well established and thus unlikely to experience a breakthrough that would reduce costs. The availability of moderately priced feedstock for a proven renewables technology option has attracted significant investment in potential new biomass wood projects. However, prospects for completion and sustained growth hinge on public support and regulatory treatment. Specifically, uncertainties over the carbon neutrality of burning wood, along with concerns about forest sustainability and health implications, have triggered national- and state-level debates about the technology’s eligibility for RPS compliance. The Environmental Protection Agency’s recent ruling to include biomass combustion in greenhouse gas permit requirements is at least a temporary setback for biomass wood’s prospects. As regulatory and political developments continue to hang over biomass wood’s future, attention might shift to less controversial technologies that convert waste to energy.

In addition to technological diversity, geographic diversity also plays an important role. Renewable generation is no longer confined to certain regions of the U.S., and its new geographic reach has positive implications for political support and implementation.

Six years ago, just two markets—the Western Electricity Coordinating Council (WECC) and SERC Reliability Corp. regions—accounted for more than 55 percent of the nation’s renewable generation capacity. The establishment of RPS mandates in more than 30 states has dropped their share to about 40 percent as other regions have grown at a faster clip. The markets of the Electric Reliability Council of Texas (ERCOT), the ReliabilityFirst Corp. (RFC), and the Midwest Reliability Organization (MRO) were among the biggest gainers, adding a combined 23 GW of wind and lifting their share of renewables capacity from less than 10 percent apiece in 2004 to 18, 12, and 16 percent, respectively, in 2010 ( see Figure 6 ).

Renewables technologies other than wind have also helped new regions of the country gain footholds. For instance, several states with relatively scant solar resources—Massachusetts, New Jersey, and Oregon—have seen significant growth in PV installations, in large part due to solar set-asides in their RPS mandates.

The development of renewable generation and supporting industries has made them an integral part of local economies in regions throughout the country. With few other industries in growth mode, local politicians and economic development officials have extended a range of tax breaks and other incentives to attract renewable energy companies.

The sector’s geographic diversity has also helped it address specific technical challenges, including the intermittent nature of renewable energy sources. Distributing renewables capacity more broadly across the country helps to mitigate such variability—that is, the wind blows in different places at different times.

An Upstart Industry

Compared to several decades ago, when the renewables landscape was relatively bare and uncomplicated, the sector has attracted a range of players from different industries and geographies. These new constituents have joined with industry veterans to form a strong ecosystem of developers, suppliers, customers, financiers, and others. The emergence of this ecosystem, which accelerated during the recent boom, has brought needed innovation and capabilities to the industry, and helped to reduce its reliance on subsidies alone.

The new