Susan Bruce, a member of McNees Wallace & Nurick, discusses the current state of the renewable energy sector, including the regulatory implications of a new presidential administration and what businesses can do to position themselves for success in this burgeoning industry.
CCBJ: What would you say is responsible for the continued rise in interest, investment and adoption of renewable energy sources?
Susan Bruce: It’s a combination of factors. First of all, I see a rise in customer preference for renewable energy. Customers want to understand where their power is coming from, especially with the growing concern around climate change. Whether they’re residential customers or businesses, customers want to feel like they’re doing their part by supporting renewable energy projects.
Another factor is that regulatory policies are changing in such a way that customers, whether residential or business, can take advantage of different policies that might make it more economically advantageous to pursue renewable energy. That could mean investing in a solar project through a power purchase agreement, buying renewable energy credits, or doing what’s called net metering, where you put solar panels on a roof or install another renewable resource “behind your meter” to offset your electricity consumption. All of these strategies are driven by regulatory policies that support renewable energy.
Equally important is price. Renewable energy is becoming more and more cost-competitive compared to conventional types of energy. And it can provide valuable hedges to a business that might be purchasing other more conventional power. It’s something that is a factor supporting customers’ preference to pursue renewable energy as part of their energy purchasing strategies.
What do you expect the industry to look like in five years?
This is a time of tremendous change in the energy industry. We have a new presidential administration with clean energy investment being a priority. It’s hard not to see the industry growing in the next five years. Right now, much of the development is occurring on a state-by-state basis, where different state policies are supporting different renewable energy technologies. It’s possible that we could have a more cohesive national strategy supporting renewable energy in five years.
While I see the industry continuing to grow over the next five years, an important thing to consider is that most renewable energy resources are intermittent in nature. A solar project will produce electrons only when the sun is shining. Wind turbines need the wind to be blowing to generate electricity. So, it’s important to consider what types of resources will be developed to complement these more intermittent products. For instance, there’s expected to be a good deal of development of batteries and other storage to complement these intermittent renewable resources.
What policy changes do you anticipate with the Biden administration? What impact might they have?
We have definitely seen clear signals of a shift in this area with the new administration, in terms of renewable energy and climate change being priorities. In the short term, we expect the president to unveil details of a major infrastructure package that is expected to include spending on climate change. Certainly, we’re seeing additional support from the Federal Energy Regulatory Commission for ensuring renewable energy resources that are supported by state policies like renewable portfolio standards are counted toward resource adequacy targets.
What is the role of investment tax credits in spurring renewable energy growth?
Investment tax credits have been a crucial reason why the renewable energy industry has taken off over the past several years. It’s not a new concept, but it’s really played a key role in encouraging investments. It spurred many of the projects that we’ve seen, and the development of those projects has helped to drive down the costs of renewable projects. As a result, certain types of renewable energy resources can be competitive with more conventional types of energy generation.
One of the criticisms of the investment tax credit approach has been that the tax credits have expiration dates, which has caused lumpiness in investment. But I think we will continue to see tax credits being a driver for investment, with customers taking advantage of investment tax credits, whether it’s from a tax equity perspective or the developers themselves partnering with those that have tax equity appetite.
What is the greatest challenge for businesses looking to invest in renewable energy, and how should it be approached?
For many organizations, the first thing to be tackled is defining the objectives. What are you trying to achieve with your investment in renewable energy? Is the investment designed to achieve corporate sustainability goals, position your business to be more attractive to customers or investors, or help manage energy costs? Are you using it as a physical or financial hedge? For example, if you’re investing in solar projects to help reduce your usage during hot weather days, there may be benefits in terms of certain demand-based charges on your electricity bill. So that’s the first thing – for organizations to identify and understand their objectives.
Another challenge is that we’re in a time where costs associated with renewable resources are declining. So, when to invest is an important question. Also, when we’re considering electricity, including renewable energy, it’s a highly regulated space. So regulatory changes can influence the economics of decisions about how and when to invest in different projects.
All of these things lend themselves to ensuring that you have a good understanding of why you’re looking to invest in renewable energy and then assembling the right team to help you through the process. For example, a long-term power purchase agreement – how does that fit with your procurement strategies? Do you want a renewable energy project to be on-site? How “green” are you looking to be? Are you trying to meet certain targets as a business? These considerations lead to the importance of having a good team assembled and having a firm understanding of the regulatory risks for investing in these projects. Building the right team is half the battle.
For those on the supply side of the ledger and developing renewable projects, many of the same issues exist. Regulatory risks are real in this space since electricity is a highly regulated industry. Even if we are talking about competitive forces being involved, the markets that these resources sell into are heavily regulated. There are significant capital costs, and getting projects interconnected to the grid requires coordination with local utilities. Sometimes there are unforeseen costs associated with that process, understanding what the regulatory requirements are. We’re seeing a number of new entrants within the renewable energy space. Having a clear appreciation of necessary regulatory approvals, whether you’re selling electricity at the wholesale or retail level, it’s all part of the challenge for those looking to become suppliers in this space. Electricity is an essential product, so understanding the reliability consequences in terms of the grid and your customers is also critically important.
Published June 2, 2021.