Renewable energy sources represent a large and growing force in the energy industry. True, the sector isn't likely to usurp fossil fuels such as coal, natural gas, and oil as the dominant power source. But, renewable energy is expected to be the fastest-growing source of primary energy over the next 25 years, according to a 2011 International Energy Outlook Report released by the U.S. Energy Information Administration. Renewable energy is forecast to increase by 2.8 percent each year - rising from 10 percent in 2008 to 15 percent in 2035, according to the report.
By generating capacity, solar energy is a small fraction of renewable energy production. But it also represents the fastest-growing energy sector in the nation. The U.S. solar market grew by 67 percent in 2010 to become a $6 billion industry that employs more than 100,000 people, according to the Solar Energy Industries Association (SEIA). Solar power in the United States now exceeds 3,650 megawatts, which is enough to power 730,000 American homes.
Wind energy is responsible for generating even more energy capacity. The nation's cumulative installed wind capacity reached 46,919 megawatts last year, according to the American Wind Energy Association (AWEA). The economic fundamentals of wind power are very strong. In the last five years, wind has added 35 percent of all new electric generation in the United States. "Wind power is helping communities across America create economic opportunity and jumpstarting one of our fastest-growing manufacturing sectors," says Liz Salerno, chief economist and director of Industry Data and Analysis at AWEA.
The U.S. wind industry installed some 6,810 megawatts during 2011, with projects in 30 states that used turbines made from 23 different manufacturers, including top firms such GE, Vestas, and Siemens. At the end of 2011, there were another 100 separate projects in the pipeline across the states and Puerto Rico.
Renewable energy has benefited from support by the current administration. President Obama released his fiscal 2013 energy budget in February that includes increased investment in solar, wind, energy storage, and grid integration research and development. However, both industries face market challenges including the loss of government subsidies that have been an integral part of fueling manufacturing growth.
Wind Energy Fights for Tax Credits
American jobs in the wind energy sector stand poised to grow more than five-fold to half a million in the next 20 years. Yet near-term growth hinges on the continued availability of the Production Tax Credit (PTC) and no tax increase on wind energy. "Facing the threat of the PTC expiring, wind project developers have become hesitant to plan future U.S. projects, and American manufacturers have seen a marked decrease in orders," says Salerno.
The PTC represents big stakes for many in the renewable energy sector. Executives from the hydropower, geothermal, and biomass power industries are also calling on Congressional leaders to extend the PTC through 2016. The three industries operate in parts of the country not often associated with renewable energy - particularly the Southeast and Mountain West - and company and trade association leaders have expressed concern for a looming crisis that has put thousands of jobs in these regions at risk.
The loss of the PTC would be a tough blow to the wind energy sector, which has been gaining momentum in recent years. A recent report completed by Navigant Consulting finds that if Congress allows the PTC for wind to expire, jobs in the wind industry will be cut in half, resulting in a loss of 37,000 American jobs and a one-third cut in wind energy manufacturing jobs. In addition, private investment in the industry could drop by nearly two thirds.
The large number of components in a wind turbine has produced a robust domestic manufacturing supply chain. Today, there are more than 400 manufacturing facilities in the United States supplying components to the turbine manufacturers. There are over 20 different turbine manufacturers active in the U.S. market, most with current manufacturing facilities or facilities in the works. For example, Vestas has made several major investments in Colorado in recent years, opening four facilities. And Siemens has also opened new facilities recently in Kansas and Oklahoma.
Competition Heats Up for Solar
The U.S. solar market is facing more uncertainty than at any time in its history. On one hand, system prices have never been lower due to steep price reductions. A pullback in government subsidies in countries such as Germany and Italy in early 2011 has reduced demand globally and contributed to a massive oversupply of product.
During 2011, the price of solar panels dropped by 50 percent, according to SEIA. Although that is good news for American consumers, it has been a challenging market for manufacturers. The market also faces substantial risks in the form of legislative, political, financing, and competitive hurdles.
Certainly, a black eye for the solar energy industry is the Solyndra LLC bankruptcy. The solar-panel maker filed for bankruptcy protection after getting $527 million in public funds. However, the bigger issue impacting solar panel manufacturers is intense pricing competition from China. "With China determined to prop up the high-employment solar PV industry, fierce pricing will persist, causing a massive industry shake-out," notes Jim Kelleher, director of research and a senior analyst at Argus Research in New York.
That shake-out is expected to create widespread industry consolidation. The U.S. PV market remains relatively concentrated in a few key states, such as California and Arizona, although the market has been experiencing geographic expansion over the past few years. The two largest solar manufacturers in the United States are Tempe, Ariz.-based First Solar and SolarWorld, a German firm with a major production facility in Oregon.
Another threat that could shake the industry is the lack of extension of the 1603 Grant. Although President Obama supports a possible extension of the grant, it remains to be seen whether or not that will be a reality. The program officially expired at the end of 2011. According to SEIA, the 1603 program has helped leverage over $24 billion in private-sector investment in a wide range of clean energy projects. If the program is not extended into 2012, there are concerns that it will create a significant slowdown in new projects.
Despite these obstacles, industry data shows that renewable power production as a whole is up and is continuing to expand, while greenhouse gas emissions and oil imports are beginning to decrease. The broader sentiment across the industry is that sectors such as geothermal, wind, and solar power will push past these current challenges and continue to move forward with growth that will not only benefit manufacturers and job creation, but also will benefit generations to come.