Investors Warming To Renewables

BMI view: We have upwardly revised the solar and biomass components of our non-hydro renewables forecasts this quarter, in light of stronger than expected installation rates for solar and a revision to historic data for biomass generation. We have left the geothermal and wind power forecasts unchanged as our fundamental assumptions with regards to these markets remain in place, with the geothermal industry losing momentum and an expected slowdown in wind capacity additions occurring after the last minute rush to get projects online before subsidies expired at end-2012. That said, we do believe that sentiment towards the US renewables market has improved markedly over 2013, as the US government appears to have strengthened its commitment to its green energy policy.

We have made a number of changes to our non-hydro renewables forecasts for the US this quarter, primarily within the biomass and solar segments. In relation to the biomass sector, we have upwardly revised biomass generation, owing to an alteration in historic data. Historic data for biomass capacity remained the same.

We have also revised both our solar generation and capacity forecasts as installation rates over 2012 - and so far during 2013 - have surprised to the upside. Over 2012, over 3GW of solar capacity is estimated to have been added to the country's grid, taking total installed capacity to nearly 7.8GW. Additionally, positive data over the course of 2013 has shown that the solar sector experienced robust growth during Q1 and Q2, and reportedly in October alone, 530MW of solar capacity was installed. We now expect just under 4GW to be added during 2013, equivalent to a growth rate of 51%. Positive announcements over the last couple of months from the US solar sector, such as the news that Energy Capital Group LLC (ECG) is developing a mammoth 300MW solar power project in Millard County in Utah, and that a large solar CSP plant in Arizona is using energy storage technology to effectively keep power flowing for a reported six hours after the sun has gone down, generates continued optimism for the industry going forward ( see 'Sun Down, But Lights On For Solar', October 15). That said, we do expect growth to moderate as the industry expands and becomes more saturated, reaching over 20GW by the end of our forecast period in 2022.

Solar's Contribution Increasing
US Non-Hydro Renewables Capacity, By Type (MW), 2013/2022 and US Solar Generation (TWh) And Capacity (MW), 2012-2022

BMI view: We have upwardly revised the solar and biomass components of our non-hydro renewables forecasts this quarter, in light of stronger than expected installation rates for solar and a revision to historic data for biomass generation. We have left the geothermal and wind power forecasts unchanged as our fundamental assumptions with regards to these markets remain in place, with the geothermal industry losing momentum and an expected slowdown in wind capacity additions occurring after the last minute rush to get projects online before subsidies expired at end-2012. That said, we do believe that sentiment towards the US renewables market has improved markedly over 2013, as the US government appears to have strengthened its commitment to its green energy policy.

We have made a number of changes to our non-hydro renewables forecasts for the US this quarter, primarily within the biomass and solar segments. In relation to the biomass sector, we have upwardly revised biomass generation, owing to an alteration in historic data. Historic data for biomass capacity remained the same.

We have also revised both our solar generation and capacity forecasts as installation rates over 2012 - and so far during 2013 - have surprised to the upside. Over 2012, over 3GW of solar capacity is estimated to have been added to the country's grid, taking total installed capacity to nearly 7.8GW. Additionally, positive data over the course of 2013 has shown that the solar sector experienced robust growth during Q1 and Q2, and reportedly in October alone, 530MW of solar capacity was installed. We now expect just under 4GW to be added during 2013, equivalent to a growth rate of 51%. Positive announcements over the last couple of months from the US solar sector, such as the news that Energy Capital Group LLC (ECG) is developing a mammoth 300MW solar power project in Millard County in Utah, and that a large solar CSP plant in Arizona is using energy storage technology to effectively keep power flowing for a reported six hours after the sun has gone down, generates continued optimism for the industry going forward ( see 'Sun Down, But Lights On For Solar', October 15). That said, we do expect growth to moderate as the industry expands and becomes more saturated, reaching over 20GW by the end of our forecast period in 2022.

Solar's Contribution Increasing
US Non-Hydro Renewables Capacity, By Type (MW), 2013/2022 and US Solar Generation (TWh) And Capacity (MW), 2012-2022

In terms of the other renewable energy sectors, notably geothermal and wind power, we have left our forecasts virtually unchanged as our fundamental assumptions of the individual markets remain in place. Despite the US having the world's largest and most developed geothermal industry, in terms of installed capacity, there has been limited growth in the sector over the last five years and a lack of momentum driving the industry.

Our long-held view on the US wind industry is so far playing out, as we have seen a noticeable slowdown in growth following the surge in installations at the end of 2012, before the Production Tax Credit (PTC) (a credit of 2.2 cents per kilowatt hour of energy produced in a wind farm or solar-utility project for the first 10 years of operation) expired on 31 December 2012. According to the Energy Information Administration (EIA), wind capacity in the US grew by 12,620MW during 2012, a record year for the country. Much of this capacity was added in December as developers rushed to get projects online before the subsidy expirations, with 59 wind farms, totalling nearly 5,253MW commissioned during the month. We expected capacity growth to drop sharply in 2013, with growth of 3.4% in 2013 and an annual average growth in wind capacity of 2.4% between 2014 and 2022. In fact, it was reported that only around 70MW of wind capacity went online during Q313.

Despite the fluctuations in growth patterns at the state level and the lack of a federal regulatory framework for renewables, we believe we are witnessing a gradual shift towards a more pro-renewables agenda, particularly since Obama's re-election for a second term in November 2012 ( see 'Army Enlists For Renewables, August 29 and 'Upping Funding For Renewables Research', June 25). As such, we believe investor sentiment towards the market has improved and we are noticing an uptick in interest - particularly from high-profile non-utility companies. Some of the most recognisable corporations in the world are heading into the US renewables space, seeking out long-term and stable returns - not to mention providing credence to their sustainability agendas. For example, Microsoft, Google, Costco, Warren Buffet and John Hancock Life Insurance have all recently targeted the US renewables market for investment (see 'Corporates Looking To Make Renewables Investment', November 5 and 'Google Going Green', January 17).

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Sector: Renewables
Geography: United States
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