Market Outlook in Review: Renewables, Natural Gas Dominate North American Power Industry Spending
North American renewable energy is on the rise, while coal-fired and nuclear development are fading into the background. Along with the increased renewable generation comes the need for additional transmission and distribution infrastructure. Britt Burt, Industrial Info's vice president of research for the Power Industry, discussed these and other subjects at the company's recent Market Outlook in Baton Rouge, Louisiana.
Burt began with a discussion of renewable energy. He noted that for wind energy, the U.S. is in the last two years of the Production Tax Credit, which provides tax incentives for wind projects developed in the U.S. Burt said, "Projects that start by the end of this year or the end of next year can take advantage of the Production Tax Credit for wind. Over the past several years, we have seen this have a huge impact on the industry." Burt also noted that solar incentives had played a big role in its development. Burt noted that solar capacity in the U.S. had doubled over the past five years. "Beginning about 2023, I think we're going to see about 14 gigawatts (GW) of solar added."
The question Burt posed was whether renewable energy projects would continue to be developed in the U.S. unsubsidized. "I think that remains to be seen," said Burt. "I'm not certain if wind developers have to turn to conventional financing for the projects, if they remain competitive with things like natural gas. And I think that question is in play for solar as well."
Burt said, "How long can we expect to see the development of natural gas move forward? I think with the closure of the coal units that we have seen and will continue to see for the next few years, there's certainly the potential for natural gas to continue to move forward. ... I think the ending of the Production Tax Credit is going to open the door for more natural gas to be built, and I believe the longer we go without battery storage at an affordable cost and efficient rate, it will open the door for more gas turbines to back up these renewable energy projects."
Burt noted that hotspots for development of natural gas-fired project include the Northeast and Mid-Atlantic regions of the U.S.
Coal and Nuclear
Burt also discussed power generation that has seen a lack of development in the past few years in the U.S.: coal-fired and nuclear generation. Burt said, "I'm asked how dead is coal-fired generation and will there be more closures on the horizon? The answer is, I don't see any new capacity for coal anytime on the horizon. The nuclear fleet is having difficulty competing with low natural gas prices as well as renewables." Burt said the best spending opportunities for coal-fired generation would be in-plant capital and maintenance projects at existing facilities. "Environmental spending for the coal sector remains, such as projects for Coal Combustion Residuals. The effluent guideline limitations have been set back a bit, but we still see spending for that."
Burt said that three nuclear facilities were under review for being relicensed at the moment, and three more anticipated by 2022, which opened the door for potential in-plant capital projects.
Burt said he anticipated about 78 GW of coal-fired generation would have been retired in total by the end of this year. "We see closures on the nuclear side as well. So far, about 5.2 GW, and another 5.4 GW over the next couple of years." Burt said this generation was being replaced mainly by wind and solar, coupled with natural gas.
"On the maintenance side, I think we're going to continue to see healthy spending for the Power Industry,” Burt said. “A lot of that is phasing out for coal because of the retirements we're seeing of the units, so really, it's being driven by the gas turbine maintenance we're seeing out there."
Transmission and Distribution
The need for transmission and distribution (T&D) across North America is accelerating. Burt said, "Because of the development of renewable energy and the need to support those facilities, we see investment in the T&D industry continue to be healthy. I think it's something we're going to continue to see ongoing for some time. Industrial Info is tracking about $32 billion of high-probability North American T&D projects from now through the end of 2020. "Not only is it to support the new renewable energy projects, but also to upgrade and modernize parts of our infrastructure that are very antiquated and outdated," Burt said.
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