Renewable Energy - Center for Climate and Energy Solutions

Policy Drivers

Two federal tax credits have encouraged renewable energy in the United States:

• The production tax credit (PTC), first enacted in 1992 and subsequently amended, was a corporate tax credit available to a wide range of renewable technologies including wind, landfill gas, geothermal, and small hydroelectric. For eligible technologies, the utility received a 2.2 ¢/kWh ($22/MWh) credit for all electricity generated during the first 10 years of operation. The PTC is currently being phased out; at the end of December 2020, the PTC was extended for another year at 60 percent of the full credit amount, and facilities beginning construction after December 31, 2021 will no longer be able to claim this credit.
• The investment tax credit (ITC) is earned when qualifying equipment, including solar hot water, photovoltaics, and small wind turbines, are placed into service. The credit reduces installation costs and shortens the payback time of these technologies. The Consolidated Appropriations Act (2016) extended the ITC for three years, but Congress then passed a two year delay in 2020. It will phase down to 10 percent in 2024 (from 26 percent in 2021).

States offer added incentives, making renewables even easier to implement from a cost perspective. 

A renewable portfolio standard requires electric utilities to deliver a certain amount of electricity from renewable or alternative energy sources by a given date. State standards range from modest to ambitious, and qualifying energy sources vary. Some states also include “carve-outs” (requirements that a certain percentage of the portfolio be generated from a specific energy source, such as solar power) or other incentives to encourage the development of particular resources. Although climate change may not be the prime motivation behind these standards, they can deliver significant greenhouse gas reductions and other benefits, including job creation, energy security, and cleaner air. Most states allow utilities to comply with the renewable portfolio standard through tradeable credits that utilities can sell for additional revenue.

In states with a renewable portfolio standard, utilities consider cost, intermittency and resource availability in choosing technologies that satisfy this requirement.

In the U.S. transportation sector, The Energy Policy Act of 2005 created a Renewable Fuel Standard that required 2.78 percent of gasoline consumed in the United States in 2006 to be renewable fuel.

The Energy Independence and Security Act of 2007 created a new Renewable Fuel Standard, which increased the required volumes of to 36 billion gallons by 2022, or about 7 percent of expected annual gasoline and diesel consumption above a business-as-usual scenario.

Types of Renewable Energy

Renewable energy comes from sources that can be regenerated or naturally replenished. The main sources are:

• Water (hydropower and hydrokinetic)
• Wind
• Solar (power and hot water)
• Biomass (biofuel and biopower)
• Geothermal (power and heating)

All sources of renewable energy are used to generate electric power. In addition, geothermal steam is used directly for heating and cooking. Biomass and solar sources are also used for space and water heating. Ethanol and biodiesel (and to a lesser extent, gaseous biomethane) are used for transportation.

Renewable energy sources are considered to be zero (wind, solar, and water), low (geothermal) or neutral (biomass) with regard to greenhouse gas emissions during their operation. A neutral source has emissions that are balanced by the amount of carbon dioxide absorbed during the growing process. However, each source’s overall environmental impact depends on its overall lifecycle emissions, including manufacturing of equipment and materials, installation as well as land-use impacts.

Water

Large conventional hydropower projects currently provide the majority of renewable electric power generation worldwide. With about 1,170 gigawatts (GW) of global capacity, hydropower produced an estimated 4,370 terawatt hours (TWh) of the roughly 26,000 TWh total global electricity in 2020.

The United States is the fourth-largest producer of hydropower after China, Brazil, and Canada. In 2011, a much wetter than average year in the U.S. Northwest, the United States generated 7.9 percent of its total electricity from hydropower. The Department of Energy has found that the untapped generation potential at existing U.S. dams designed for purposes other than power production (i.e., water supply, flood control, and inland navigation) represents 12 GW, roughly 15 percent of current hydropower capacity.

Hydropower operational costs are relatively low, and hydropower generates little to no greenhouse gas emissions. The main environmental impact is that a dam to create a reservoir or divert water to a hydropower plant changes the ecosystem and physical characteristic of the river.

Waterpower captures the energy of flowing water in rivers, streams, and waves to generate electricity. Conventional hydropower plants can be built in rivers with no water storage (known as “run-of-the-river” units) or in conjunction with reservoirs that store water, which can be used on an as-needed basis. As water travels downstream, it is channeled down through a pipe or other intake structure in a dam (penstock). The flowing water turns the blades of a turbine, generating electricity in the powerhouse, located at the base of the dam.

Other Hydroelectric Power Generation

Small hydropower projects, generally less than 10 megawatts (MW), and micro-hydropower (less than 1 MW) are less costly to develop and have a lower environmental impact than large conventional hydropower projects. In 2019, the total amount of small hydro installed worldwide was 78 GW. China had the largest share at 54 percent. China, Italy, Japan, Norway and the United States are the top five small hydro countries by installed capacity. Many countries have renewable energy targets that include the development of small hydro projects.

Hydrokinetic electric power, including wave and tidal power, is a form of unconventional hydropower that captures energy from waves or currents and does not require dam construction. These technologies are in various stages of research, development, and deployment. In 2011, a 254 MW tidal power plant in South Korea began operation, doubling the global capacity to 527 MW. By the end of 2018, global capacity was about 532 MW.

Low-head hydro is a commercially available source of hydrokinetic electric power that has been used in farming areas for more than 100 years. Generally, the capacity of these devices is small, ranging from 1kW to 250kW.

Pumped storage hydropower plants use inexpensive electricity (typically overnight during periods of low demand) to pump water from a lower-lying storage reservoir to a storage reservoir located above the power house for later use during periods of peak electricity demand. Although economically viable, this strategy is not considered renewable since it uses more electricity than it generates.

Image source: Getty Images

The United States is in the midst of a clean energy transition driven by a shift toward renewable energy, such as wind and solar, at the expense of fossil fuels.

Since August 2022, $271 billion worth of investment in clean energy has been announced in the U.S., more than all clean energy investment in the U.S. from 2015 to 2022, according to the American Clean Power Association. The Inflation Reduction Act, which included powerful incentives for clean and renewable energy projects, has played a significant role in boosting investment.

There’s still a long way to go. In 2022, 79% of the energy generated in the U.S. came from fossil fuels, while just 13% came from renewable sources. The remaining 8% was generated by nuclear energy. By 2050, the Department of Energy projects that fossil fuels will compose 57% of U.S. energy production, while renewables will make up about 25%.

Read on for a look at the fastest-growing energy sources.

Key findings

• The U.S. generates 79% of its energy from fossil fuels, 13% from renewables, and 8% from nuclear.
• By 2050, the U.S. is projected to generate 69% of its energy from fossil fuels, 25% from renewables, and 5% from nuclear
• By 2050, energy production from fossil fuels is projected to drop 11%, led by a 57% decrease in power from coal. Renewable energy production is projected to grow by 101%, led by wind and solar.

The fastest-growing energy sources: 1949-2022

Three trends have defined energy production and consumption in the U.S. during the past 70 years:

1. A decline in fossil fuels led by a significant reduction in coal power.
2. A significant increase in the use of natural gas to generate energy.
3. The slow but steady rise of renewable energy.

From 1949 to 2022, the share of U.S. energy generation from fossil fuels fell from 91% to 79%, and energy consumption from fossil fuels experienced a similar decline. Over the same time, the share of energy production from coal fell from 39% to 12%, and consumption dropped from 38% to 10%.

The opposite occurred with regard to natural gas. The fracking boom has led to natural gas doubling its share of energy consumption and production from just over 15% in 1949 to around 35% in 2022.

Renewable energy has experienced slower growth. Renewables made up 9% of U.S. energy consumption and production in 1949 and have grown roughly 40% to comprise around 13% of consumption and generation in 2022. Wind and solar energy have contributed the most to that growth, while hydroelectric power generation and consumption have declined.

Renewable energy took up a larger portion of overall U.S. energy consumption than coal starting in 2019.

Projected energy consumption by energy source

Renewable energy consumption in the U.S. will be nearly on par with natural gas consumption by 2050, according to projections from the Energy Information Administration (EIA), a government agency that collects and analyzes energy information.

Renewables are projected to account for 27% of U.S. energy consumption by mid-century, while fossil fuels will make up 66%. The remaining 7% is projected to be filled by nuclear power, which will make up a declining share of U.S. energy consumption over the next 30 years.

Although those projections may be a letdown for environmentalists, there is some good news. Coal power, among the most environmentally harmful forms of energy generation, is estimated to make up just 3% of U.S. energy consumption by 2050.

However, natural gas and oil are expected to stick around, comprising 34% and 29% of U.S. energy consumption by 2050, respectively.

Wind and solar power will be responsible for the continuing green energy transition, while biomass, hydropower, and nuclear energy are all projected to make up a smaller share of U.S. energy consumption in 2050 compared to 2022.

Globally, renewables are expected to surpass coal as the largest source of electricity generation by 2025, according to the International Energy Agency (IEA). Wind and solar will lead the transition.

In the U.S., the IEA projects that wind and solar capacity will double in 2027 compared to 2021.

How to invest in the fastest-growing energy sources

The green energy transition is underway in the U.S. and around the world. Billions in investments pour into clean energy capacity every year.

Innovation, capital, and the fundamental need for more energy can make the sector seem lucrative for many investors.

But it’s a crowded space filled with aspirational companies claiming to be on the verge of game-changing technology as well as mainstays with decades of experience. Adding another layer of complexity, many energy stocks are at the mercy of sometimes volatile energy prices.

To cut through the noise, The Motley Fool has put together a guide to jumpstart investing in energy stocks including an overview of the entire sector to industry-specific ideas.

The energy sector will continue to undergo significant changes over the coming years, so stay tuned.

Sources

• American Clean Power Association (2023). “Clean Energy Investing In America: Report.”
• International Energy Agency (2022). “Renewables 2022.”
• U.S. Energy Information Agency (2023). “Monthly Energy Review.”

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