The U.S. clean energy sector received massive legislative wins in recent years, particularly with the Inflation Reduction Act, Bipartisan Infrastructure Law and CHIPs Act. But are these laws and the investments that come with them resulting in enough carbon-free power?
While we’ve seen a good deal of momentum over the last year — such as record-breaking EV sales, new energy capacity dominated by renewables, and promising policy movements on key issues such as transmission — significant obstacles remain. Rising interest rates and project costs, permitting and siting challenges, and persistent supply chain issues are holding clean power development back at a time when it needs to be surging ahead.
Here, we take stock of recent clean energy progress and what’s needed to push it forward in the U.S.:
In many ways, 2023 was a record-breaking year for clean energy deployment in the United States, including the escalating installation rate of solar and energy storage, growing EV sales and the number of planned domestic manufacturing facilities.
A record 31 gigawatts (GW) of solar energy capacity was installed in the U.S. in 2023, a roughly 55% increase from 2022 installations and substantially more than the previous record in 2021. Even with significant project delays due to supply chain issues and other factors, solar was the fastest-growing power source in the U.S, representing half of all new utility-scale generating capacity through Q3 of 2023. Installed solar capacity in the U.S. now totals 161 GW, enough to provide about 5% of the nation’s electricity, according to the Solar Energy Industries Association.
Battery storage also grew substantially in 2023, with installations through Q3 exceeding those of all of 2022. Strong growth is expected to continue, with a projected doubling of capacity in 2024.
Wind had more modest growth in 2023 (about 8 GW), lagging behind 2022 installations. Total installed capacity reached 147 GW by Q3 of 2023, representing about 11% of electricity generation. Projections call for an uptick of new wind projects this year, totaling about 17 GW in 2024.
Together, renewables combined with energy storage dominated new utility-scale generation sources, representing more than three-quarters of total new capacity added (see graphic below). Renewables, including large hydropower, represented about 25% of electricity generated in the United States in the first half of 2023.
Yet despite record growth, renewable energy installations need to ramp up even faster. Analyses of achieving 100% carbon-free electricity by 2035, what’s needed to achieve U.S. greenhouse gas reduction targets, indicate that annual installation rates of renewables in coming years need to nearly double the rates seen in 2023.
Despite news reports highlighting the slowing of EV sales, a record 1.2 million EVs were sold in the U.S. in 2023, representing 7.6% of total vehicle sales, up from 5.9% in 2022. Sales continued to be strong through year end, with the fourth quarter setting records for both the number and share of EVs sold (317,000 EVs and 8.1% of total sales, respectively) – with EV sales up 40% from Q4 of 2022. Reports of the “slowdown” reflect a slowing in the rate of increase; sales remain robust and at record-setting levels.
Progress, albeit slower than hoped, is also being made on EV charging infrastructure, supported by $7.5 billion in funds under the Bipartisan Infrastructure Law. The National Electric Vehicle Infrastructure (NEVI) program, created under the Bipartisan Infrastructure Law and designed to support new EV charging corridors and fast-charging stations, had its first charging stations installed in Ohio in late 2023, with additional stations set to open in New York, Pennsylvania, Vermont and Maine in the coming months.
Additional transmission capacity and grid upgrades are essential to enabling the clean energy transition and ensuring future grid reliability. While not at the scale needed, 2023 saw continued activity on transmission, as Congress actively debated permitting and policy reforms. The Federal Energy Regulatory Commission (FERC) also continued action on its proposed rule to reform planning processes and finalized its interconnection rule to speed grid access. The Department of Energy (DOE) took steps to implement provisions in the Bipartisan Infrastructure Law and Inflation Reduction Act, designating lines in the national interest that can be expedited by federal action. Federal agencies also launched incentive programs for transmission.
Ten transmission lines, which have been in process for years, have begun construction since 2021. If completed, they are expected to collectively support the addition of 20GW of new power generation to the grid, but they still face hurdles.
Another 26 high-capacity transmission projects are underway across the U.S., although their ability to be completed is uncertain and pending policy reforms. In late 2023, the Midcontinent Independent System Operator (MISO), the transmission planning organization covering the area from Louisiana to Manitoba, selected the first competitively bid project to move forward as part of an initial $10.3 billion investment approved under MISO’s Long Range Transmission Planning process.
The Inflation Reduction Act stimulated an unprecedented slate of planned domestic clean energy manufacturing facilities, reversing the trend of years of declining investments. According to American Clean Power, 113 manufacturing facilities or expansions have been announced since August 2022, totaling $421 billion of investment in domestic, utility-scale clean energy production, as of early 2024.
Minnesota adopted a 100% clean electricity standard at the beginning of 2023. Michigan followed suit at the end of the year and joined states such as California and New York in passing ambitious permitting reforms intended to make it easier to build clean energy and transmission. Seven states adopted California’s tailpipe-emissions standards, which require automakers to increase the share of zero-emission vehicles sold over time. New York adopted a ban on fossil fuel use in most new buildings, beginning in 2026, while Washington set limits on gas appliances in new construction. State actions are critical to ensuring a successful clean energy transition, as federal actions alone are insufficient.
A number of headwinds also emerged in recent years that have reduced the rate of clean energy deployment, including supply chain issues, interest rate increases and other financial challenges, and slow progress on transmission.
Many projects slated to come online early in 2023 were pushed back in part because of supply chain challenges. Shortages of transformers needed for connecting clean energy to the grid remain a particular obstacle. The delivery time for transformers and other associated equipment has grown from 50 weeks to 150 weeks, as of the end of 2023, according to one developer. Wood Mackenzie estimated that only about 20% of U.S. transformer demand can be met by domestic supply — and that lead times for large transformers, substation power and generator step-up transformers now range from 80 to 210 weeks.
However, solar supply chain challenges eased and global solar module prices fell over the course of 2023, enabling many delayed projects to be completed. But starting in June 2024, President Biden’s two-year pause on solar tariffs will expire; solar modules subject to the duties will become more expensive. Earlier, the Commerce Department determined that solar modules using Chinese-sourced materials imported from four Southeast Asian countries (Vietnam, Malaysia, Thailand and Cambodia), which have been the source of three-quarters of U.S. module imports, will be subject to trade duties.
The rapid rise in interest rates, resulting from actions by the Federal Reserve, substantially increased the cost of capital for all energy projects. Clean energy projects are more sensitive to interest rate increases than some other forms of power generation because they require significant upfront capital. Their economic advantage is in the lack of fuel costs and price consistency over time.
Higher project costs, supply chain challenges and other factors have affected deal flow for renewables and the price of power purchase agreements (PPAs), or long-term contracts between generators and purchasers. Large energy users like Amazon, Meta and Google have been major drivers for renewable projects, but prices and renegotiations are affecting these markets. In the first half of 2023, corporate purchases of clean energy landed at 6GW, compared to nearly 17 GW for all of 2022. As of the third quarter of 2023, solar PPA prices had risen 21% year over year, wind PPA prices were 16% higher, and blended PPA prices rose 18%. There were signs of stabilization in PPA prices in the latter half of 2023, but prices are still substantially higher than they were previously.
Offshore wind challenges have been particularly acute. In 2023, companies announced delays and project cancellations for about half of the U.S. offshore wind pipeline, due to rising costs and supply chain challenges. While the New York South Fork project began operating in 2023 and is slated to become the nation’s largest offshore wind project when additional turbines are completed in 2024 (132 MW, compared to 30MW in Block Island and 12MW near Virginia) developers are cancelling 5.5GW of offshore wind contracts planned for New Jersey, Connecticut and Massachusetts and renegotiating contracts for another 6.5GW of projects. BNEF now estimates about 14.5GW of offshore wind could come online in the U.S. by 2030, compared to the Biden administration’s goal of 30GW.
Lack of transmission is a critical limiting factor for the clean energy transition and poses a threat to reliability in some areas, particularly in the face of increasingly common extreme weather events. Interregional transmission lines that cross state borders continue to face hurdles in gaining approvals from multiple states and determining how to allocate costs among beneficiaries. Lack of sufficient planning processes and methods to assess interregional benefits are the main challenges. Together, the 36 major transmission projects that could begin construction in the near-term represent only about 10% of the transmission investment needed in the U.S. And new lines can take 10 years to build, although technologies to increase the capacity of existing lines can be implemented more quickly. Several analyses (see here, here and here) suggest that transmission capacity needs to double or triple to meet grid needs and achieve President Biden’s 2035 clean energy goals, and interregional transfer capacity needs to quadruple.
Perhaps the biggest factor influencing the future of US clean energy development will be results of the 2024 presidential election. But even before voters take to the polls, answers to five questions will help determine the pace of clean energy development moving forward.
Growth in demand of electricity for data centers, artificial intelligence, crypto mining, manufacturing and EVs is creating serious concerns about generation’s ability to keep up. Recently, grid planners have nearly doubled forecasts of electricity demand growth over the next five years. In a recent study, the North American Electric Reliability Corporation noted that these demand drivers are growing faster than the ability to add transmission and new electricity generation. Managing this growth will be critical for achieving a transition to clean energy; the potential imbalance between supply and demand requires increased attention from regulators, utilities, large energy users and grid operators.
Federal agencies have been hard at work crafting regulations to fulfill legal requirements and reduce emissions. The EPA’s proposal to regulate greenhouse gas emissions from fossil fuel-fired electricity faced significant pushback from power suppliers and regional grid operators, who said the proposal could impact reliability and relies on unavailable technology. Meanwhile, the U.S. Treasury Department recently proposed guidance on the 45V Hydrogen Production Tax Credit, which sets strict standards for obtaining tax credits for hydrogen production to encourage clean production pathways. The stringency of the final rules for both regulations is critical to putting the power sector on the path to net-zero emissions.
However, the regulatory power of agencies will be weakened if the Supreme Court overturns the Chevron doctrine, which requires judges to defer to federal agencies in the case of ambiguous laws as long as the agency’s interpretation is reasonable. If this were to happen, agency rulemaking of all types, including power sector rules, would be subject to more judicial scrutiny, and fewer regulations may survive.
Much of the funding from the Inflation Reduction Act’s $27 billion Greenhouse Gas Reduction Fund is expected to begin flowing in 2024, mobilizing financing to stimulate new projects. The timing and pace of disbursement, as well as the pace of interest rate cuts expected in 2024, will determine the magnitude of the boost to clean energy.
The Inflation Reduction Act’s clean energy tax credits are already rolling out and will incentivize new clean energy projects, but developers and other stakeholders are still awaiting final guidance from the administration on how the incentives will work. And new funding and financing mechanisms often have a learning curve. For example, the Inflation Reduction Act’s “direct pay” provision, which allows tax-exempt entities such as state and city governments to claim clean energy tax credits, is a new process for organizations that don’t typically file taxes. Some are already moving forward, such as San Antonio, but others will need to get more comfortable with the process to take full advantage of it. Similarly, implementation of the domestic content tax credit bonus is complex. While the industry awaits final guidance, it is unclear if incentives will be widely utilized.
While Congressional action on permitting reform is uncertain, several other actions by FERC and DOE will be critical for advancing regional transmission. FERC has not moved on an important transmission planning rule since releasing a Notice of Proposed Rulemaking (NOPR) on the subject in April 2022. But with the Commission’s composition having changed at the beginning of 2024, there is some hope that a rule is forthcoming to streamline and modernize the U.S. transmission planning process. FERC Chairman Phillips has indicated that finalizing the planning rule is a priority. A strong rule would address cost allocation processes, a 20-year planning horizon, and defining a comprehensive set of benefits categories that should be considered when assessing lines and allocating costs.
Furthermore, actions by DOE to implement Inflation Reduction Act and Bipartisan Infrastructure Law provisions could stimulate transmission investment and upgrades. Under the Transmission Facilitation Program, DOE is authorized to borrow up to $2.5 billion to get the development of new, large-scale, interregional transmission lines across the finish line. After initial selections in October 2023, DOE is on track to finalize capacity contract negotiations with a commitment of up to $1.3 billion for three transmission projects across six states, aimed at adding an additional 3.5GW of grid capacity.
Also, $14 billion in funding is slated to be allocated to states, tribes and utilities for grid-enhancing technologies and other upgrades. DOE has also finalized the designation process for National Interest Electric Transmission Corridors (NIETCs), which authorizes the Secretary of Energy to designate geographic areas as NIETCs if she finds that new transmission would advance national interests, such as increased reliability and reduced costs. Designation can unlock federal financing for lines and enable FERC to issue permits for siting in some cases.
The ability to get projects approved for interconnection to the grid has become a major barrier to growth in clean energy generation. FERC took a major step towards tackling interconnection queues by issuing Order No. 2023, which requires transmission providers to, among other things, transition from a “first-come, first-served" to a “first-ready, first-served" cluster study process. These reforms will improve interconnection wait times, which are primarily impacting renewables, the vast majority of projects stuck in queues. But there is an open question of how much the reforms will improve interconnection wait times and the scope of additional reforms needed.
While the rate of progress overall is currently insufficient, as we look ahead to 2024 and beyond, many strategies and tools are available to achieve higher rates of clean energy deployment. Policymakers, regulators, developers and manufacturers must double down on their efforts to address the key challenges slowing the clean energy transition. The opportunities are here — now it’s time to seize them.
