Bernstein analysis sees renewable energy reaching plateau

While non-hydro renewable energy will continue to grow in the short run, the pipeline of projects under construction or advanced development appears to be weakening, according to a Sept. 9 analysis by Bernstein Research.

The commentary by Bernstein Senior Analyst Hugh Wynne suggests that, with weak overall power demand, market pressures could force renewable portfolio standards in some states might be reduced or delayed.

“While U.S. renewable generation will continue to increase, we expect its rate of growth to slow markedly in the years ahead,” according to the Bernstein document. “From 2007 through 2012, non-hydro renewable generation in the U.S. expanded at a compound annual rate of 16%. From 2012 through 2015, we expect this rate of growth to slow to 13%. From 2015 through 2020, we expect non-hydro renewable generation to grow at only 6% p.a.”

“With renewable generation still not cost competitive with its conventional counterparts, demand for renewable generation is artificially sustained by state mandates and targets, and the potential market for new renewable generation shrinks as state RPS are met,” Wynne said in the Bernstein analysis.

Other contributing factors include the dramatic fall in gas prices due to the growth of hydraulic fracturing, which has increased the cost renewable generation relative to conventional alternatives; the effect on power demand of the recent recession, which has curtailed the need for new renewable generation to meet state RPS; and the end of production tax credits for wind and investment tax credits for biomass and hydro at the end of 2013, according to the analysis.

The commentary also said that mandated renewable growth will cause significant increases to retail electric rates in some RPS states.

The Bernstein report also said renewables growth plays a hand in causing nuclear and fossil generation to shrink even as power demand recovers.

Though renewable generation accounted for just 12% of United States electricity generation in 2012 (and non-hydroelectric renewable for less than 6%), renewables are now a large enough share of total supply that their growth will materially affect the future of conventional generation, the report says.

U.S. utilities and generators with large exposure to renewable generation, based upon the ratio of planned capital expenditures in permitted renewable projects to current market capitalization, are Allete (NYSE:ALE), Calpine (NYSE:CPN), NextEra Energy (NYSE:NEE), Sempra Energy (NYSE:SRE), Exelon (NYSE:EXC), Duke Energy (NYSE:DUK) and American Electric Power (NYSE:AEP), according to the Bernstein document.

The report titled “The Long View: Has the Growth of U.S. Renewable Capacity Reached Its High Water Mark?” was drafted for Bernstein clients by Wynne and Francois Broquin.

Bernstein Research is affiliated with Sanford C. Bernstein & Co.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.