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The Pace of the U.S. Energy Transition Could Now Accelerate

Nov. 5, 2020, 9:00 AM

In the event of a change in the administration in Washington, D.C., the pace of the ongoing energy transition in the U.S. will accelerate. The Biden campaign made it clear from the start that a Biden administration would recommend legislation and implement regulatory changes to mandate and enhance major shifts in the production of energy that are already underway in this country.

The next four years and beyond should be an exciting time for everyone involved in the energy sector, as well as for everyday consumers of energy. What are some of the changes that we could expect to see in the near term under a Biden administration?

Electrical Generation

At the end of 2019, approximately 17.5% of the total U.S. utility-scale electricity generation was from renewable energy sources (up from approximately 9% in 2000). If distributable solar PV is taken into account, the percentage rises to approximately 18.3%. Wind is the largest renewable energy source (7.3%), followed by hydro (6.6%), solar (1.8%), biomass (1.4%) and other (0.4%).

The growth of renewable energy as the preferred source of new electrical generation is even more impressive when looked at as a percentage of new electric capacity added to the grid over the past two years. Wind energy capacity increased by over 9,000 MW in 2019, which was the third strongest year of new wind installation.

This fast pace has continued into 2020, although disruptions in the supply chain caused by the onset of the Covid-19 pandemic have slowed the pace somewhat. What is even more dramatic is the impact of this energy source in the so-called wind belt in the Midwest, where wind energy production now accounts for over 20% of electricity generation in six states, and the percentage keeps rising.

Solar, Wind Energy Growth

Equally impressive over the past two years is the growth in solar energy production. In 2019, approximately 40% of all new electric capacity added to the grid came from solar, the largest share in solar’s history. Solar has become more competitive due to rapidly declining costs, increasing demand both in the private and public sectors and continued support from federal policies, including the Investment Tax Credit.

The novel coronavirus has also impacted the supply chain in the solar industry, with the distributed solar market having been impacted the most, due to a shortage of sales personnel and installers. Utility-scale projects appear to have been affected less, although the development pipeline may be affected or at least it will experience delays.

The rise of renewable energy sources for the generation of electricity has come at the expense of fossil fuels, principally coal and petroleum liquids. An exception is the continued use of natural gas, which is the “cleanest” of fossil fuels. The use of natural gas as a fuel source for the generation of electricity has increased over the years due to its low cost and plentiful supply in the U.S.

The shift to renewable energy sources for the generation of electricity has occurred with little support from the current administration and a dearth of federal policies (other than the tax credits that were initiated under prior administrations and continued in a limited manner only because of support in Congress).

This shift has been supported by corporate America, driven in part by shareholder/investor demands, employee support and consumer preferences. Even “Big Oil” has jumped on the bandwagon. Not wanting to miss out on this new market, many majors are setting renewable energy goals and establishing renewable/clean energy divisions.

The lack of significant federal support will change dramatically with the new administration and the passage of legislation to support the renewable energy industry. If the Biden administration is to meet its goal of a carbon pollution-free power sector by 2035, however, then legislation and executive orders will need to be enacted in the first days to have a chance of meeting that timeline.

Look for legislation and executive orders that would support the development of new technologies, including renewables and hydrogen, increased battery storage for solar and wind energy production, the extension of tax credits, expediting the tedious permitting process for offshore wind energy facilities (off both coasts and the Gulf of Mexico), facilitating the construction of updated and new transmission lines and incentivizing the transition from fossil fuels to renewable energy sources at all levels of the economy, utilizing some of the best practices from states, including the renewable portfolio standards that have been adopted by 30 states, the District of Columbia, and three territories.

Electric Vehicles

The push for zero-emissions vehicles is also occurring, again without current federal support. California made headlines when Gov. Gavin Newsom (D) signed an executive order banning the sale of new cars in California that run on gasoline starting in 2035. Several other states have also announced plans to require new cars and trucks to be emissions-free (Washington and Hawaii—after 2030; New York—after 2035; and New Jersey—after 2040, to name a few).

New infrastructure will be needed to achieve these goals, including the construction and installation of electric vehicle charging stations. European car makers are already surveying the 50 states to check on legal requirements making such charging stations available to the general public, as opposed to only owners of their car models.

This area is ripe for development by the private sector with support from a new administration, particularly given the level of infrastructure spend that will be required. Look for legislative enactments in this area as a keystone to a Biden administration’s plan to achieve net-zero emissions by 2050.

Energy Efficient Buildings and Homes

The upgrading of existing commercial buildings and homes to meet energy-efficiency standards and reduced carbon emissions is already underway in many states and municipalities. New York City, for example, has enacted a law that mandates that a building receive an energy-efficiency letter grade that is to be posted in a conspicuous location beginning in 2020.

In addition, there are laws that limit carbon emissions from buildings and will require remediation in the event a building is in the bottom 20% of all buildings in an initial compliance period, which is 2024-2029. Similar legislation has been enacted in Chicago and Washington, D.C.

A Biden administration is likely to use these examples to enact legislation to meet its stated goal of upgrading 4 million buildings and weatherizing 2 million homes within four years. Look for new building code processes and support for low-cost financing to achieve these energy-efficiency standards.

There is much to be done to achieve the energy transition that has been espoused by the Biden campaign and which, in many ways, is already underway in the country. The proposed agenda for energy transition and reform is ambitious, and we have seen similar agendas initiated in the past only to fall short of the stated goals.

This time may be different, however, given the exigency of the current situation with the accelerated deterioration of the climate and the absence of U.S. leadership in this area over the past four years. In most instances, the energy transition is not a question of if but a question of when. The stakes are too high now for the transition not to be completed.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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About the Authors

Clyde E. “Skip” Rankin III is a partner in New York and chair of the North America Projects practice at Baker McKenzie. He advises clients on renewable energy projects, project finance and infrastructure transactions, mergers and acquisitions, privatizations, and joint venture agreements.

Andrew Ketner is an associate in Baker McKenzie’s Energy Transactions practice in Houston. He has experience in a diverse range of domestic and international energy-related transactions and projects, including mergers, acquisitions, divestitures, joint ventures, and project development.

Gina Sato is an associate at Baker McKenzie’s Projects practice in New York. She advises clients in connection with project financing and the sale and acquisition of renewable energy and other infrastructure projects.