biden

America’s failing electric grids and clean energy goals will be key themes in the U.S. energy sector this year.
The coming months will also be a test for President Biden’s green energy policies, considering that his Build Back Better Act is now stalled in Congress.
Clean energy targets set by states are “going to be more difficult to achieve” without federal action.

The winter months will show whether state legislators and utilities have learned the lesson from last February’s Texas storm in ensuring grid reliability, while Democrats are scrambling to salvage President Joe Biden’s proposed Build Back Better Act. Grid reliability, states’ clean energy goals, and further federal action to advance renewable energy will be the key themes in the U.S. electricity sector in 2022.

The Biden Administration announced last year ambitious goals to promote green energy, including decarbonizing the electricity grid by 2035. But issues with grid access, flexibility, and reliability need to be addressed by states and the federal government sooner rather than later to avoid another deadly storm like the one in Texas in February 2021.

Despite newly introduced regulations to avoid power failures, the Texas grid remains vulnerable to blackouts in case of a repeat of the February Freeze, a report by the North American Electric Reliability Corp warned at the end of last year.

According to the 2021-2022 Winter Reliability Assessment report, Texas risks a 37-percent reserve margin deficit in case of a harsh winter, NERC said.

A cold spell this winter could test the Texas grid and whether the state legislators have managed—through legislation—to help the Lone Star State avoid a repeat of last February’s disaster.

The coming months will also be a test for President Biden’s green energy policies, considering that his Build Back Better Act is now stalled in Congress.

The outlook of U.S. renewable markets and economic growth became even more uncertain just before Christmas, when Democratic Senator Joe Manchin of West Virginia, a crucial vote in a divided Senate, said he would not support President Biden’s bill. Democrats are now trying to salvage the bill and may be forced to drop some policy priorities if they want Senator Manchin’s decisive vote and the bill to pass.

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The Biden Administration believes a carbon-free electricity grid by 2035 is an achievable goal. Many analysts believe it is not.

The stalled Build Back Better legislation will impact the future renewable energy installations in the United States.

The U.S. solar industry is set to be torn between huge opportunities and major stumbling blocks in the coming months and years, and it will likely see a wild “solar coaster” ride in the next few years, Wood Mackenzie said in the middle of December.

Supply chain setbacks and constraints could delay many projects and put gigawatts of capacity additions at risk, Michelle Davis, Principal Analyst, Solar, at WoodMac, says. But on the other hand, if Congress passes the Build Back Better Act, the U.S. solar industry will receive a shot in the arm with the multiple clean energy incentives set in the legislation, including an extension of the investment tax credit (ITC), Davis added.

Due to the opposing bullish and bearish dynamics, near-term U.S. solar capacity is set for the largest fluctuations since 2016, when the ITC almost expired, WoodMac’s analyst noted.

The U.S. Department of Energy insisted in its Solar Futures Study in early December that by 2035, solar energy has the potential to power 40 percent of the nation’s electricity, drive deep decarbonization of the grid, and employ as much as 1.5 million people—without raising electricity prices.

However, the study also shows that by 2035 the United States “would need to quadruple its yearly solar capacity additions and provide 1,000 GW of power to a renewable-dominant grid.”

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Electric vehicles also received major policy support in 2021, and major automakers are now racing to build battery plants across the U.S. in a sign that the car manufacturing industry has started to embrace the EV future. It now needs to turn American consumers into fans of electric vehicles, which will take time.

In 2021, more states adopted clean energy and/or net-zero emissions targets, and others are expected to join the list this year and in the coming years. North Carolina, Oregon, and Illinois adopted legislation in 2021 to reach carbon neutrality by 2050, or by 2040 in Oregon’s case.

Clean energy targets set by states are “going to be more difficult to achieve” without federal action, Warren Leon, Executive Director of the Clean Energy States Alliance (CESA), told E&E News.

Overall, the year is set to be a crucial test for the Biden Administration’s clean policy goals.

While clean tech-energy stocks have declined in value so far in 2021 – after racking up huge gains last year – the sector is poised for a rebound given the decarbonization pledges by some of the leading industrialized nations on earth, including the U.S., EU and China.

Key Facts

The iShares Global Clean Energy Exchange-Traded Fund, which holds about 30 stocks, has plunged 28% since a recent peak on Jan. 7 through Tuesday (versus a 1.9% gain by the S&P 500 index), after surging 142% last year.

Raymond James analyst Pavel Molchanov says after having enjoyed massive gains last year, it is “entirely reasonable and indeed healthy” for there to be a pullback in the sector, adding this recent decline is part of the broader equity market’s sector rotation out of growth towards value stocks.

Molchanov notes investors need to be selective in the clean tech-energy sector, citing that most stocks in this space are trading near record valuation multiples – on average, current multiples are approximately double the levels of one year ago.

Within solar, Molchanov is currently bullish on module manufacturer Maxeon Solar Technologies; residential systems provider Sunnova Energy International; and project developer ReneSola; while in the wind sector, he favors independent power producer NextEra Energy; and blade manufacturer TPI Composites.

J.P. Morgan analyst Mark Strouse recommended in a recent report green energy firms with “high margins and strong free cash flow,” including solar tracker maker Array Technologies; solar equipment maker Enphase Energy; solar panel maker Solaredge and solar tech company Shoals Technologies.

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Key Background

The movement towards the expansion of green energy endeavors in the U.S. and Europe is accelerating – as such, clean tech-energy companies will likely benefit from government and industrial encouragement of decarbonization for the long term. In mid-February, the U.S. officially rejoined the Paris Agreement on climate change – reversing President Trump’s departure from the accord — under which the U.S. and nearly 200 other nations will seek to limit global temperature increases to no more than 2 degrees Celsius above pre-industrial levels by reducing emissions of greenhouse gases. President Biden, who has made tackling climate change a key part of his administration’s strategy, will host a climate summit with world leaders on April 22 (Earth Day) where he is expected to unveil specific new targets for emissions cuts. Biden has also pledged to spend $2 trillion to fight climate change by, among other things, making investments in renewable energy projects and seeking to cease all emissions from U.S. power plants by 2035. Michael Weinstein, an analyst at Credit Suisse, notes that the Biden Administration is “slowly assembling appointees” across various roles in the Department o Energy and other departments, and “we still believe favorable renewable policies will start rolling out after the summer.” Molchanov of Raymond James observes that while there remain “many questions” about which of Biden’s climate reforms will be able to get through Congress, an even more “visible driver” of decarbonization and energy transition is the European Climate Law, which was approved last December. “This is a legally binding commitment to net-zero carbon emissions across the EU by 2050 – the first-ever such policy by a major global economy,” he adds. “Equally importantly, this law commits the EU to lower carbon emissions by 55% by 2030, ensuring that implementation will begin rapidly. This will require not just a massive change in power generation, but also across the transportation, agricultural, commercial, and residential sectors. All of this will generate trillions of dollars of market opportunity for decades, encompassing all the verticals in the clean tech ecosystem.”

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Big Number

571%. That’s how much Enphase Energy’s stock surged last year – but shares have since fallen 28% from recent highs on Jan. 7.

Tangent

Among other clean energy subsectors, Molchanov is also bullish on industrial wood pellet maker Enviva Partners; natural gas fuel equipment maker Chart Industries; lithium supplier Livent Corp.; fuel cell manufacturer Bloom Energy; and Itron, a maker of electricity, gas, water and thermal energy measurement devices and related software.

Crucial Quote

“[Regarding the Paris Agreement], for Biden, he has to balance millions of jobs dependent on fossil fuels with clean energy campaign promises. At the same time, there remains a lot of uncertainty as to whether the Paris Agreement will become the ‘de-facto’ climate agreement or will it go the way of [the failed] Kyoto [Protocols]. These positions will influence how large investors, especially institutional investors, approach clean energy now that the U.S. has rejoined the Paris Agreement,” says Abishur Prakash, a geopolitical futurist at the Center for Innovating the Future, a consultancy based in Toronto.

Palash Ghosh

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