Clean energy investors have accepted that America’s rowdy politics add up to policy uncertainty — and that could be trouble for projects on the wrong side of the divide over energy and climate change.
But that’s in a normal year. Dizzying political chaos is something entirely different.
Venture capitalists and energy analysts are paying attention to the most hair-raising presidential election campaign this century. The reelection campaign of President Joe Biden is collapsing in real time, under pressure from Democratic leaders concerned the 81-year-old party leader can’t muscle a victory against former President Donald Trump.
And last night in Milwaukee, Trump formally accepted the Republican nomination for a third time. He soaked up adulation from delegates on the convention floor, still only days after surviving an attempted assassination in Pennsylvania.
“I will end the devastating inflation crisis immediately, bring down our interest rates, and lower the cost of energy,” Trump promised during his acceptance speech Thursday night.
“Drill, baby, drill,” he said, with delegates chanting the slogan in refrain.
For investors and companies funneling money into U.S. factories that build solar panels, transmission projects to carry wind power to California, battery makers in the Midwest or fusion research, the possibility of another total U-turn on energy policy is raising the stakes for investment decisions before the November election.
“Emerging technologies require policy clarity, policy security, and you’re not seeing that right now,” said David Brown, research director for Wood Mackenzie’s energy transition group. “If anything, the last few weeks and months there’s been increased policy risk in the United States.”
In interviews with POLITICO’s E&E News, investors said clean energy industries may be growing rapidly enough to withstand a turnabout under a Trump administration antagonistic toward zero-carbon energy. Still, the pace of investment could slow, and that’s a risk.
“Nobody believes that policy changes will destroy these industries,” said Arvin Ganesan, chief executive of the start-up battery storage company Fourth Power, at a Washington conference this month. “But it’s just absolutely a fact that policy will determine how quickly these technologies get to market.”
As the nation enters the final three and half-month sprint to Election Day, one party can’t unite around a candidate. The other party’s candidate is juggling campaign stops and court appearances.
Federal incentives ushered in under Biden for makers of energy technology to replace fossil fuels were pilloried by Republican convention speakers — despite benefits enjoyed by red states where factories are locating. Milwaukee marked the GOP’s departure from old party orthodoxy, with a platform now built on a mix of economic populism and isolationism.
This week, Republicans pinned higher electricity prices on Biden and promised to drill for more oil and natural gas. (The U.S. is already the world’s largest oil and gas producer). Trump and his surrogates have vowed to pull the U.S. out of the Paris climate agreement — again.
‘The wheels fall off’
The U.S. solar industry installed over 32 gigawatts of new generating capacity in 2023, according to the Solar Energy Industries Association.
The group predicted another big year in 2024 for adding new solar capacity, based on Wood Mackenzie’s analysis.
But that assumes a continuation of federal clean energy policies. Trump’s victory would mean “an immediate deceleration in support for decarbonization,” Wood Mackenzie also reported in June.
If that deceleration occurs, U.S. investment in clean energy development could fall by half, dooming goals for a zero-carbon grid in 2035 and a net-zero-emissions economy by 2050, the firm added. Blowing through those goals would take many parts of the world to the edge of irreversible extreme weather catastrophes, according to the Intergovernmental Panel on Climate Change.
“This election cycle will really influence the pace of energy investment, both in the next five years and through 2050,” the Wood Mackenzie report concluded. Investments in new zero- and low-carbon technologies need to be made now to make them competitive heading into mid-century. If these technologies are held back, zero carbon goals could fall out of reach, the report added.
“Long-term decarbonization assets need to generate long-term cash flow to repay long-term financing. That repayment plan depends on long-term policy certainty and durable incentives,” said Jeffrey Brown, managing director of EFI Foundation and the Energy Futures Finance Forum.
“The wheels fall off” if policies threaten to change every two to four years, Brown said.
A senior official at a prominent lender to clean energy and digital technology companies said that support for the strongest companies remains solid — calling it an “opportunity-rich environment.”
The lender, who did not want to be named, said speculative investing in early-stage companies was highest when interest rates were low and sentiment toward clean energy was peaking. “That has very clearly changed,” said the person.
Even so, White House support under Biden for moving the ball on critical energy infrastructure was critical.
Nearly a dozen big transmission projects began construction after years of struggle to get rights-of-way approved, and most are designed to open the way for large batches of carbon-free renewable power or hydropower.
Last December, banks and investment groups from the U.S., Canada, Japan, France, Germany, Argentina, Spain and Italy committed $11 billion to build the SunZia project to deliver 3,515 megawatts of wind power from North America’s largest wind farm proposed for New Mexico to power-hungry Arizona and southern California.
The developer, San Francisco-based Pattern Energy, sees the project as a crucial complement to Sunbelt solar energy and a new lifeline of carbon-free power for data centers and new manufacturing plants.
The funding support by a who’s who of lenders shows that capital is there for the right projects, says Cary Kottler, Pattern’s chief development officer. But SunZia’s eventual success also shows how many crucial boxes must be checked off.
After 17 agonizing years, the project finally got the required federal siting approval with a big push from the Biden White House. New Mexico and Arizona state officials also backed it. Customers in California signed up to purchase the wind farm’s output. The Audubon Society switched from opposition to support because of the growing threat of global warming to the region’s migratory birds. Pattern’s principal investor, the $600 billion Canada Pension Plan Investment Board, never faltered.
If this project couldn’t get done, what could? Pattern Energy’s Kottler told E&E News.
And this week, investors got behind another billion-dollar project, the Green River Energy Center, a 400-MW solar and 400-MW battery storage project planned for Utah. Project developer rPlus Energies in Salt Lake City was able to line up $1 billion in construction financing from U.S., Japanese and French banks, thanks to a power purchase agreement from the large Northwest utility PacifiCorp.
“If there are good projects out there, the banks are looking for them,” said rPlus Energies’ Chief Executive Luigi Resta.
Repeal risk
The tax incentives for clean energy projects written into the Inflation Reduction Act remain a game changer. Considered the most important U.S. clean energy legislation ever — and a political home run for Biden — the 2022 legislation locked in tax credits for wind, solar and other clean energy projects for 10 years, significantly lowering the cost of the energy.
The Inflation Reduction Act replaced the past cycles of short-term congressional authorization of clean energy tax benefits that created boom and bust cycles when the credits temporarily lapsed.
Two years is enough time to elect a new Congress and train a golden retriever, but not enough to do clean energy projects, said EFI Foundation’s Brown.
If the IRA tax benefits now have a longer lifespan, some uncertainty remains about the crucial details of the Department of Treasury regulations that can determine an investor or banker eligibility for the benefits.
Under IRA, the tax benefits earmarked for wind and solar projects will change next year, replaced by technology-neutral tax credits that will require new guidance while Treasury is yet to finish guidance on other IRA details.
“As an industry, we are still working through some of the guidance,” said Resta of rPlus Energies. “How is it going to work?”
“The industry feels pretty safe that the IRA benefits could withstand a change in administration because so many of these projects are being built in Republican states and counties,” Resta said. “And they’re bringing significant economic investment into those communities.”
Other investors and developers agreed that the IRA benefits area spread too widely among red and blue states to be vulnerable to repeal. Some tax incentives, like support for carbon capture and sequestration and advanced nuclear small modular reactors, have bipartisan support.
“My clients perceive the repeal risk it as reasonably low,” said McKinsey & Co. partner Christian Staudt, leading its North American renewable energy sector.
Staudt said clean energy investment and deployment will continue to grow.
Onshore wind and solar “are built all across the U.S. and it seems relatively unlikely that they would be impacted by changes in administration. “The thing that’s probably most uncertain is offshore wind. Cost overruns, inflation, all of these things have obviously put a damper on it.”
A Trump administration hostile to offshore wind can stop leasing sites and cut off the future, he said.
Staudt said the case hasn’t been made that the transformational goals of a carbon-free grid in a decade are achievable in a country so politically divided, and in an industry as fragmented as electricity. “It seems hard to imagine, just given the sheer scale of it.”
One side in the election has voted to try, the other not.
