Carbon-Free Energy Is the Name of the Game: Renewables, Nuclear Poised for Growth

Solar, wind, and nuclear power, as well as battery storage systems, are the obvious winners as the world aims to decarbonize energy systems.

It shouldn’t be a surprise to anyone who has been following trends in the power industry for any length of time that renewable energy again led capacity additions over the past year. In fact, the International Energy Agency (IEA) reports that investment in clean energy has risen by 40% since 2020. It says the push to bring down emissions is a key reason, but not the only one. “The economic case for mature clean energy technologies is strong. Energy security is also an important factor, particularly in fuel-importing countries, as are industrial strategies and the desire to create clean energy jobs,” the IEA said.

Not all clean technologies are thriving, however. Some supply chains, notably for wind, are under pressure. Still, more than 500 GW of renewables generation capacity were on track to be added in 2023, which would set a new record. The IEA reported that more than $1 billion a day is being spent globally on solar deployment. Meanwhile, manufacturing capacity for key components of a clean energy system, including solar photovoltaic (PV) modules and electric vehicle (EV) batteries (Figure 1), is expanding fast, so expect the energy transition to accelerate.

1. Ultium Cells, a joint venture between General Motors (GM) and LG Energy Solution, began battery cell production at its new 2.8 million-square-foot facility located in Warren, Ohio, in August 2022. The state-of-the-art plant employs 1,700 people and has a 41 GWh annual capacity with room for expansion. The batteries will be installed in GM’s electric vehicles, and may be supplied to other customers including in the rail, aerospace, heavy trucking, and marine industries. Similar facilities are under construction in Spring Hill, Tennessee, and Lansing, Michigan, with openings planned in 2024. Courtesy: Ultium Cells

“The transition to clean energy is happening worldwide and it’s unstoppable. It’s not a question of ‘if,’ it’s just a matter of ‘how soon’—and the sooner the better for all of us,” IEA Executive Director Fatih Birol said in a statement announcing the release of the IEA’s World Energy Outlook 2023 report in late October.

Drivers Behind the Energy Transition

“While some of the challenges that held back renewable growth in 2023 are expected to continue into next year, renewables will likely take off in 2024, albeit at different speeds,” Marlene Motyka, Deloitte U.S. Renewables Energy Leader, told POWER. “That’s because unprecedented federal funding, market competitiveness, and demand will likely propel renewable energy development even as they also exacerbate grid, supply chain, and workforce challenges.”

The push of federal funds flowing into clean energy and the pull of decarbonization demand from public and private entities have never been stronger, according to Motyka. The Biden administration has placed great emphasis on expanding renewable energy. Specifically, the Inflation Reduction Act (IRA), which Biden signed into law on Aug. 16, 2022, has been hailed by the White House as “the largest investment in clean energy and climate action ever.”

“The Inflation Reduction Act (IRA) investment tax credits (ITCs) and production tax credits (PTCs) have made utility-scale solar and onshore wind—including projects paired with storage—competitive with marginal costs of existing conventional generation. Projects able to claim the maximum available credits could capture low solar and wind LCOEs [levelized cost of energy],” Motyka said.

In a fact sheet issued by the White House on the one-year anniversary of the IRA’s signing, it says more than $110 billion in new clean energy manufacturing investments were announced by private-sector entities during the law’s first year, including more than $70 billion in the EV supply chain and more than $10 billion in solar manufacturing. Furthermore, it notes the private sector had announced approximately $240 billion in new clean energy manufacturing investments since Biden was elected.

The White House also credits investments in clean energy and climate since the IRA was signed into law with creating more than 170,000 jobs. Meanwhile, the Labor Energy Partnership, a joint project of the Energy Futures Initiative and the AFL-CIO, said it analyzed the IRA and concluded that the law would add nearly 1.5 million jobs and $250 billion to the economy by 2030. The group also suggested greenhouse gas (GHG) emissions will be reduced by nearly 40% as a result of the IRA.

But the IRA isn’t only helping renewables, it’s also benefiting the nuclear industry. “The IRA tax credits mark a turning point for advanced nuclear energy, ensuring that new nuclear projects can play a significant role in reducing emissions from electricity generation,” Nuclear Innovation Alliance (NIA) Executive Director Judi Greenwald said in a statement released in December announcing the publication of a paper focused on implications of IRA tax credits for advanced nuclear energy. “We commend the foresight of policymakers in enabling new nuclear construction through the PTC and ITC options under the IRA, which will play a crucial role in making advanced nuclear energy economically viable for both ‘first-of-a-kind’ and ‘nth-of-a-kind’ advanced nuclear projects,” Greenwald said.

Tax Credits and Transferability

“In 2023, we gained valuable insights into the practical workings of certain components of the IRA, thanks to a series of issued guidance. These newly clarified provisions have undeniably bolstered investor confidence, providing a solid foundation for at least a decade of sustained investment in renewable energies,” Sarp Ozkan, vice president of Commercial Product with Enverus, told POWER.

Gabe Grosberg, managing director for North America Regulated Utilities with S&P Global Ratings, agreed. “We expect that the IRA will fuel the growth of U.S. renewable power over the next decade. The law allows for significant tax credits for renewable energy, and also allows for these tax credits to be transferred to a third party. Transferability allows tax credits that cannot be used on a company’s own consolidated tax return—because the company has insufficient income—to be transferred to a third party.”

Transferability is one of the nuances of the law that Ozkan said the market still needs to navigate and unravel. “One of the main themes that we will continue to monitor is the tax equity and transferability markets,” he said. “The abundance of extended, expanded, and new credits is poised to inundate traditional tax equity markets, presenting a formidable challenge for the nascent transferability market. Transferability is anticipated to cater to smaller and emerging developers at a more substantial discount. Nevertheless, certain aspects of its flexibility may intrigue larger players, prompting them to explore how such deals can be strategically structured to their advantage. However, traditional tax equity markets are expected to place an even greater emphasis on established, creditworthy developer counterparts. This shift is particularly driven by mounting concerns regarding queue congestion and the diminishing probabilities of project success.”

Grosberg said investor-owned utilities will benefit. “We expect that the investor-owned regulated utility industry will be one of the primary beneficiaries of the transferability of tax credits, given both the industry’s high expansion of renewable energy and taxable income that is generally insufficient to use all available tax credits.”

Continued Pressure to Retire Coal-Fired Units

Meanwhile, America’s Power, a national trade organization that advocates on behalf of the U.S. coal fleet and its supply chain, said the U.S. Environmental Protection Agency (EPA) proposed or finalized at least four regulations in 2023 that are likely to force more coal plant retirements. The group said the EPA has also been slowly implementing regulations focused on coal combustion residuals and regional haze, which could lead to additional plant closures.

In remarks made during a November-held Federal Energy Regulatory Commission (FERC) technical conference focused on reliability, Michelle Bloodworth, president and CEO of America’s Power, said unless the six regulations were substantially moderated or overturned, the possibility of a near-term reliability crisis was exacerbated.

“There have been numerous warnings about a grid reliability crisis,” Bloodworth said. “One of the primary reasons is the premature retirement of dispatchable electricity resources, mostly coal. So far, more than 40% of the nation’s coal fleet has retired. Past EPA regulations caused or contributed to many of these retirements. Despite clear warnings, an alarming number of coal-fired power plants continue to retire, and the pace of these retirements is faster than most people realize.”

America’s Power estimates that more than 100 GW of coal-fired power plants are at risk of retiring prematurely because of the “Carbon Rule.” The Carbon Rule refers to docket number EPA-HQ-OAR-2023-0072, which proposes five separate actions under section 111 of the Clean Air Act addressing GHG emissions from fossil fuel-fired electric generating units. The proposal and supporting documents total almost 700 pages.

“The Carbon Rule would undermine reliability by forcing the premature retirement of coal-fired generating capacity and by causing the loss of essential reliability attributes provided by the coal fleet,” Bloodworth said. “EPA has failed to conduct a proper reliability assessment that encompasses both resource adequacy and operating reliability.”

Yet, even if America’s Power can quash some of the unfavorable regulations, it will still be hard to flatten the downward trajectory coal power is currently on (Figure 2). “The U.S. has reduced its reliance on coal-fired generation by about 60% over the past decade and we expect that the vast majority of the remaining coal plants will largely be phased out by 2030, mostly to be replaced with renewable power and batteries,” said S&P Global Ratings’ Grosberg.

2. This chart shows coal’s monthly market share of U.S. electric power generation from January 2001 through September 2023. Prior to 2001, coal consistently supplied more than 50% of the power produced in the U.S. During the first three quarters of 2023, it averaged only slightly more than 16% of the total. Source: U.S. Energy Information Administration

In less developed parts of the world, however, coal may still have legs. Speaking at the 5th annual India Coal Conference in New Delhi, FutureCoal CEO Michelle Manook said, “Government and finance policies, which embrace a ‘cancel coal’ mantra, are short-sighted and undermine the very ambitions we seek to achieve as a global community.” FutureCoal, formerly known as the World Coal Association, is a global multi-lateral organization representing the entire coal value chain including the coal-fired power industry.

“The reality is, coal will be here for the foreseeable future, and the future of coal beyond combustion gains steady momentum. As a coal value chain, we need to transform, unite, and ensure that a responsible narrative informs global policy setting,” said Manook. “We need to reframe this debate to the reality. There is no legitimate reason for coal not to participate in any energy transition. Abated coal solutions exist and they must be embraced.”

Nuclear Power Gaining Support Worldwide

In December, at the UN Climate Change Conference (COP28) in Dubai, United Arab Emirates (UAE), 22 nations signed onto the Net-Zero Nuclear Initiative, collectively pledging to triple their nuclear energy capacity by 2050. The endorsing countries were Bulgaria, Canada, Czech Republic, Finland, France, Ghana, Hungary, Japan, Republic of Korea, Moldova, Mongolia, Morocco, Netherlands, Poland, Romania, Slovakia, Slovenia, Sweden, Ukraine, UAE, UK, and the U.S. According to International Atomic Energy Agency (IAEA) data, there are currently 277 nuclear reactors operating or under construction within the 22 countries, totaling nearly 270 GW of combined net electrical capacity. Tripling that capacity over the next 26 years will not be easy.

Notably missing from the signatories were China and Russia. Yet, these two countries clearly don’t need to sign a pact to demonstrate their strong belief in nuclear power. The IAEA reports China leads the world in the number of reactors currently under construction with 22 (Figure 3). Meanwhile, Russia, which has three units under construction, dominates the export scene. The World Nuclear Industry Status Report 2023, a Mycle Schneider Consulting Project publication issued in December, says Russia is building 19 units in seven other countries, including four in China. China is likewise anxious to export its own nuclear technology including to both Argentina and Pakistan, among others.

3. China National Nuclear Corp. (CNNC) announced that the top head of the Hainan multi-purpose small modular reactor (SMR) demonstration project’s steel containment vessel was successfully hoisted into place on Nov. 3, 2023. It marks the capping of the key structure of the world’s first SMR demonstration reactor and the “full entry into the peak period of internal installation,” CNNC said. Courtesy: CNNC

“Demand for nuclear is surging around the world because it is clean, reliable, and affordable. As I meet with world climate leaders this week in Dubai for COP28, I am heartened to see this momentum clearly reflected in the dialogue taking place,” Maria Korsnick, president and CEO of the Nuclear Energy Institute (NEI), said in a statement issued on Dec. 2. As countries strive to achieve the goals established in the Net-Zero Nuclear Initiative, industry participants stand to benefit greatly.

“The significance of the Ministerial Declaration cannot be overstated. The countries supporting this declaration are making a resolute commitment, placing nuclear energy at the heart of their strategies for climate change mitigation. Their vision is one that strives for a sustainable, cost-effective, secure, and equitable energy mix,” Dr. Sama Bilbao y León, director general of the World Nuclear Association, said in a statement. “If we can collectively realize this ambitious goal, tripling nuclear capacity, we have the power to fulfil the promise of nuclear energy—to decarbonize entire economies and provide clean electricity to every corner of the globe.”

“The pledge made today puts us on a path toward a sustainable and just energy transition, but making it a reality requires bold and timely actions by governments, investors, and industry. Together we can make this happen, and I look forward to continuing the conversations that will keep us committed to this work toward a clean energy future,” Korsnick concluded.

Bumps Along the Road

While there are many reasons to be optimistic about nuclear power’s future, there are still hurdles to overcome, particularly when it comes to cost and schedule certainty. One first-of-a-kind project that looked promising met its demise in November. Utah Associated Municipal Power Systems (UAMPS) and NuScale Power Corp. agreed to terminate the Carbon Free Power Project (CFPP), a small modular reactor (SMR) project that was planned for construction on Idaho National Laboratory (INL) property near Idaho Falls, Idaho.

“Despite significant efforts by both parties to advance the CFPP, it appears unlikely that the project will have enough subscription to continue toward deployment. Therefore, UAMPS and NuScale have mutually determined that ending the project is the most prudent decision for both parties,” the developers said in an announcement issued on Nov. 8.

“Despite the setback from the recent cancellation of the NuScale Power project, SMRs remain a viable option, especially if there’s an opportunity to scale up manufacturing of these facilities,” said Enverus’ Ozkan, while also acknowledging that there are significant public concerns surrounding nuclear power, even if the economics and scalability make sense.

Following termination of the CFPP, NuScale Power was quick to point out that capital cost projections had not increased “between the Class 3 and current Class 2 estimates” when adjusted for inflation, and that the cost of the company’s SMR technology has also remained steady. However, some industry observers have suggested the costs were simply too much for subscribers to bear. In Mycle Schneider’s report, it says cost estimates had ballooned to $9.3 billion for the six-module 462-MW project. “Despite massive federal subsidies estimated to exceed $4 billion, the projected cost of electricity appeared too high for most candidate municipalities,” the report says.

Nonetheless, the CFPP setback is unlikely to be the death knell for advanced nuclear projects. NuScale has promising deals in place with other companies and countries, and several other microreactor and SMR suppliers also have projects in the queue.

In Canada, for example, Ontario Power Generation (OPG) plans to add up to four GE-Hitachi (GEH) BWRX-300 SMR units—with capacity of 300 MW each—to its Darlington site. Additionally, a collaboration involving GEH, OPG, Orlen Synthos Green Energy, and the Tennessee Valley Authority could result in dozens of BWRX-300 units being constructed in Poland and the U.S. Meanwhile, several other companies including X-energy, TerraPower, Westinghouse, Ultra Safe Nuclear Corp., and Oklo have projects in various states of development. There is a great deal of interest throughout the industry in seeing all of these completed successfully.

Gas Market Uncertainty

In recent years, natural gas-fired generation has fairly quietly increased its margin as the leading source of power in the U.S. Since overtaking coal for the top spot in 2016, gas has grown to account for about 40% of the power supply in 2022, more than twice the percentage supplied by coal units, which ranked second. Through the first three quarters of 2023, the percentage of gas generation stepped up again, now to greater than 43% of the supply, while coal fell below nuclear by more than two percentage points at 16.25%. For more than two decades, nuclear has regularly supplied from 18% to 20% of the U.S. power mix, which has continued in 2023.

Worldwide, demand for gas has increased quite substantially year-on-year (y-o-y). According to the Gas Exporting Countries Forum (GECF), a Doha, Qatar–based intergovernmental organization that caters to the world’s leading gas producers and exporters, gas consumption swelled around the globe in October. In its Monthly Gas Market Report, issued in November, the GECF said the European Union observed a 5.1% y-o-y increase in gas consumption, driven largely by a revival in its industrial sector, while consumption in the U.S. swelled by 6.7% y-o-y, predominantly driven by the power generation sector. GECF analysts said “a shift away from coal-based power, amplified cooling demand, and a decline in natural gas prices” were largely responsible for the increase in the U.S. Meanwhile, China’s apparent gas demand increased by 5% y-o-y, driven by an economic rebound in that country, according to GECF.

“The global economy has faced significant challenges due to persistently high inflation, stringent monetary policies, banking sector instability, supply chain disruptions, imposed economic restrictions, and rising geopolitical tensions. Despite these hurdles, the global economy has surpassed expectations, thanks in part to the gradual easing of inflationary pressures, declining commodity prices, the robust performance of the U.S. economy, and economic recovery in China,” the report says.

For more than 20 years, Japan and South Korea have been two of the top three importers of liquefied natural gas (LNG) globally. In early December, the U.S. Energy Information Administration reported that the two countries LNG storage had been at peak monthly levels for most of 2023. The U.S. was also well-positioned for the winter heating season, with the most natural gas in storage since 2020. U.S. inventories were reported to be 7% higher than in 2022.

Still, some market observers believe European imports of LNG could create volatility in 2024. In Germany (Figure 4), for example, the GECF said growth in gas usage was observed in both the power generation and industrial sectors in October, with increases of 9.4% and 7% y-o-y, respectively. Factors driving this growth included lower gas prices; the phase-out of nuclear power, which led to a greater reliance on natural gas in the power generation mix; and the policy shift from coal to gas.

4. Uniper’s liquefied natural gas (LNG) terminal in Wilhelmshaven was the first import terminal in Germany to start operations on Dec. 21, 2022. Tankers are unloaded and the LNG is regasified at the Floating Storage and Regasification Unit (FSRU) “Höegh Esperanza.” About five billion cubic meters of natural gas can be landed per year from the terminal, which will meet about 6% of Germany’s gas demand. Courtesy: Uniper

To gauge future demand for natural gas and predict market direction, experts with GECF closely monitor global gross domestic product (GDP) forecasts. “Global economic growth is a major factor influencing global gas consumption, particularly in the power and industrial sectors,” the report says. It notes the International Monetary Fund recently lowered its forecast for global GDP growth in 2024 modestly to 2.9%. It says the outlook for 2024 also encompasses significant potential risks, including heightened volatility in commodity prices due to geopolitical tensions, the intensification of China’s real estate crisis, persistent inflationary pressures, and high debt levels in numerous countries. This, combined with inflation and other factors, may have a negative impact on the security of gas supply in the medium- to long-term, the report says.

Energy Storage Provides Flexibility

Energy storage capacity is growing exponentially these days. American Clean Power (ACP), an advocate for the “multi-tech clean energy industry” including energy storage, reported utility-scale battery storage installations in the U.S. totaled 2,142 MW/6,227 MWh in the third quarter (Q3) 2023. That was a 21% increase compared to Q2 2023 and a 63% increase from Q3 2022. The cumulative total of installed battery storage in the U.S. at the end of the quarter was 13,477 MW/38,337 MWh. Many solar projects are now being paired with battery storage in a hybrid system. In fact, ACP reported 27,178 MW of hybrid projects were in the pipeline at the end of Q3, 98% of which were solar plus storage.

“Energy storage resources can be vital in using variable renewable energy sources like wind and solar. The ability to store energy for long durations—10 hours or more—is a key to affordably and reliably operating a decarbonized grid,” said Dr. Andrew Maxson, senior program manager at EPRI.

“Lower costs, performance improvements, demonstrations at scale, and the evaluation of beneficial markets and use cases continue to drive the acceleration of emerging long-duration energy storage solutions to commercial readiness. Integration of energy storage to provide a higher degree of renewables and implementation of demand-side management approaches could help energy companies serve customers through the demand curve in a low-carbon future. Proven dispatchable electricity generation today remains the primary resource providing system flexibility and reliability,” Dr. Maxson told POWER.

“Energy storage can be key for increasing grid resilience and reliability,” Deloitte’s Motyka said. She noted that the Infrastructure Investment and Jobs Act designated $505 million specifically for long-duration energy storage demonstration projects and $7.9 billion toward the development of domestic battery and critical minerals supply chains.

Motyka said energy storage provides many benefits to power companies. “Energy storage can tackle the challenge of increased EV adoption, aiding grid management while potentially serving as a distributed grid stabilizer,” she said. It could also help transform energy markets. “Advanced grid management and energy storage can enable dynamic pricing and demand response, allowing consumers to optimize their energy use and participate in energy markets, and help to create a more flexible and efficient energy ecosystem,” noted Motyka.

“While battery technology has improved and its costs have been significantly reduced, further technological improvements are necessary for the battery to remain the sole source of back-up power for a grid that is increasing its reliance on intermittent renewable power,” said S&P Global Ratings’ Grosberg.

—Aaron Larson is POWER’s executive editor.