North America is poised to embark on a monumental transformation in its energy landscape, with a cumulative investment of $12 trillion earmarked for renewable energy generation and grid infrastructure by the year 2050, as revealed by a recent report from Norwegian-headquartered consultancy firm DNV.
The report, titled “Energy Transition North America 2023,” underscores that the Inflation Reduction Act (IRA) and Canada's Federal Budget have triggered a significant reassessment of the United States' energy sector by both investors and energy forecasters. This shift in perspective is laying the foundation for long-term capital expenditure (CAPEX) commitments in renewable energy and grid development. Of the $12 trillion budgeted, an estimated $7 trillion is allocated for clean energy generation, while $5 trillion is designated for grids and operational expenditure.
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To put this into context, the IRA, celebrated as the ‘largest' climate investment package in history, has made $369 billion available in tax credits for clean energy production and manufacturing over the next decade, accounting for just over 3% of the total projected investment.
In the realm of clean energy generation, DNV's report anticipates that approximately $2.3 trillion will be directed towards solar photovoltaic (PV) projects, with an additional $1.6 trillion allocated to wind power initiatives. Remarkably, the report predicts that solar PV will surpass all other renewable sources in capacity by 2027, becoming the dominant generation technology in North America by the mid-2030s. By 2050, solar PV is expected to account for nearly half of the region's power consumption, driven primarily by the declining levelized cost of energy (LCOE) for solar. The IRA's production and investment incentives (PTC and ITC) have also provided investors with a decade of relative certainty, further bolstering solar's ascendancy.
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Looking ahead, the report envisions LCOEs plummeting to as low as $20 per megawatt-hour (MWh) for solar PV and $36 per MWh for solar-plus-storage by 2050. Consequently, renewable CAPEX, led by solar, is projected to surpass fossil fuel CAPEX by 2040.
The impact of these investments is already being felt in the US economy. A recent report by the Solar Energy Industries Association (SEIA) highlighted that the solar and storage industries have contributed $100 billion to the US economy since the IRA's enactment. Nevertheless, questions persist about the ability of domestic PV products to compete with imported alternatives, particularly in terms of price and availability.
DNV's report further anticipates that nearly one-third of all solar installations by 2050 will incorporate storage, primarily in the form of batteries. This aligns with DNV's previous survey, which emphasized the increasing role of solar-plus-storage projects in the energy transition due to their financial opportunities and their ability to stabilize intermittent solar generation, thus enhancing grid reliability.
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In the realm of grids and transmission, DNV highlights a critical concern for North America's energy transition. The report suggests that the US interconnection system must more than double in capacity by 2050, growing at a 3% annual rate to accommodate the increasing penetration of solar and other renewables. This expansion necessitates the development of high-voltage, long-distance transmission lines and a more resilient and versatile low-voltage distribution grid.
Despite these challenges, DNV remains optimistic about the renewable energy transition's potential to overcome grid limitations. The report acknowledges that while expansion plans in the near term are lacking, the enormous market opportunity presented by renewables will likely drive necessary improvements in the grid infrastructure. Failure to address interconnection shortages, however, could deter investors and project developers, posing long-term consequences for the renewables market in North America.
