2020 was a record year for US renewables. This is what needs to happen next

Despite the challenging economic conditions created by COVID-19, 2020 was a record year for clean energy development in the United States, with the country nearly doubling the capacity installed in 2019.

According to Bloomberg New Energy Finance, the U.S. installed 35 gigawatts (GW) of new renewable generating capacity in 2020, enough to power 9 million homes. Installation rates of solar (18.7 GW, up 65% from 2019) and wind (16.5 GW, up 178%) skyrocketed. Renewable energy purchases by cities (3.7 GW) and corporate buyers (10.6 GW) increased substantially in 2020, up 23% and 14% respectively from 2019.

Battery storage also grew at a particularly impressive rate, with 1.1 GW of capacity added, up 178% from 2019. One market analyst described this increase in battery storage deployment as “the hockey stick that we’ve long expected,” and estimated that battery storage installation rates will reach 7.5 GW annually by 2025.

At the end of January 2021, the U.S. had a total of 169 GW of installed wind and solar capacity. Overall, non-hydro renewables accounted for 12.5% of total U.S. electricity generation in 2020, and the inclusion of hydropower brings that figure to 20% of electricity generation.

How much more renewable energy do we need this decade?

But while the 35 GW of new renewable capacity added in 2020 was record-setting, it’s still not enough.

President Biden set a goal to reach 100% clean electricity by 2035 and committed to reduce U.S. emissions 50-52% below 2005 levels by 2030. At the same time, climate science shows that the world must reach net-zero emissions by mid-century or sooner to prevent the worst effects of climate change.

Numerous studies suggest we need to increase U.S. renewable energy deployment at least 2-3 times from current levels to meet these decarbonization goals. Studies show that over the next decade, the average annual build-out needed for new renewable capacity in the United States ranges from 50 to 95 GW per year, with most estimates falling between 60 and 70 GW annually — about twice the 35 GW installation rate that set records in 2020. This pace will need to accelerate in the 2040s, with estimated annual deployment levels reaching above 100 GW (more than triple 2020 levels) in many study scenarios. While there are important differences between the studies’ purposes, modeling approaches, and assumptions (including on energy prices and electricity demand growth due to end-use electrification), the findings are consistent.

How can Congress and the Biden Administration increase renewable energy capacity?

The science shows that for the next 10 years, every year needs to be a record year for renewable energy. Costs for renewable energy technologies have declined dramatically, but significant policy action will be necessary to transform the domestic electricity system into the low-carbon grid of the future.

National polling found high (greater than 70%) support for the clean energy provisions provided in President Biden’s American Jobs Plan. The administration recently released its proposed budget, which details the revenue and spending implications of these measures. Now, it’s up to Congress to turn pieces of this proposal into legislation.

Here are four major policies the U.S. can undertake to pick up the pace toward a successful clean energy transition:

1. Implement a Clean Electricity Standard

A Clean Electricity Standard is one of the most effective ways to ensure the U.S. reaches the level of clean energy installations needed. A Clean Electricity Standard, or CES, requires a certain level of electricity to be generated from carbon-free sources, providing more certainty in planning and obtaining regulatory approval for clean energy investments by utilities and developers.

It is a proven and popular tool for decarbonizing the electricity sector: 30 states already have a Clean Electricity Standard or a Renewable Energy Standard, most of which have existed for more than a decade. Within the last few years, several states have expanded their original Renewable Energy Standards to be 100% Clean Electricity Standards, and some include energy efficiency as well. State policies have been key drivers of renewable energy deployment to date, responsible for almost half of all renewable energy growth in the United States since 2000. By 2030, they are expected to create demand for 90 GW of new renewable energy additions.

These policies also result in substantial benefits. A 2016 national lab study found that, collectively, state Renewable Energy Standards generated $5.2 million in annual public health benefits from air quality improvements. A more recent Resources for the Future report found that of three potential federal policies — tax credits, a carbon price and a Clean Electricity Standard — a Clean Electricity Standard achieves the greatest emissions reductions at the lowest cost.

States that have implemented Renewable Energy Standards have made significant progress in cleaning up their electric grids, but the patchwork of state policies and uneven distribution has left some grids heavily dependent on fossil fuels. A federal Clean Electricity Standard with a clear national target and timetable, broad coverage, and dedicated spending for environmental justice communities would be cost-effective and could help distribute the health and economic benefits of the clean energy transition to all corners of the country. Critically, a federal Clean Electricity Standard can drive action in all regions, while still allowing for more ambitious state action.

Momentum behind a federal Clean Electricity Standard is growing. President Biden called for an Energy Efficiency and Clean Electricity Standard that would move the U.S. towards 100% carbon-free power and more efficient energy use by 2035 in his American Jobs Plan, and in recent statements, administration officials indicated that such a policy could pass through budget reconciliation. Thirteen utilities recently released a letter calling for policies including a Clean Electricity Standard to reduce power sector emissions 80% below 2005 levels by 2030. And a broad coalition of more than 150 environmental groups released a sign-on letter for a Clean Electricity Standard requiring 100% clean energy by 2035. This support in Washington adds to the 61% of likely national voters who indicated in a January 2021 poll that they would support a Clean Electricity Standard to achieve 100% clean electricity by 2035.

Congress has introduced four Clean Electricity Standard proposals in its past three sessions. The current legislation on the table is the CLEAN Future Act, which calls for all electricity suppliers to reach 80% clean electricity by 2030 and 100% by 2035. Similar to President Biden’s proposed Clean Electricity Standard, the CLEAN Future Act includes existing nuclear and hydropower as eligible clean facilities.

It also offers partial credits for fossil fuel plants with emissions below a certain carbon-intensity threshold, which would allow some natural gas facilities and facilities equipped with carbon capture and sequestration to qualify. The broader range of eligible technologies is one key difference between state level Renewable Energy Standards and a federal Clean Electricity Standard. More proposals are likely coming as Congress crafts legislative proposals for President Biden’s agenda.

2. Reform and expand tax credits

Tax credits have played an important role in driving renewable energy growth and can spur the broader suite of technologies needed to enable the expansion and integration of renewable energy on the grid, such as storage and transmission. But they’re in need of reform and expansion.

The current tax credit regime is a patchwork of policies covering different technologies and has faced numerous lapses and extensions. This creates uncertainty for clean energy developers and has led to boom-and-bust cycles of deployment as developers race to meet expiring policy deadlines. In addition, short-term extensions of tax credits preclude use by technologies that require longer lead times for development, such as geothermal projects and offshore wind.

The next generation of federal tax credits should be long-term, with sufficient timelines for project developers to plan. They must be predictable, with clear criteria for phasing down incentive levels, and be easily accessible to project developers and consumers. Multi-year extensions of tax credits can enable developers to use them for projects with longer development lead times. This could diversify the types of clean energy projects deployed, including those that can be dispatched as needed to help with grid reliability.

Two particular reforms that deserve attention are increasing direct pay options and expanding stand-alone credits for energy storage and transmission. Direct pay options can increase the accessibility and efficiency of tax credits. Most tax credits — including the Production Tax Credit (PTC) and Investment Tax Credit (ITC) — require the recipient to have sufficient tax liability. This requires project developers to partner with tax equity investors, who put the projects on their tax balance sheets and receive part of the credit. A direct pay option would increase the overall efficiency of tax credits by removing the need for tax equity investors and the portion of the tax credit they collect. Direct payments were implemented in the 2008 economic recovery and included a cash grant option for renewable energy developers and point-of-sale rebates for consumers, but lapsed in 2011.

Credits can also be expanded to include a broader suite of technologies that will be needed to deploy large amounts of wind and solar energy on the grid, including storage and transmission, as well as demand-side flexibility and electrification. The current tax credit for storage is tied to use of renewable energy for charging a storage device, but can be made a stand-alone credit. Tax credits for transmission have not previously been implemented, but a new report estimates that an ITC for transmission could enable an additional 30 GW of renewable energy. Finally, end-user tax credits for energy efficiency can reduce the energy footprint of building stock while helping consumers save on energy bills.

The American Jobs Plan and associated Made in America Tax Plan Report call for a suite of dedicated tax credits. These include a 10-year extension of the PTC and ITC and would make these direct pay; a new tax incentive for long-distance transmission; and expanded tax incentives for battery storage, carbon capture and sequestration, and advanced manufacturing. Five tax credit proposals (including three bipartisan measures) have been introduced in the current Congress – the GREEN Act, the Clean Energy for America Act, the Energy Storage Tax Incentive and Deployment Act, the Electric Power Infrastructure Improvement Act and the Carbon Capture, Utilization and Storage Tax Credit Amendments Act.

3. Invest in transmission.

Expanding transmission capacity is critical to enable the massive amounts of renewable energy that must come online, and can improve grid reliability and resilience while lowering costs. The National Academies report finds that transmission capacity across the U.S. must increase approximately 40% by 2030 in order to achieve net-zero emissions by mid-century. The current lack of available transmission capacity is already blocking new renewable energy from coming online. This is an issue that requires immediate attention, since high-voltage transmission projects typically take 7-10 years to build.

Expert evaluations of transmission capacity by NREL, Vibrant Clean Energy and others consistently find that a more interconnected grid would increase the resiliency of the electric system while delivering large consumer savings. There are already 22 shovel-ready transmission projects that could enable 60 GW of renewable energy to come online, but these projects have been stalled by inefficiencies in the transmission planning and permitting process.

Adding new high-voltage transmission is a significant undertaking, and likely will require reforms to the existing planning and permitting processes. Determining cost allocation and gaining approvals for siting transmission lines have historically made transmission development challenging, particularly for lines that cross state boundaries. In a report to Congress last year, the Federal Energy Regulatory Commission (FERC) recognized siting and numerous jurisdiction processes as key barriers to expanding transmission. Calls are growing for FERC to revisit existing tariff- and cost-allocation structures, and to issue a new transmission planning rule.

FERC could introduce reforms including the creation of a national transmission planning authority, which could work with regional planning authorities to facilitate development of transmission lines. In addition, renewable energy zones, which have been used effectively in Texas to develop transmission lines that serve windy areas of the state, could be applied nationally to facilitate transmission projects that serve regions with abundant renewable resources.

Transmission investments and planning reform have received increasing attention in Washington. In the American Jobs Plan, Biden proposed $100 billion in funding for transmission and the creation of a Grid Deployment Authority, while FERC chairman Richard Glick named transmission and grid interconnection queues as priorities to address this year. At the end of April, the Department of Transportation released guidance for clean energy and connectivity projects along federal highway right-of-ways, and the Department of Energy announced up to $8.25 billion in loans to expand transmission.

In addition to the previously mentioned Electric Power Infrastructure Improvement Act, which would create a stand-alone ITC for transmission, current Congressional proposals include provisions within the CLEAN Future Act and the Interregional Transmission Planning Improvement Act of 2021. Both bills direct FERC to issue a new rule on transmission planning. The CLEAN Future Act also authorizes $75 million annually until 2031 for a transmission siting assistance program.

This proposed level of funding matches the level of transmission investments called for in the National Academies report, some of which would be used to ensure states, communities and tribal nations can meaningfully participate in transmission planning and siting. These Congressional proposals are an important first step to building the necessary transmission infrastructure to integrate clean energy onto the grid.

4. Place a price on carbon

Another option would be an economy-wide carbon price that covers all sectors, including the industrial sector and hard-to-abate sources such as cement and steel production. A carbon price would send a signal throughout the economy for low-carbon investments.

A comprehensive carbon price has long been viewed as the most economically efficient policy tool for reducing greenhouse gas emissions. Well-designed carbon pricing can deliver both climate and economic outcomes, driving innovation across the economy while raising revenues that can ease the energy transition for impacted sectors and households. An increasing number of businesses and trade associations are speaking out in support of carbon pricing. Washington state recently passed a carbon cap-and-invest bill, becoming the second state in the nation after California to enact an economy-wide carbon price.

Two carbon pricing bills have been introduced so far in the current Congress: the Energy Innovation and Dividend Act and the America's Clean Future Fund Act. These bills have garnered significant support in both chambers of Congress and are sponsored by key members of Democratic leadership, including Senate Majority Whip Sen. Durbin (D-IL) and Rep. Deutch (D-FL), who is the founding co-chair of the House Bipartisan Climate Solutions Caucus.

We expect additional carbon pricing bills to be introduced in the near future. Any federal carbon price bill should also address co-pollutants (such as sulfur dioxide, particulate matter and nitrogen oxides) and include mechanisms to minimize air quality impacts to environmental justice and disproportionately burdened communities.

Congressional action is critical

None of the four policies discussed here are silver bullets. Complementary policies and sustained investments are key to an effective and equitable energy transition. These include demand side management measures including energy efficiency, demand response and other measures that increase customer-side flexibility.

Clear federal direction and strong policy will have to be a big part of what allows the U.S. to double its clean energy installation rates to approximately 70 GW per year. The new federal administration has laid out its priorities, including a Clean Electricity Standard, tax credits and renewed attention to transmission; now, it’s up to Congress to take up these measures with the urgency the climate crisis requires.

Within these conversations, policymakers should focus on the North Star of reducing greenhouse gas emissions and spreading the health and economic benefits of a cleaner energy system to all communities. Congress must now deliver big and bold federal policies to make sure 2020’s record number of renewables isn’t an outlier, but the beginning of a strong climate action decade.