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Renewable Energies Under Trump Administration – Is It All Over?

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​In a nutshell:

After Donald Trump repeatedly said during the presidential election campaign that he believed that the climate change was a ”hoax”, i.e. a bluff, trick or a joke, and after he wrote in his book ”Crippled America” published in 2015 that, in his opinion, investing in renewables was a bad idea and developing renewable energy sources was a big mistake, we could only anxiously wait to see what measures he would take in this respect if elected. After assuming presidency, Donald Trump indeed began to implement some of his public announcements, which at first glance are not good news for the renewable energy industry. It is however important not to jump to conclusions and try to see a broader picture that goes beyond what is happening in the Oval Office in order to assess the current situation from the viewpoint of investors.

Significant developments at federal level since inauguration of Donald Trump

In appointing Scott Pruitt as the new head of the Environmental Protection Agency, Donald Trump appointed a person who still in early March 2017 questioned the fact that carbon dioxide plays a crucial role in the climate change and, additionally, was involved as Attorney General of Oklahoma in a dispute against the Environmental Protection Agency. One of the main tasks of this federal agency is to issue regulations to implement environmental laws passed by the U.S. Congress. With such a sceptic about the climate change at the wheel of the federal agency it remains to be seen to what extent the current direction will change and what its implications will be. The government proposed cutting the budget of the Environmental Protection Agency from USD 8.1 billion to USD 5.7 billion and reducing the headcount by 25 percent from the current 15 000 officials.

 

At the end of March, Donald Trump also issued an executive order to revise the Clean Power Plan enacted under the Barack Obama administration. Among other things, it will be investigated to what extent the regulations of the Clean Power Plan are a setback to oil and gas producers and coal-fired power plants.

 

Now, do those developments mean that one should steer clear from the USA as an investment location for renewable energies? The answer is definitely NO. The picture of the situation should not be drawn only based on what is currently happening at the federal level. At the state level, the adopted course regarding renewable energies will not be derailed, whatsoever. The developments and plans for the future so far allow assuming that the renewable energy market will grow.

 

The situation at state level

The U.S. states have far-reaching powers in terms of deciding which energy sources to incentivize. In adopting the so-called Renewable Portfolio Standard Policies, a large number of U.S. states committed to supplying a certain share of their electricity from renewable resources by a certain date or year. The graph released in February 2017, i.e. after Donald Trump's inauguration, shows that 29 U.S. states, Washington D.C. and 3 U.S. territories implemented the Renewable Portfolio Standard Policies. Another 8 U.S. states and one U.S. territory have at least set themselves voluntary Renewable Portfolio Goals.

 

 

Figure 1 (Click to enlarge)

 

Importantly, certain U.S. states, especially the very populous ones like California, Texas, New York and Pennsylvania, have enacted additional targets to be met with renewables in their states.  For example, the States of California and New York want to increase the share of renewables in the energy mix to 50 percent by 2030.

 

What is important about the Renewable Portfolio Standards is the fact that utilities are required to supply a certain share of energy from renewable resources. The website of Pacific Gas & Electric, one of the largest electric utilities in California, reads for example that the share of electricity generated from renewable resources will be 33 percent by 2020. Consolidated Edison, one of the largest electric utilities in the State of New York, wants to generate 50 percent of electricity from wind or solar resources by 2030.

 

There are many examples proving that these announcements and self-set targets should be treated seriously. For example, according to a report by the California Energy Commission, generation of electricity from renewable resources more than doubled between 1990 and 2016, having increased from 30,000 GWh to nearly 70.000 GWh. This increase is mainly attributable to electricity generation from wind and solar energy sources. According to the report, significant reasons for this trend include – alongside the positive impact on the climate change – lower electricity generation costs for renewable energies. Given the targets undertaken by the states and the increasing competitiveness of renewables in terms of generation costs, this trend is not expected to end.

 

Another example from Florida shows that U.S. states which do not have Renewable Portfolio Standard Policies or Renewable Portfolio Goals in place are also committed to reaching ambitious goals and targets for renewable energies. Florida Power & Light Company, which serves about 4.8 million consumers and is thus one of the largest electric utilities in the USA, plans to install a total photovoltaic capacity of 2.1 GW between 2017 and 2023. The share of fossil fuels in the energy mix for the supplied area will be thus significantly reduced.

 

Incentives

Based on the above explanations, it is evident that the use of renewable energies in the USA will continue to play an important role and the renewable energy sector is expected to grow. After the change of the government, investors find themselves asking, in particular, how the incentives for renewables could change in the future. In this respect, it is reasonable to adopt a practical approach and closely monitor developments not only at the federal but also mainly at the state level.

 

Important federal incentive mechanisms include Production Tax Credit and Investment Tax Credit. If the government planned to cut or even abandon any of these taxpayer reliefs, such a bill would have to go through the whole legislative process in the Congress. And it is not at all certain that the process would end in success. As the case when Trump tried to undo or replace the Affordable Care Act (ObamaCare) has already shown, the dominance of Republicans in the Senate and the House of Representatives does not automatically mean that Trump's administration will win the majority support. When making any decisions, the authorities would also consider the impact on the labor market in the USA. According to a February 2017 report by the Environmental and Energy Study Institute, the U.S. Department of Energy assumes that about 3.4 million Americans are employed directly in the renewable energy sector, and this trend is increasing. In comparison, the number of Americans directly employed in the fossil fuel sector is about 3 million, according to the assumptions.

 

Taxpayer reliefs at the state or municipal level, such as tax credits, land or sales tax exemptions, should be in each case taken into account when making investment decisions and also in this area no negative changes are expected judging by the trends we anticipate.

 

Conclusion

For German companies, the latest developments mean that they should monitor how the situation develops in practice and should not make any hasty decisions. On 5 January 2017, the Energy Information Administration published the Annual Energy Outlook with projections to 2050, where it projects that electricity generation from renewable resources will increase by 2040 more significantly than in the case of all other energy sources. This trend will be driven, among other things, by the continuously decreasing electricity generation costs for renewable energies and the currently applicable federal and state regulations which promote the use of renewable energies. Even if there is no absolute certainty as to what future will bring, especially at the federal level, it is important to identify and seize the arising opportunities.

 

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