Politics divide state-level clean energy goals; renewable capacity growing

State-level clean energy goals reflect the sharp divide of the US political landscape and states where governmental power flips in upcoming elections could see a shift in goals. However, party politics have minimal influence on where renewable projects are developed with the clean energy revolution mostly driven by economics.

"The impact of the Inflation Reduction Act on renewable energy development is politically-agnostic," S&P Global Commodity Insights renewable energy analyst Tony Lenoir said about multiple reports that have highlighted the fact that red states have been the recipients of the bulk of announced green-energy investments since the IRA was enacted in August 2022, "even though most lawmakers from those states opposed the law."

Despite majority Republican states featuring moderate or no clean energy goals, renewable capacity continues to grow nationwide, with red states home to some of the largest collections of renewable capacity. Six of the top 10 states for total renewable capacity -- wind, utility-scale solar and battery storage -- are red states and three of those states have no state-level clean energy goal.

"It's driven really ... by demand from the customers," RWE Clean Energy CEO Mark Noyes said in an interview with S&P Global. "And then the IRA has just put this extra boost in there."

Even though clean energy has become polarized in red states, particularity rural areas, the economic benefits at the federal level from the tax incentives outweigh state-level politics, Noyes said, adding clean energy development comes down to three factors:

• Resource: how good is the wind or the sunshine
• Transmission: access to transmission and the cost associated to interconnect
• Community: engagement and partnership with the local community

Despite party politics, what is holding the industry together is the IRA, Noyes said.

"It gives this 10- to 15-year market signal that really outweighs pretty much everything else going on," Noyes said. "It is a bill that supports all renewables ... and to some extent diversified nuclear. Probably the biggest element is that it's a blue bill that's benefiting the red states. And it just has a ton of benefits from the economic standpoint, the jobs, the replacement tax loss on the coal plants that have been retired, etc. And that's one of the elements that really will drive the industry regardless of what the states and utilities do at the end of the day."

Strong economic development tool

North Carolina was one of the first states in the Southeast to implement mandatory reliability standards, Kendal Bowman, North Carolina state president with Duke Energy, said in an interview with S&P Global. In 2021, bipartisan legislation was passed for carbon neutrality by 2050.

"I really think the policymakers here in the state recognize that providing companies with a clear path for clean energy, ultimately with that net-zero goal would be a strong economic development tool for our state," Bowman said. "We're really seeing a lot of companies wanting to come to North Carolina. And I think it's because North Carolina does have this clear path to clean energy and that net-zero goal."

North Carolina is the No. 1 state to do business in the country for two years in a row, Bowman said, adding there's been tremendous economic development in the past year.

State policy changes

The latest state to strive for 100% clean power is Michigan after lawmakers finalized legislation Nov. 8 to establish a 100% carbon-free energy standard by 2040 for the state. The plan stems from an executive order that Governor Gretchen Whitmire, who is expected to sign the measure into law, issued in 2020 to achieve economy-wide carbon neutrality no later than 2050.

"These bills will help us make more clean, reliable energy right here in Michigan, creating tens of thousands of good-paying jobs, and lowering utility costs for every Michigander by an average of $145 a year," Whitmire said in a Nov. 8 statement. "Getting this done will also reduce our reliance on foreign fuel sources, while protecting our air, water, and public health."

In October, California Governor Gavin Newsom signed Senate Bill 253, the Climate Corporate Data Accountability Act, which requires companies that do business in California and have at least $1 billion in annual revenue to estimate and report all Scope 1 and 2 emissions starting in 2026 and indirect Scope 3 emissions a year later. The legislation applies to an estimated 5,344 companies.

Also in October, Louisiana's governor switched from a Democrat to a Republican, leading many to wonder if the executive order signed in 2020 to reduce greenhouse emissions 100% by 2050 will remain.

Good for the country

The movement to build out a cleaner to future is good on just about every level, including environmental, economics and military vulnerability, California Energy Commission Chair David Hochschild said in an interview with S&P Global, adding he looks forwards to a de-politicization of this issue.

"It's just plain and simple for me. It's good for our country," Hochschild said. "It's good for all parts of our country. And I think there's a lot of economic hope for the whole nation in the clean energy transition. So, I hope our politics catch up to that reality."

California, which leads the US in both utility-scale solar and battery storage capacity, has one of the most aggressive goals – 100% carbon-free power by 2045 and 25 GW of offshore wind by 2045.

"I think the critique of a lot of our energy policies was often on the notion that doing this was somehow a threat for our economy. Well look at what has happened over the last decade since we've really started in earnest on this journey to energy," Hochschild said about passing Russia, Brazil, Italy, France and Germany to become the fourth largest economy of the world. "That kind of says it all. I think the countries that are slowest to adopt innovation will not remain economic leaders. So, I'm really proud of what our state has shown is possible."

Renewable Portfolio Standards

"Up until maybe three to five years ago grid-scale solar was heavily influenced by state renewable targets while wind projects, thanks to the production tax credit, were able be profitable simply by building on cheap land in windy regions which is abundant in the US, S&P Global renewable energy analyst Adam Wilson said. "Solar is now in a similar situation thanks to the long-term extension of the investment tax credit and declining costs of panels, so it's less dependent on state level support and more on regional solar resources and land costs."

Renewable Portfolio Standards, which set mandates to meet certain green energy objectives, ensure certain state-level renewable energy thresholds will be met, but there are multiple examples of states without an RPS or an RPS that is no longer active or long surpassed that have been deploying significant amounts of renewable energy capacity, Lenoir said, adding Texas is one example. The state's goal of 10 GW of renewables by 2025 was surpassed long ago.

Texas ranks first in the US for total renewables capacity -- wind, utility-scale solar and battery storage combined, according to the American Clean Power Association. The state has the most wind capacity in the US with over 40.5 GW, more than triple any other state, and ranks second for solar and battery storage behind California.

"The headwinds faced by the renewable energy sector at the moment mostly revolve around macroeconomics, such as inflation and high interest rates, and geopolitics," Lenoir said. "There is red tape to navigate, such as permitting, but it is an apolitical issue."