Production of renewable energy is one of the fastest-growing industries, both globally and domestically here in the United States. Over the decade from 2013 to 2023, the amount of energy produced in the US by wind, solar, hydroelectric, and biomass ballooned from 522 TWh to 1,150TWh, reflecting a CAGR of 8.2%. Solar and on-shore wind production alone saw cumulative investment of more than $500B over the past ten years, and those two technologies now contribute more than three fourths of the green energy produced in the US and 16.9% of total US energy production.

A SUPPLY AND DEMAND STORY

All this new supply is helping to fill a significant gap in the market caused primarily by declining yield at aging fossil fuel-based facilities.  While absolute energy demand in the US only grew around 0.5% per year over the past decade (from ~4,000 TWh in 2013 to ~4,200 TWh in 2023)—a reflection of the increasing efficiency in energy use and the adoption of energy-saving technologies, despite overall economic growth—fossil fuel-based production declined by a whopping 27.5% (or 760 TWh) over that same period, as large waves of oil, coal, and natural gas facilities reached end-of-life and were retired.  

Our analysis projects an additional decline of 20-30% in fossil fuel-based production over the coming decade; so even at the current rate of investment in solar and wind production, productive capacity will likely remain well below peak demand for the foreseeable future. Given this growing gap between supply and demand—along with a growing preference among businesses and consumers for green energy sources—it’s no surprise that analysts expect accelerating investment in wind and solar facilities: as much as $600B will be poured into new green assets over the coming decade, bringing online ~1,400 TWh of new annual capacity.  

GROWTH IN A TIME OF UNMET DEMAND 

Given these favorable market conditions, renewables companies aren’t just building more facilities: they’re building bigger facilities than ever. For example, in 2013 most new solar facilities had capacities in the 5-20MW range; projects exceeding 100MW are commonplace today. In addition to larger assets, industry players are accelerating the pace of new-asset commercialization, expanding into more geographies, and, increasingly, combining production facilities with battery-driven energy storage facilities. Across the industry, management attention has largely been on growth and investment.

Costs, meanwhile, have been easy to ignore. LCOE has come down aggressively over the past decade, for both solar (the cost of which dropped from $150 to $35 per MW) and wind (the cost of which dropped from $75 to $30 per MW). The primary factor driving this change has been the decline in major equipment cost (e.g., the price of solar modules, wind turbines and rotors, and major battery components); but increased production efficiency (e.g., as larger turbine blades capture more power) and more mature operational practices (e.g., better planning and execution of maintenance) have contributed as well. In this falling-cost environment, it has been easy to assume that renewables companies are operating at high efficiency.

THE TRUTH ABOUT COSTS

But our experience in the industry tells a different story. We have often seen companies overspending on critical aspects of project origination and development (chiefly due to inefficient site research practices and by making risky geographic choices), project construction (chiefly due to failure to keep up with the latest technological trends, implement strategic sourcing and procurement practices, or take full advantage of scale economies), and asset operation (chiefly by failing to make data-driven decisions about preventative maintenance, cleaning, and other service).

What’s more, as renewables companies have grown in size and capacity, the level of corporate complexity they experience has grown exponentially. With more assets in more geographies, more vendor relationships across more technology types, and more to manage both centrally and in the field, companies are finding it harder than ever to manage and track performance, make good decisions about asset life and disposal—and generally to operate efficiently.  

WORKING WITH WP&C

In Part 2 of this three-part series, we will explore what’s unique about our cost management process and provide tips for renewables companies who want to unleash latent value from their cost structures.
Our team of seasoned professionals are here to support your corporate objective needs.

To get to know our renewables capabilities, please reach out to Toyyab Khan (tkhan@wilsonperumal.com)  or Brandon Fail (bfail@wilsonperumal.com).