The Spotlight

A Primer on the 2016 North American Leaders’ Summit

  14 Jul 2016  |    

At the recent North American Leaders’ Summit, President Barack Obama, Canadian Prime Minister Justin Trudeau and Mexico President Enrique Peña Nieto pledged that North America will collectively generate 50 percent of its electricity from carbon-free resources by 2025, up from 37 percent today. Even though the agreement is nonbinding, the pursuit of that goal should create some lucrative opportunities for the renewable energy industry, especially in conjunction with each leader’s domestic platforms promoting renewable power generation. But even more promising is their commitment to explore electric grid interconnections across international borders, which could pave the way towards faster and more efficient renewable deployment than we’ve seen in the past.

How difficult will it be to hit the 50 percent target?

Bloomberg New Energy Finance projects (paywall) that without new incentives or regulations, North America’s power will be 46 percent carbon-free by 2025. So unless costs decline even more quickly than anticipated, that extra 4 percent might require some policy action – particularly in the United States, which generates about 75 percent of the continent’s electricity. To date, renewable energy, including hydropower, supplies 13 percent and nuclear power 20 percent of America’s electricity needs. But many nuclear power plants, no longer economically viable, have been decommissioned in recent years, with more major plant closures expected in California and Illinois. So in order for the continent to reach its target, renewables will have to replace some nuclear power in addition to carbon-fired plants at a faster-than-expected rate.

Given the steep declines in solar and wind prices, as well as rapid advancements in energy storage and geothermal technologies, that scenario is certainly plausible. The Energy Information Administration projects renewables to produce more electricity than coal before 2030, even with no further political action beyond the Clean Power Plan. But state and federal regulators can both speed up and smooth that transition through renewable-friendly policies.

In Mexico, renewable energy provides for 22 percent of electricity generation, and the country aims to boost that figure to 35 percent by 2024. Mexico has become a major hub for clean energy investors after the country abolished its state-owned electricity monopoly in 2013, and as a result its renewable capacity has grown astronomically over the past few years. Solar in Mexico grew by over 500 percent in 2016, and its wind and geothermal industries are developing quickly as well. But given its ambitious internal clean-energy target and its rapidly transforming electricity market, it’s not likely that Mexico will change its behavior too much as a result of last week’s announcement.

Canada, for its part, has already far exceeded its expected contribution to the continent-wide agreement. The country already generates 75 percent of its electricity from carbon-free resources – 59 percent from hydropower and 16 percent from nuclear plants. Nevertheless, Trudeau has encouraged the development of renewable power, particularly in the solar and wind sectors, so the industry’s footprint in Canada should continue to grow.

What else is interesting about the agreement?

As a corollary to their carbon-reduction objective, the three leaders promised to continue exploring grid integration across national boundaries. That bodes well for renewable energy deployment across the continent.

When grids are connected over large geographic areas, renewable power becomes both cheaper and more reliable. That’s because, even if there isn’t enough sunshine or wind or water flow in one region at a given time, the odds that renewable electricity is being generated somewhere along the grid increase as the grid gets larger. And the reverse is also true: on a large grid, an area that’s overproducing renewable power will be able to offload the excess into places that actually need it.

A few of these grid connections already exist between the U.S. and Canada, but they could go a lot further in bringing, for example, Quebecois wind to New England and Californian solar power to British Columbia. And now that Mexico has privatized portions of its electricity markets, there are more opportunities than ever before to create new cross-border power exchanges.

Building new transmission lines is complicated and challenging, even domestically. It’s encouraging, then, that North America’s political leaders are interested in making the process a little easier. In conjunction with each country’s aggressive domestic carbon-reduction goals, their renewed emphasis on international collaboration can both speed up the transition to renewable power and serve as a model for energy diplomacy the world over.

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