Changing the Economics of Renewable Energy

While politicians debate the benefits of using coal to generate electricity, the economics of renewable energy may soon make the debate moot. In a July 2017 research report, Morgan Stanley stated, “Numerous key markets have reached an inflection point where renewables will have become the cheapest form of new power generation by 2020, a dynamic we see spreading to nearly every country we cover.”

Large scale utilities are adopting wind and solar power to generate the electricity that they store and distribute to industrial, business and residential customers. Utilities’ adoption of renewable sources of energy is expected to enable the United States to meet its carbon-reduction targets agreed in the Paris accord, whether or not the country pulls out of the pact.

Cheaper and more efficient production has driven solar panel costs 50% below what they were two years ago. The cost of wind energy has fallen as engineers have increased the length of wind turbine blades and the height of wind towers. In some U.S. regions wind energy costs about $30 per megawatt hour, compared to $40-60 for electricity generated by natural gas, the next cheapest fuel source.

Solar power recently reached the point of becoming more affordable than coal in India, which is the world’s third largest source of carbon emissions. China remains the world’s biggest investor in clean energy, with the world’s largest installation of solar panels. Renewable sources are already widely used in many European countries. Australia reported that several thousand megawatts of wind and solar plants are seeking approval. In the U.S., the state of Texas leads the country in energy generated by wind, despite opposing the nation’s Clean Power Plan.

For utilities, this is simply a good business decision. Utilities which are deregulated and must compete to sell power will look to low-cost solutions for new facilities. Fallout is already occurring, with abandonment of plants under construction. Such was the case for two South Carolina nuclear plants plagued by cost overruns, equipment problems and the bankruptcy of lead contractor Westinghouse Electric. China has reportedly cancelled over 100 planned or under construction coal-fired power plants.

The future of U.S. utilities depends on regulation. They are closely linked to politics at the state and local level, and will work to protect their profit margins. As solar and wind energy drive prices down further, utilities that do not turn to cheaper renewable sources will risk losing industry and jobs to those that adapt.