The world can’t run on wind and solar power alone, at least not yet—that’s the inconvenient truth renewable-energy developers rarely acknowledge in their press releases and investor presentations.
Their hesitation is understandable. Since President Jimmy Carter launched the US government’s first major push to develop clean energy in the 1970s, critics have dismissed these solutions as “flower power,” a political choice that would collapse under the weight of faulty economics when public support waned.
This scenario played out in the 1980s, when a sharp drop in crude-oil prices chopped the legs out from under Carter’s push for US energy independence. His successor, President Ronald Reagan, responded to this new environment by pulling the plug on government support for green-energy research and development.
Of course, renewable-energy technologies have progressed significantly since the 1970s; for example, the US Dept of Energy estimates that wind-energy costs declined by two-thirds over a 20-year period starting in the early 1980s.
The installed base of wind-power capacity has also grown from 6 million kilowatt-hours in 1985 to about 185 billion kilowatt-hours last year. And check out this graph comparing the current US electricity mix to what the Energy Information Administration projects the landscape will look like in 10 years.
The data presented in our graph reflects the Energy Information Administration’s base case, a scenario that’s based on developers’ current plans and suggests natural gas and renewable energy will continue to win market share from coal.
Rooftop solar panels and other forms of distributed generation, meanwhile, will remain a relatively insignificant slice of the pie. Nevertheless, the implementation of distributed solutions will grow rapidly from a small base, creating a huge investment opportunity.
Our next graph breaks down the planned and expected capacity additions that underpin the Energy Information Administration’s base projection for the US electricity mix in 2025.
The Energy Information Administration projects that gas-fired power plants will account for about 66 percent of the generation capacity that the US builds over the next decade. In this scenario, renewable energy makes up 24 percent of new capacity. However, the construction of new nuclear power plants and coal-fired facilities to occur at a subdued pace.
Renewable energy has made major inroads since the 1970s, and the Tea Party’s embrace of distributed solar power in some regions gives some credence to the argument that political support may not evaporate to the extent that it did in the 1980s.
At the same time, the rollout of renewable-energy capacity still depends heavily on government’s helping hand at the federal, state and local level. And although political reversals won’t squelch the push for green energy, such a development would require some painful adjustments on the part of industry participants.
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Elliott and Roger on Sep. 30, 2020
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