This week’s Barron’s, the Dow Jones investment weekly, features a bullish cover story on “The Coming Green Boom for Utilities.” In sharp contrast to how renewables were made out as scapegoats for the massive power outage in Texas last week, this piece sees green energy as riding to the rescue of an industry that’s in desperate need of fresh approaches to fighting climate change and cutting emissions from its aging power fleet.
When wind and solar decarbonize the grid, “everybody wins,” says Morgan Stanley utility analyst Stephen Byrd, whose optimistic assessment inspired Barron’s cover story: “The air is cleaner, utility bills are lower, and shareholders benefit in a big way.”
The fast-changing economics of the utility sector explain why Wall Street is growing so bullish on the renewable energy sector. Consider these findings from Byrd’s latest analysis:
- The all-in cost of a new wind farm in the central U.S. is only 1 to 2 cents per kilowatt-hour, compared with a cash operating cost of 4-5₵/kWh for most coal plants.
- For grid-scale solar, the all-in cost ranges has fallen to 2.5-4.5₵/kWh, comparable to or lower than the cost of natural gas-fired plants.
- With wind and solar costs still dropping fast, their share of U.S. generating capacity is expected to triple over the next decade – from 13% now to 39% in 2030. By 2035, wind and solar’s combined share is expected to reach 55% of the nation’s generating capacity.
- Meanwhile, natural gas’s share of U.S. power generation is expected to fall by half over the next 15 years, from 40% to 20%. And coal’s share, now at 19%, is expected to fall all the way to zero. “There is not a regulated coal plant in America that’s economic today,” wagers Jim Rebo, CEO of Florida-based NextEra Energy, the world’s largest utility provider of renewable energy.
- Projecting out 10 years, this green-trending power mix is expected to allow U.S. electric utilities to shed 60% of their carbon dioxide emissions – from 1,450 million metric tons in 2020 to 580 MT in 2030. The Biden administration wants to zero out carbon emissions from the power sector entirely by 2035.
- These highly affordable emission cuts “may be the best expression of decarbonization for investors,” concludes J.P. Morgan utility analyst Jeremy Tonet, who’s also gotten bullish on the decarbonization trade. For a sector whose generating base is aging, and transmission system is fast-growing obsolete, a “green boom” led by renewables may be the only way to restore investor confidence and lift annual total returns back above a 10% industry benchmark.
Greening the Grid
Despite all of the bullish talk coming out of Wall Street, renewables still must overcome a few big hurdles before they can reach their full industry potential Chief among these obstacles is an aging transmission network, designed for a bygone era when large thermal power plants dominated the scene. Now, as renewables assume more of a leadership role, the question is whether they can be counted on to provide reliable, baseload power like coal, nuclear, and large-scale hydro plants can.
The problem isn’t just that output from intermittent wind and solar power sources goes down on calm or cloudy days. Sometimes, on especially sunny or windy days, they actually produce more power than grid can handle, and the excess power simply goes to waste.
But it doesn’t have to be that way. A new model from Breakthrough Energy Sciences, a small research outfit backed by billionaire Bill Gates, finds that renewables can still become an anchor of the nation’s power supply. The key is making sufficient investments in the nation’s transmission grid to accommodate more dispersed renewable energy – and transport it over longer distances. That way, wind blowing at night in, say, Texas, could provide power for Californians as they get home to turn on their appliances for the evening, some 1,500 miles away. Conversely, on very sunny days in California, the power could flow the other way, with solar electrons from California helping out on cloudy or windless days in the Great Plains.
Triple Spending on the Grid?
At present, states plan to spend about $60 billion on transmission upgrades over the next 10 years to help meet their clean energy goals. That works out to just 4% of the $1.5 trillion in projected total spending by the states to achieve a 70% carbon-free grid by 2030, according to BES’s calculations. To address the potential bottleneck posed by more renewables flowing into the grid, BES recommends more than tripling planned utility spending on transmission upgrades – up to $200 billion in all. A top priority would be to establish new transmission corridors across the western U.S. for high-voltage, direct current (HVDC) lines (and buried cables), which do the best job of carrying electricity over very long distances.
The result would be a more durable and resilient grid that extends the reach of renewables in both time of use and range of coverage.
Yet, for all of the promise that BES finds in infusing the grid with this green energy, its analysis still has one gaping hole left to fill. To date, BES has assumed that the best place for wind and solar is next to the sites to maximize their power production, and not closer to population centers, which would save on transmission costs. Nor has BES explored the potential role of “virtual power plants” to operate at the source of consumer demand, with solar arrays, batteries and home generators forming community-based networks that that provide power at the source first – and then into the grid. With more consumer-based apps coming on the market, consumers are able to assume more control than ever over everyday power management decisions, including how much power they take out – and put into – the grid. BES says it hasn’t included residential solar, home batteries and larger grid-connected energy storage systems in its analysis yet, because their contribution would compound the already-large computational demands being placed on its high-resolution model. But given that Bill Gates – the founder of Microsoft — is behind this research effort, this seems like an eminently solvable, technical problem.
Failing that, BES has designed its model as an open platform — so anyone with a programming background can play around with the model and question the assumptions behind it. Any takers?
At Solaflect Energy, we do the heavy lifting to help you save on your utility bills and cut down on your carbon footprint. Now is a great time to take advantage of the extension of federal solar tax credits and schedule a spring or summer installation of our sun-loving Backyard Trackers and/or state-of-the-art Sonnen battery systems. Working together, the power is in our hands to make a difference!