Green Energy Gets Renewed
A new report from the U.S. Energy Information Administration (EIA) predicts that renewable energy sources will overtake natural gas as the predominant source of U.S. electricity in 10 years and double by 2050.
In 2020, renewables represented 21% of U.S. power generation, and that’s projected to grow to 42% in 30 years. Consumption of natural gas will grow with the increase in electricity demand, but its share of the nation’s electricity mix, about one-third, is expected to remain steady.
Why the Tides Are Turning
Experts from the EIA and elsewhere point to two major factors pushing these predictions:
Federal and state policies encouraging investment in renewables
New technologies that have driven down the cost to install wind and solar
“Policies at the state and federal levels have encouraged significant investment in renewable resources for electricity generation,” the EIA said. “New technologies have driven down the cost to install wind and solar generation, further increasing their competitiveness in the electricity market even as policy effects moderate over time.”
Biden’s ambitious climate policies put a government-wide focus on reducing emissions and continuing investment in and adoption of renewable energy sources.
And thanks to tax credits and ongoing investments, the cost of generating electricity from solar energy is 90 percent lower than 10 years ago.
By 2050, the energy demand will be much greater than it is today, and most of that increase is expected to be provided by renewable energy sources. Renewables are expected to account for almost 60 percent of the estimated 1,000 gigawatts of new electricity generation capacity over the next three decades. Natural gas will account for the remaining 40 percent of the new capacity. And many coal and nuclear power plants, which are less profitable, are expected to be retired over the coming decades.
How Fossil Fuel Companies Have Responded
The trend toward renewables is by no means new. Oil and gas companies have responded by adding renewable initiatives to their portfolio and continuing investments in lobbying efforts.
ExxonMobil recently formed a new business to commercialize its extensive low-carbon technology. BP has developed and invested in wind and solar projects. And Total is planning to build out several solar projects in Texas over the next few years.
Oil companies are also shifting their capital spending, especially in Europe. In 2019, European oil companies put just 2% to 5% of spending toward renewables. In 2020, that was up to 15%. And in 2021, it could reach 25%, making it the energy industry’s largest single area of spending for the first time.
“You still need a huge amount of investment in the oil and gas sector, even in an aggressive decarbonization pathway,” said Ben Cahill, a senior energy fellow at the Center for Strategic and International Studies. “It’s not like these companies will cease to exist. That sometimes gets lost with the optimism around the transition.”
What Wall Street is Saying
Investors are watching renewable energy and fossil fuel stock prices closely. So is the media. NextEra Energy made headlines in 2020 when it surpassed ExxonMobil in market value. The pass was compared to when Tesla exceeded the market cap of traditional automakers for the first time.
Also in 2020, the Invesco Solar ETF, which tracks an index of solar energy stocks, soared 233.95 percent. Some of the increase is attributed to investors putting their money where their environmental beliefs are.
But investors are by no means all in yet. “The renewables sector of the energy industry is advancing rapidly, but still not yet showing returns that are where investors really desire them to be,” said Bryan Benoit, managing partner for energy at the accounting firm Grant Thornton. “But the stock prices have been increasing because investors believe in what those businesses represent for the future.”