REenergyze Partner Login

Renewables Win on Economic Advantage, Even in US

July 4, 2017

For those of us participating in the global electricity market, 2016 was an astonishing year. It was the year that renewables (wind and solar) not only beat “price parity” with traditional forms of electrical generation (coal, oil, diesel, natural gas, and nuclear), but also dominated the global market for new electricity capacity installations.

In the first quarter of 2016, renewables accounted for 99% of new capacity additions to the United States electrical grid according to Cleantechnica. And while that leveled off to 43% in the first half, we ended the year with almost 17% of total US electricity generated coming from renewables. Wind power surpassed hydropower in 2016 and was by far the lowest cost new generating resource. Total solar capacity in the US surpassed 35 GW, essentially doubling in one year, and globally it topped 300 GW with almost 100 GW of new modules manufactured (there is a slight lag in the time that modules are manufactured and when they go into operation producing electricity).

With all of this progress, many analysts and news reports began to discuss the “irreversibility” of renewables as the dominant form electrical generation in both the US and across the globe, and with good reason. There are many strong macroeconomic forces at work that will be hard to turn back.


More than a decade ago, “dominant design” was established in renewables with the “horizontal axis wind turbine” (with three blades attached horizontally to a tower high above the ground) and the silicon photovoltaic cell representing solar. As the design variability disappeared, more money was spent on incremental innovations and building scale for the equipment in this space. With each successive generation of wind turbine, the size got larger, the generator and gearsets within them got better, the towers got taller, and better controls were applied. The results were higher and higher net capacity factors with resultant lowering of the delivered cost of electricity. In solar, the main drivers were economies of scale where every successively larger foundry manufacturing modules and its inherent innovations allowed for cell and module process to fall precipitously, more than 80% in the last 6 years and more than 25% in 2016 alone. The inherent law for solar is that for every doubling of production output, there is a 20% reduction in cost.

As the industry grows, the modules and their resultant electricity get cheaper. With wind already being lower cost than natural gas and coal today, further renewable prices reductions make coal the much-too-expensive form of electricity in most markets. There is no “war on coal”, only shifting economics favoring better forms of lower cost electricity. Over the near term, natural gas also beats coal and provides a “dispatchable” resource that is more efficient than coal, but its long-term value will be as the interim “battery” to assure reliability of a large-scale grid with lots of renewables.


Up to the point of price parity of renewables, market adoption was driven by a variety of market “stimulants,” specifically renewable portfolio standards set out by states and economic incentives through the federal government through a financial instrument known as tax equity in the US and feed in tariffs (essentially providing a higher-than-market electricity price for the producer to incentivize them to build more projects) in many other parts of the world. In the parts of the US, such as Texas, where renewables (specifically wind) were incentivized below price parity, utilities began to adopt or demand increasing levels of renewables to keep their wholesale electricity costs low. With low cost wind, Texas utilities and market makers have arranged for the purchase of almost 20 GW of wind power in the state. Solar is finally approaching price parity with peak electricity in Texas, and we are seeing demand increase significantly. ERCOT, the independent system operator in Texas, predicts that solar will replace coal creating between 17 and 27 GW of new solar generation over the next decade supplying the power-hungry state’s peak energy demands.

But it is not just utilities that are buying this electricity. Major technology corporations such as Google, Facebook, Microsoft, and Amazon are adopting renewables for their data center operations and more traditional companies such as WalMart and Dow Chemical are adopting to power their operations. These companies value low-cost, low-carbon electricity with stable pricing while major fossil users appreciate the natural-gas-risk offset of renewables.

Communities—both through their municipal utilities and city purchases—are buying increasing amounts of renewable power for the same reasons as corporates and utilities—low, stable prices. They also are buying to match community values of clean air, clean water, and low-carbon pollution. With increasingly low-cost rooftop solar options, standardized installations, and better financing options, more consumers will be buying solar for their homes directly and bypassing their utilities where they can.

Policy Becomes Inconsequential

Once economic incentives are phased out, renewables will compete purely on economics and their market attributes. The only thing holding it back are differences in policies from state to state. Today’s rules are written around the concept of electricity generation as a large central plan and many distributed users (similar to the mainframe analogy in computing). As technology changes more toward “peer-to-peer” or “cloud computing” as an analogy for electricity, state rules will need to be updated. It is very likely that the technology itself will drive the new rules in markets opening them up for more competition and more opportunities for renewables. It then becomes a virtuous cycle allowing more and more adoption and creating greater electric system resilience.

States will learn that they need renewables to be competitive with other states and will therefore adjust regulations and rules to promote renewables.  States that need incremental amounts of new electrical generation can also absorb more renewables faster since they are more modular and take shorter period of time to permit, build, finance, and put into operation when compared to the large central stations they are competing with. Even states that don’t adopt renewables immediately will have a chance to benefit as they learn from other states and adopt more renewables as their capital costs continue to decrease.

Jobs, Jobs, Jobs

Because of its distributed nature, there are other economic opportunities from renewables including more jobs, local entrepreneurs, manufacturing, and stimulation of more energy-intensive industries that require low cost electricity. Today, there are more electrical jobs from renewables than coal, gas, oil, and nuclear combined. As more renewables are adopted in non-coastal states like Colorado and Iowa, many new manufacturing opportunities have emerged and grown to support the local renewable industries. As renewables become increasingly present in the mix, they lower the cost of electricity in the states where they are produced such as Texas and Iowa. This creates additional industrial opportunities lowering the output cost of products from inexpensive renewable electricity. Yes, there will be jobs lost from the legacy fuels and infrastructure, but the jobs created by renewable development, operations, manufacturing, and secondary industries formed around renewables will far exceed the jobs lost.

If the US Chooses Not to Lead, Others Will

We need to remember that the US is roughly 20% of the global market for energy. If the US fails to adopt renewables aggressively, other countries will continue to do so – building their economic advantage while the US falls behind. Given that we are a global technology innovator, established much of the technology for the wind and solar industries, have such tremendous demand for electricity, and frankly need to upgrade our power grid, the US stands to benefit from prioritizing renewables and the advanced energy infrastructure to optimize them. When we do so, we will not only create a 21st century energy infrastructure, but also job growth, local manufacturing opportunities, and once again assume a global leadership role.

Related Media

See All
See All