Clean Energy Is Upending Today’s Energy Industry
Clean energy has already upended the coal industry, wholesale electricity markets, and utility’s monopoly power, but the disruption may only be beginning. Now that wind and solar energy are cheaper than oil, coal, nuclear, and even natural gas electric power plants around the world there’s no stopping clean energy’s momentum.
Where clean energy could be truly disruptive is in allowing for new industries that will change the fabric of energy production and consumption. The concept of base load and peaker plants is becoming obsolete, replaced by dynamic loads and energy storage. Even the way we fuel up our transportation vehicles could be changed by clean energy.
Why clean energy is so disruptive
If you’re an individual or business focused on the pure cost of a unit of energy, it’s hard to argue that you should buy anything but solar or wind energy. A recent analysis by Lazard shows that the cost per kWh of wind (3-6 cents per kWh) and utility-scale solar (4.3-5.3 cents per kWh) beat all other forms of electricity generation except for some natural gas combined cycle plants, which it estimated can be built for 4.2-7.8 cents per kWh. And keep in mind that the cost of solar and wind energy is coming down and there’s no commodity price risk like there is with other fossil fuels.
The argument against clean energy sources like wind and solar have always been that they’re intermittent sources of energy. That’s a valid argument if there’s no way to store electric energy for later use, but the rapid cost reduction of batteries for energy storage is changing that narrative. As technology improves and the cost of energy storage comes down, it’ll be tough to argue against using clean energy for most of the electricity on the grid.
How big of a disruption is this to electricity markets? Natural gas peaker plants are often seen as one of the most indispensable parts of the grid, sometimes because they fill the gaps in power supply left by clean energy plants, but energy storage may make them obsolete. GTM Research and Wood Mackenzie senior advisor Shayle Kann recently said, “I can’t see a reason why we should ever build a gas peaker again in the U.S. after, say, 2025.” Clean energy is flipping traditional energy markets on their head.
Where disruption is already happening
Clean energy’s disruption in energy markets isn’t just hearsay. General Electric (NYSE:GE) announced last week that it’s eliminating 12,000 jobs in its GE Power business, but clean energy jobs were untouched. In fact, “growth in renewables” was blamed for falling demand for traditional power plants.
Utilities, who are given incentives or even obligated to buy the lowest cost source of energy, are shutting down coal plants by the hundreds and gobbling up all of the clean energy they can. Between 2015 and 2018, 52,200 MW of coal power plants are expected to be shut down in the U.S. Even China is switching to clean energy, canceling over 100 planned coal plants earlier this year and building more wind and solar power plants than any country has ever built.
If you look at a state like Hawaii, where electricity costs are very high compared to the Continental U.S., we’re already seeing companies with solar and energy storage capabilities, like Tesla (NASDAQ:TSLA) and SunPower (NASDAQ:SPWR), are winning bids with the utility to provide energy to the grid for less than fossil fuels. And companies like SunPower, Sunrun (NASDAQ:RUN), and Vivint Solar (NYSE:VSLR) are bringing clean energy production directly to consumers, bypassing the utility altogether. Whether it’s going to utilities or directly to customers, clean energy disruption is already happening in energy.
Innovation will drive future growth
As the cost of clean energy has come down, it’s opened a new world of possible innovations for the industry. I mentioned that distributed solar is allowing homeowners and businesses to produce their own energy on-site. But very few systems today have energy storage, which will allow for a new level of energy control.