The Unstoppable Growth of the Clean Energy Sector

Ethan Forauer, ERS, and Gita Subramony, ERS, for Zondits

The new presidential administration is proposing sweeping changes to energy and environmental policy. During the presidential debates, the candidates did not devote much time to explaining their policy positions and ideas regarding climate change and energy. However, the stance of the new administration has been made clear in Trump’s energy plan, now posted on the White House website . While it provides few details, the plan states the intention to lessen regulations and undo the Climate Action Plan. The administration sees these regulations as increasing energy costs and decreasing job growth. The plan also promises to spur oil and gas drilling, as well as “clean coal,” in order to lessen utility costs and promote job growth. Notably, however, the plan makes no mention of the USA’s burgeoning efficiency and clean energy industries.

Cost of Energy

The Trump Administration’s energy plan focuses primarily on “clean coal” and natural gas reserves, yet ignores recent developments in renewable energy resources. But how do the costs of conventional generation sources actually stack up against alternative energy sources? Is it possible to isolate their true costs from policy initiatives or subsidies? Regardless of where one stands on energy policy, the fundamental economics behind the shift to renewable sources should not be ignored.
The financial advisory firm Lazard analyzed the levelized cost of energy to show how coal, natural gas, and alternative energy options stack up. Levelized cost of energy is one of the energy industry’s main metrics for assessing the cost of electricity production by fuel source. It considers the expected lifetime costs of a system, including construction, financing, fuel, maintenance, taxes, insurance, and all forms of incentives, all of which are divided by the expected power output (kWh) over the lifetime of the system. This value can be adjusted for inflation or the time-value of money, as necessary.
Looking at the unsubsidized levelized cost of energy, the Lazard study indicates that some alternative and renewable energy generation technologies are already cost-competitive with conventional generation technologies. Utility-scale solar photovoltaic (PV) costs about the same as combined cycle gas generation, which is a current industry standard. In Lazard’s analysis, coal generation is likely more expensive than both combined cycle gas and utility-scale PV. Their analysis also notes that externalities such as environmental consequences are not factored in to the costs for conventional generation. For clean coal generation, carbon capture technologies must be deployed. This factor dramatically increases the price of coal generation, especially in comparison to renewable generation, which does not require carbon capture. In addition, current market trends show that investors have an unfavorable view of coal due to deteriorating credit ratings – in fact coal company credit downgrades have outnumbered upgrades by several orders of magnitude. This results in greater risk, which seems to be turning even the most adventurous investors away from coal.

Figure 1: Unsubsidized levelized cost of energy comparison from Lazard

In general, markets are shifting their focus to solar and other forms of renewable generation. Not so long ago, coal was the primary source of power in the USA, making up 56% of American electricity generation. Penetration of solar and wind generation has made tremendous strides in the last two to three years alone, with over half of all new electricity generation coming from these alternative sources. Additionally, as demonstrated in Figure 1, there is not one county in the United States where coal is the cheapest electricity generation technology.
Figure 2: Map of the lowest-cost electricity generation technology in every U.S. county shows that even in the highest coal producing states, natural gas and wind energy are primarily favored.

Government investment and subsidies have certainly helped the solar and wind industries in the same way that all conventional generating technologies have been helped; however, one of the main driving factors behind alternative energy’s success is that its price is decreasing dramatically. Bloomberg LP made the point in a 2016 article that solar, in particular, will continue to gain a foothold since it’s “a technology, not a fuel,” which means that as “efficiency increases…prices fall as time goes on.” Figure 3 below, from Bloomberg, shows the dramatic decrease in price for PV.
Figure 3: As the price of solar falls, installations soar.

It is also anticipated that battery storage will show the same trend over time; a recent Scientific American article suggests that approximately 1,800 MW of energy storage could come online by 2021. Storage has several applications, including grid reliability, peak-shaving, and working with intermittent renewable resources to demonstrate 24-hour availability. Combining storage with PV solutions could further amplify the market growth of these two technologies. In contrast, coal and gas generation will be dependent on fuel prices, thus they are volatile. As a result, large energy consumers looking to insulate themselves from this volatility are increasingly locking into long-term renewable energy purchases through power purchase agreements (PPAs).

Job Growth

Growing American-based jobs was certainly a central tenet of the recent presidential campaign. However, the Trump plan’s insistence on fossil fuels ignores the dramatic job growth in the clean energy and efficiency sectors while promising to increase job growth in the declining coal industry.
According to the US Department of Energy’s 2017 Energy and Jobs Report, 1.9 million Americans work in electric power generation, with nearly 800,000 Americans working in low carbon generation (including renewables). The report also notes that the solar work force increased by 25% in 2016 and the wind energy workforce increased by 32% in the same year. Additional reports from the Environmental Defense Fund also indicate that solar and wind jobs are experiencing growth that is 12 times faster than the rest of the US economy (as noted by Business Insider). At the same time, the report indicates that fossil fuel job growth was negative from 2012 to 2015. While some fossil fuel job losses might be attributable to low oil prices, oil and gas industry jobs as a share of US employment peaked in the early 1980s. Utility Dive also notes in its analysis of the DOE report that “as grid modernization, energy efficiency, and clean energy continue to gain traction, job growth is projected to come from these sectors instead of mining and extraction for traditional resources.”
Figure 4 below (from the DOE report) shows power generation employment by generation type for 2015 and 2016. Solar is the clear leader here.

Figure 4: Solar employment growth dominated in 2015 and 2016.

If the Trump Administration’s plan has an intention to spur job growth, the current market data suggests that they should not ignore the rapidly growing markets for efficiency and renewables and the opportunity for more sustainable market-supported job growth. Further, given the decreasing costs for renewable generation, and the associated job growth, policymakers could readily consider initiatives that enhance the employment opportunities in this newly dominant generation technology. Even if the new administration or some members of Congress do not believe in climate change, solid job growth in the renewable and alternative energy sector should not be ignored or undermined.

Policy Reversal?

All along the campaign trail, the Trump campaign made it clear that, upon election, there would be two main environmental and energy policy reversals: the Clean Power Plan and the United Nations Climate Agreement from the COP21 meeting in Paris.
In August 2015, President Obama unveiled the Clean Power Plan – unprecedented legislation to reduce carbon emissions from power plants around the country. This brought about lawsuits from 24 states on the grounds that the plan is an “illegal attempt to reorganize the nation’s energy grid” and is an attack on the coal industry that will lead to higher energy costs. While the new administration has promised to promptly scrap the plan, no action has been taken to remove the plan at the time of writing, and there have been no hints at a replacement plan. Regardless of whether or not Trump eliminates the Clean Power Plan, the energy sector has been so progressive that the plan’s state-specific 2024 goals for cutting carbon emissions and the overall 2030 goal for reducing coal use have already been achieved. While it is tempting to take solace in that fact alone, climate scientists assert that we need to cut emissions by 80% by 2050 to avoid the most devastating effects of climate change. While achieving the goals outlined above initially seems sufficient, there is still incredible work to be done, and eliminating the plan will eliminate years of groundbreaking energy policy. That being said, most energy policy is developed at the state level, and progressive states such as Massachusetts, New York, and California will likely continue to forge ahead with or without the backing of the federal government. However, states unlikely to implement such policy will certainly not have any mandated reason to do so.
The Paris Agreement, a groundbreaking agreement signed by 194 countries, was the direct result of years of high-level bilateral diplomacy and intense negotiation. The agreement is a legally binding framework that requires countries to report their emissions on a regular basis – and the reports are subject to extensive technical review. Commitments for the first five years are intense and are to be reviewed and strengthened every five years beginning in 2020. The goal is to promote accountability for countries to reach their agreed-upon goal while sending strong messages to the energy industry, private sectors, and governments around the world that climate change is a tangible issue that requires aggressive action.
Despite initial vacillation, the new administration has made it clear that its plan is to withdraw from the agreement. Efforts to reduce dependence on fossil fuels have been ignored, and the administration’s accepted road map to energy independence is to revitalize the coal industry and further tap into the natural gas here in the United States, in the form of both shale and tar/oil sands. Calls for more drilling, fewer regulations, and oil pipeline construction have reverberated from coast to coast.
Removing the United States from the agreement could happen in a few different ways. Technically, any country that was a party to the agreement can’t leave until it completes a four-year withdrawal process. Even if Trump issues an expected executive action, the United States would still be a party to the agreement and as such would be subject to the legally binding procedural commitments. Failing to meet agreed-upon obligations negotiated at the U.N. Climate Conference in Marrakesh, Morocco, would be viewed as breaking international law. However, if the president chooses to broadly exit the United Nations Framework Convention on Climate Change (UNFCCC), an action that has certainly been threatened by the administration, that could be completed in one year instead of four. One final option would be to remain part of the UNFCCC but not participate in discussions or negotiations. At this stage, it is too difficult to predict which route the administration might take, but we will be monitoring this closely.

Our Energy Future

It remains uncertain how the efficiency and renewable energy industries will respond to the administration’s changing federal policy landscape for energy. Over the past few years the USA has seen a great amount of growth in the clean energy technology sector, both in terms of system (MW) deployment and jobs. With new clean energy technologies reaching maturity and substantial growth in the efficiency and alternative energy sectors, any national plan to spur energy industry jobs will have to acknowledge this subsector’s progress over the last decade, and this technology market’s economic forces. If Trump’s plan fails to recognize this trend, it will be ignoring a high-growth, lower-cost sector responsible for rapidly creating many high-paying American jobs throughout all US states, while representing an increasing percentage of the electric supply. Any energy plan that places value on job growth and economic and technical competitiveness must consider the unstoppable growth of the clean energy sector.