THOMAS  J.  MCALLISTER,  CFP
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1098 TIMBER CREEK DRIVE #7, CARMEL, IN  46032
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MAKING CENTS OUT OF THE NEWS
 
Blog #27          (June 12th, 2018)
Renewable Energy Update
 
By Tom McAllister, CFP®
 
I have been following the renewable energy field for many years. Technology in this area has made great progress. I want to share this Wall Street Journal article with you, my reader. One of my advisor friends shared it with me.
 
Full disclosure: He represents a firm which is actively seeking investors for a solar and wind partnership. For more details contact me at 317-571-1112.
 
The Wall Street Journal
 
Global spending on renewable energy is outpacing investment in electricity from coal, natural gas and nuclear power plants, driven by falling costs of producing wind and solar power.
 
More than half of the power-generating capacity added around the world in recent years has been in renewable sources such as wind and solar, according to the International Energy Agency.
 
In 2016, the latest year for which data is available, about $297 billion was spent on renewables—more than twice the $143 billion spent on new nuclear, coal, gas and fuel oil power plants, according to the IEA. The Paris-based organization projects renewables will make up 56% of net generating capacity added through 2025.
 
Once supported overwhelmingly by cash-back incentives, tax credits and other government incentives, wind- and solar-generation costs have fallen consistently for a decade, making renewable-power investment more competitive.
 
Renewable costs have fallen so far in the past few years that “wind and solar now represent the lowest-cost option for generating electricity,” said Francis O’Sullivan, research director of the Massachusetts Institute of Technology’s Energy Initiative.
 
Sustained government support in Europe and other developed economies spurred the development of renewable energy. But costs have fallen for other reasons. China invested heavily in a domestic solar-manufacturing industry, creating a glut of inexpensive solar panels. Innovation helped manufacturers build longer wind-turbine blades, creating machines able to generate substantially more power at a lower cost.
 
Renewable-energy plants also face fewer challenges than traditional power plants. Nuclear-power plants have been troubled by mostly technical delays, while plants burning fossil fuels face regulatory uncertainties due to concerns about climate change. And pension funds, seeking long-term stable returns, have invested heavily in wind farms and solar parks, allowing developers to get cheaper financing.
 
“It is just easier to get renewables built,” said Tony Clark, a former member of the Federal Energy Regulatory Commission. “There is that much less opposition to it.”
 
The sustained investment is reshaping how the world’s homes and industries are powered. Last year, the percentage of electricity from renewable sources reached 12.1%, more than double that of a decade earlier, according to a joint report by the Frankfurt School of Finance & Management and the United Nations Environmental Program. These figures don’t include electricity from large hydroelectric dams.
 
In the U.S., more than two decades of government tax credits, some of which will soon go away, have propelled renewables. About 17% of the country’s electricity last year came from renewable sources, including wind, solar and hydroelectric dams, according to federal data. The government said that just under half of large-scale power generation added was renewable last year.
 
Last week, Xcel Energy Inc. announced a $2.5 billion plan to add 1,800 megawatts of new wind and solar generation, plus a substantial amount of batteries to store the power. The plan, which needs to be approved by state regulators, would retire 660 megawatts of coal-burning generation and result in savings for consumers, the Minneapolis-based utility said.
 
“I think, across the nation, you could get to 40% renewable energy,” said Xcel Chief Executive Ben Fowke. “Ten years ago, I would have told you 20% was the max.”
 
Renewable-energy prices are now competitive with fossil-fuel generation in many places. In 2017, the global average cost of electricity from onshore wind was $60 per megawatt hour and $100 for solar, toward the lower end of the $50 to $170 range for new fossil-fuel facilities in developed nations, according to the International Renewable Energy Agency.
 
The combination of falling costs and large pools of available capital is also spurring renewables growth in developing countries.
 
In November, Italy’s Enel S.p. A., a global energy developer, won a bid to build power plants in Chile in an auction open to both renewable and fossil-fuel generators. Enel will build wind, solar and geothermal facilities and sell power from the facilities at about $32.50 per megawatt hour, an unsubsidized rate that is lower than the cost of natural gas or coal to burn in existing plants.
 
The increasing attractiveness of renewable energy has diminished demand for large gas-burning turbines. Both General Electric Co. and Siemens AG have announced large layoffs in their turbine divisions in the past year to cut oversupply.
 
In many places, opting for renewables “is a purely economic choice,” said Danielle Merfeld, the chief technology officer of GE’s renewable energy unit. “In most places, it is cheaper and other technologies have become more expensive.”
 
Recent power auctions have suggested that renewable energy prices have further to fall. Earlier this year, an auction in Saudi Arabia awarded a contract to build a 300-megawatt solar facility for $17.90 a megawatt hour. Very low labor costs in the Middle East and India are resulting in record-breaking low bids for solar.
 
A Mexican auction last year drew international bids for power at an unsubsidized price of below $21 per megawatt hour. That was substantially below the spot market price for electricity, which averaged around $70 per megawatt hour last year, said Veronica Irastorza, an associate director of economic consulting firm NERA and a former Mexican undersecretary of energy planning.
 
“Renewables are going to be able to compete with thermal plants. They will be incorporated into the system faster than I thought five years ago,” she said.
 
In Canada, an auction in Alberta in December awarded four wind contracts for an average of $37 a megawatt hour, subsidy-free. The Albertan government planned to award contracts for only 400 megawatts, but bumped it up to 600 megawatts when it saw the prices offered, which were slightly below the average price for electricity on the province’s grid in 2018.
 
In India, the push into solar has been driven partly by a desire for cleaner energy sources, but also because there is more financing available for solar than for coal, said Rahul Tongia, a fellow at Fellow at Brookings India in New Delhi.
 
Renewable output varies based on when the sun is shining and wind is blowing, and cannot always be dispatched when needed like a coal or gas plant. That can pose a challenge to grid operators.
 
But industry observers say that is now a concern only in certain markets, such as California, where renewable penetration is at its highest.
 
“We could see aggressive build rates for several years to come before we see issues in many markets,” said Tom Heggarty, an analyst with energy consultant Wood Mackenzie. “Ten, 20 years down the line, it might be a different story.”
 

 
I believe progress in the past few years has permanently changed the electricity generation business completely and for the better. Investors need to be alerted to this going forward.
 
Tom McAllister, CFP
 
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Email Tom: tom@tommcallister.com
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