The White House’s climate action plan aims to transform the U.S. electricity system in the coming decades. The President directed the Environmental Protection Agency (EPA) to develop and implement standards to reduce carbon dioxide pollution from power plants, double renewable energy in the United States by 2020, and open public lands to an additional 10 gigawatts of renewable energy development, enough to power more than 6 million homes.
The big question is: Are renewable energy sources up to the task of taking on a significant portion of the country’s electricity? Recent trends and data show that the answer to this question is a definitive “yes.”
Four big signs that renewable energy is ready for the limelight include:
1. Renewable Energy Is Cheaper than You Think
Prices vary by region, both because the wind blows or sun shines at different rates in different locations and because individual states have renewable energy industries at various levels of maturity. But across the board, costs continue to fall. In the first quarter of 2013, the average cost of residential solar in the United States fell by 15.8 percent from the previous year to $4.93 per Watt, with some systems less than $3/W. This continued the trend of dramatic declines that began in 2008. For example, in Q1 of 2011, just 2 years ago, the national average was still well over $6/W.
These steady drops are making solar increasingly competitive with more and more homeowners’ electricity rates. In fact, last week, the International Energy Agency (IEA) projected that renewables would eclipse gas and nuclear globally by 2016 because they are increasingly cost competitive with fossil fuels. In the second quarter of 2013, Bloomberg New Energy Finance reported the global average cost per kilowatt hour (kWh) of new onshore wind to be neck-and-neck with the average per kWh cost of new coal plants.
Abundant natural gas production in the United States is creating stiff competition for wind power. However, customers are also realizing the advantage renewables offer by locking in power prices for years at a time. This is one reason why President Obama’s commitment to procure 20 percent of the federal government’s power from renewables is good for taxpayers. Reducing the taxpayer’s exposure to fuel price volatility is wise budget management – a tactic corporations are already putting into practice.
2. Renewable Energy Saves Even More Money by Solving Other Problems
When there is very high electricity demand in the United States, getting enough power to meet the need is very expensive. Distributed solar power – solar panels on homes and businesses – reduce this peak demand on hot summer days and can reduce these high prices. On sunny days in Germany in 2012, solar oftentimes met 35 percent of the demand for electricity, driving the wholesale cost of electricity to €2.5 cents per kWh, less than the average cost at night when loads are very low.
Where distributed solar shaves the cost of peak electricity prices, utility-scale wind power lowers the wholesale cost of power across the board. This is a well-known effect in Europe already. Synapse Energy Economics estimated that an additional 33GW of wind power could save the 13 states served by the PJM power market nearly U.S. $7 billion a year by 2026. An earlier report by Synapse found similar savings for Midwest states served by the Midwest Independent System Operator (MISO) power market by 2020 with the addition of 20GW of wind power.
3. Renewable Energy Can Be Safely Integrated Without Warehouses of Expensive Batteries
Around the world, utilities are coming to grips with integrating variable renewable energy. Pilot programs, like one the Bonneville Power Administration just completed in the Pacific Northwest, are exploring cost-effective methods of energy storage. A smarter grid could use electric hot water heaters as thermal storage. Refrigerated warehouses could both soak up extra power and dial back their electricity use when renewable energy output drops. Municipal water or sewer systems could pump when power is available and slow down when it is not. Even aluminum smelters turn out to be very cost-effective tools to integrate variable wind and solar.
The National Renewable Energy Lab’s Energy Future’s Study estimates energy storage will need to grow by at least 5-fold by 2050 and interruptible loads will need to double to meet 80 percent of the nation’s demand for power with renewables. These tools let us start ramping up renewables cost effectively today, while battery technology improves in the coming years.
4. Renewable Energy Is a Smart Investment for Power Generators
Renewables are clearly a good investment for electricity consumers. But utilities are also finding them profitable.
Just this spring, the Midwest’s MidAmerican Energy proposed a US$1.9 billion investment in wind power in Iowa, a move that would reduce Iowan electric bills by an estimated $10 million a year by 2017. Simultaneously, Portland General Electric is investing in 116 wind turbines to meet Oregon’s Renewable Portfolio Standard and reduce its reliance on market purchases for energy. Investments by these investor-owned, regulated utilities face tremendous scrutiny from both investors and regulators, yet they are able to make a sound case for wind.
Of course, making the most of renewable energy’s strengths will require continued cost reductions, an evolution of utility business models, and changes in how electricity is managed and traded. The upcoming carbon pollution standards from EPA can provide further incentives for this important evolution. Affordable, reliable renewable energy is quickly moving from the sidelines to the mainstream. Implementing new policies and standards will usher this transition along more quickly.
President Obama’s climate action plan stands to bring tremendous change to the electricity sector. Every indication is that the end result is a more resilient electricity grid that has more stable costs and far fewer impacts on our climate, health, and economy. Renewable energy is ready to play its part in that transition.
Letha Tawney is a Senior Associate in the World Resources Institute’s Markets and Enterprise Program. She leads the Utilities of the Future project, which collaborates with utilities, regulators, technology suppliers and customers to build innovative utility business models that support and incentivize a transition from the fossil energy dominated electricity systems of today to a more responsive, resilient and cleaner renewable energy dominated power grid of tomorrow.