In a widely anticipated move, President Trump abandoned the Paris Climate Agreement this week. Widely hailed as a landmark agreement that would set in place the structure to slow climate change, Trump believed it was overly restrictive on the US and harmful to industries such as coal and oil.
This departure from the landmark agreement led to a lot of consternation both at home and abroad. In particular, technology companies were quick to jump on the bandwagon that “leaving the Climate Agreement will lead to a loss of leadership in the US”.
While it is true that our government under Trump will certainly be less accommodative for renewables, I’m not convinced that we need the government to lead in this industry any more. This is because renewable energy has reached a point where it is now cheaper than traditional energy even without subsidies. Therefore, investment in this space will continue to grow rapidly from the private sector and the US will see tremendous growth regardless of government financial support.
Oil Price Collapses, Clean Energy Keeps Growing
One of the primary concerns behind investing in clean tech centered around profitability. The common thinking was that plentiful carbon resources would always make renewable energy risky without government subsidies. The oil price collapse of the past few years has dispelled this concern.
Instead of seeing the expected decline in renewable investment when oil prices were halved, 2015 was the highest ever for installation of renewable power capacity, with 64GW of wind and 57GW of solar PV commissioned during the year, an increase of nearly 30% over 2014. And, while 2016 was lower, it appears that the primary cause of this is falling prices; more capacity can be installed for less money.
Michael Liebreich, chairman of the advisory board at Bloomberg New Energy Finance, stated, “These figures are a stunning riposte to all those who expected clean energy investment to stall on falling oil and gas prices. They highlight the improving cost-competitiveness of solar and wind power, driven in part by the move by many countries to reverse-auction new capacity rather than providing advantageous tariffs, a shift that has put producers under continuing price pressure.
“Wind and solar power are now being adopted in many developing countries as a natural and substantial part of the generation mix: they can be produced more cheaply than often high wholesale power prices; they reduce a country’s exposure to expected future fossil fuel prices; and above all they can be built very quickly to meet unfulfilled demand for electricity.”
As Lazard shows, in the above chart, wind and solar are now cheaper than traditional forms of electricity generation. This is a direct result of the governmental subsidies that drove investment in these spaces over the last few decades. However, at a certain point, pricing gets attractive enough that investment will continue regardless of subsidies. With the dramatic cost reductions in renewable energy, we have reached this point.
Where Do We Go From Here?
In response to Trump pulling out of the Paris Agreement, many people are concerned that coal (the dirtiest fuel out there) will be making a comeback. However, this fear is one that I don’t think will ever happen. In an interview with USA Today, Nick Akins, the CEO of American Electric Power, had the following to say.
“You wouldn’t make a decision (to build a coal power plant) at this point because it’s heavily capital-intensive, and involves a longer-term process and risk to build. And, of course, you can add renewables that are very efficient and natural gas that’s efficient and much less expensive and risky, in terms of construction and operation…I suspect we’ll see some more (coal fired power plant) retirements in the future as we progress towards that cleaner energy economy, and consider the expectations of our customers and shareholders for us to mitigate risk.”
Once renewable energy reached the tipping point of grid parity (i.e. not costing more than traditional electricity generation), it ensured that the future contains ever increasing amounts of solar and wind generation. When you look out to 2030 and beyond, it’s not ridiculous to believe that half our energy in the US could be generated by renewables. It is for this reason that Tailwinds recommends UGE International, the second largest commercial solar installer in North America.
Other future changes are going to center around batteries and storage of energy. The cost of batteries is dropping in parallel with solar and wind, and this is necessary as renewable energy is inherently inconsistent in its generation and storage is a requirement to go along with it. In the battery space, we love Aqua Metals, a company that can recycle lead acid batteries.
Additionally, since solar generates DC power, we think the grid is going to start changing to handle more DC than AC. DC travels better and already long distance lines are DC. However, there is significant energy loss and expense involved in transforming power from DC to AC and back again. Since, most appliances run DC, and since most houses will have solar in the future, doesn’t it make sense to start having DC power become more ubiquitous? It sure does and that’s why, in the DC power space, we like Polar Power.
Trumping The President
President Trump may have pulled the US out of the Paris Climate Agreement. And, there certainly will be some short and intermediate term repercussions as a direct result of this. However, the tipping point has been reached for renewables. They are less expensive than traditional forms of energy, and they are in massive demand from consumers. Trump may have derailed the Paris Agreement, but he can’t derail the growth in renewables, which will continue with or without the White House’s support.Tailwinds' Disclaimers & Disclosures: For a full list of disclaimers and disclosures, please visit http://