The Power Is On

Spring 2020 – The Power Is On

At the time of this writing, the COVID-19 crisis was having a significant impact on the energy industry both in the U.S. and globally, and creating great uncertainty about our economy and the transition to a cleaner energy future.

But before this new reality, there had been major signs of the global energy revolution in everything from the advent of the modern, mass-market electric car to the rise of rooftop solar energy systems. Inspired by the promise of a green power future, Hawaii and California had pledged to be powered 100 percent by renewable energy by 2045.

But the streets aren’t exactly clogged with Teslas these days—and solar and wind farms still feel like roadside oddities rather than established infrastructure. And not every state has ambitious renewable goals: Ohio, for instance, only requires that 8.5 percent of its electricity must come from renewables by 2026; eight other states have no standards in place.

The UN Intergovernmental Panel on Climate Change (IPCC) noted last year that we have about 12 years to change our ways, lest global temperatures increase by 1.5 Celsius, resulting in droughts, floods, and other dramatic natural calamities. But the Conference of Parties in 2020, which was to tackle how to increase ambitions in addressing climate change, has been postponed. In this context, where does the transition to increasing clean and renewable energy stand and what can we expect?

We talked to two alumni energy experts to get a status update: Dr. Robert F. Ichord, Jr. ’69, a senior fellow with the Atlantic Council Global Energy Center, with four decades of experience managing international energy infrastructure and environmental programs at the State Department and the U.S. Agency for International Development (USAID); and Richard Weihe ’91, a renewable energy investor and managing director at Karbone, a renewable energy-focused financial services company.

Here, Ichord and Weihe discuss what’s holding back the transition—and what can fuel its growth.  

Where is the U.S. in terms of our renewable energy development? Is it still early days? 

Ichord: Renewable power production has almost quadrupled since 2010, globally. And in the U.S., renewables last year supplied 18 percent of all electricity consumed. Wind and solar have supplied most of the 77 percent growth in renewable power generation over the last decade as prices have fallen dramatically and efficiencies have improved.

Our power mix is going to change. It’s such a massive energy complex that it’s not going to change overnight, but what is happening is that we have a pie where coal used to be the biggest piece of it, and it fell to 23 percent of the mix last year with renewables and natural gas representing 56 percent of generation. And this has greatly reduced our greenhouse gas emissions.

Weihe: I’m very optimistic about the prospects for renewable power in the United States. About 10 years ago, coal made up about almost one half of the power generation in terms of megawatt hours in the U.S., and now a significant amount of coal generation is coming offline. It’s being replaced by, principally, renewables and natural gas.

There are 30 states that have renewable portfolio standards which mandate targets, financial caps, sales, capacity, and other policy approaches to increasing renewable energy. Then you overlay that with large corporations like Facebook, Amazon, Google, Microsoft, even Johnson & Johnson that are becoming increasingly committed to purchasing their electricity from renewable power. Data server companies, like Digital Realty, purchase significant quantities of wind and solar power to address their corporate customer renewable energy requirements. The number one source of increased demand in renewable power over the past five years has been corporate, long-term power-purchase agreements.

How have state-wide renewable standards driven the clean energy movement?

Weihe: The state that has one of the most aggressive mandates is California. But there are states that you wouldn’t think would have mandates—like Texas. Texas is the largest wind producer in the United States, and there’s a tremendous number of jobs that go towards wind development and, more recently, solar development. A state like Iowa, that is Republican leaning, actually has strong political support for wind power. It also has the highest percentage of renewable power consumption of any state. So you have both sides of the political aisle, in some cases, supporting renewables. It’s not just a blue-state interest anymore. Renewable energy today is not just about climate change or clean energy; it’s about innovation and job creation.

Ichord: In terms of the transition, a lot of this started with the fact that wind power was very competitive, especially in the Midwest. When you look at renewables, it is very influenced by the region that you’re talking about, both in terms of the economics, as well as the competition from other sources. But in the Midwest, a half-dozen states have over 20 percent of their electricity coming from wind, and Ohio, Kansas, and Oklahoma even have over 30 percent. But from a regional standpoint, the southern states—with their low-cost coal and gas—have been more resistant to setting these kinds of targets for renewables.

Weihe: Many Midwestern states don’t have renewable portfolio standard requirements. But the underlying economics of power pricing is ultimately going to dictate a lot of the potential growth for renewables. One thing about coal: A lot of people tend to think the reason why coal is getting phased out is because of environmental requirements—and that’s not necessarily the case. Old coal-fired power plants cannot compete on a dollar-per-dollar basis with new natural gas plants or many renewables, and that’s why we see a lot of coal plants getting phased out. It’s really on economic grounds more than anything else.

There was a recent IEA report that said global renewable power capacity will expand by 50 percent between 2019 and 2024. That may change with the pandemic, but what would growth like that look like in real terms? 

Ichord: Although electricity demand is level or declining in the United States, especially with the economic collapse from the virus, there’s still a considerable expansion expected in the U.S. in the future. From a global perspective, it is important to remember that the U.S. is quite unique. Generally, power prices and demands are much higher in other parts of the world, especially in the developing countries. And there is a significant drive in China and India, which accounts for about 30 percent of the world’s energy consumption, to move away from coal and to renewables. I would guess that over the next several decades, 90 percent of projected electricity and primary energy demand growth will be in the non-OECD countries. That’s really important. While Asian countries are still adding coal capacity (and this is a big problem from the standpoint of climate change), other developing countries are trying to move away from heavy reliance on coal—and in some cases oil, like in Central America or the Middle East—and are looking to renewables because the prices are now favorable. And they’re getting financing and investment from international financial institutions like the World Bank; from the U.S., European, and Chinese governments and companies; and from private financiers and technology vendors.

Weihe: There are a few factors at play here. First, I expect a continuation of the trend that we’ve observed over the past several years: the declining cost to build solar and wind. Second, bolstering energy grid transmission will allow for the incorporation of more intermittent power resources like wind and solar. Third, I foresee a continuation of renewable power or carbon-
related market-based incentives. Finally, another trend to consider is we’re experiencing a demand for renewable power—as opposed to conventional brown power—in both the retail and corporate power sectors. As Ichord mentioned, with the exception of the Northeast U.S. and parts of California, the power prices in the United States are really quite cheap. And they’re probably going to continue to remain relatively low for some time. That presents an opportunity for corporate and retail consumers who prefer to buy renewable power. 

We started this conversation by saying that renewables are only about 12 percent of the U.S. energy mix at this point. What is the biggest challenge to speeding adoption? 

Weihe: Cost is continuing to go down, and so as long as that trend continues, renewables are going to become increasingly competitive. That’s hugely important. In addition, a critical factor in limiting the growth of renewables and accelerating the decline of coal, is abundant, cheap natural gas. As long as we’ve got cheap natural gas, we’re going to have cheap electricity and that puts pressure on the economics of all power projects. Another factor is implementation of battery-storage technologies that can smooth out renewable power production. A number of early-stage investors and utilities are placing bets on storage; it will be crucial for sustaining the long-term growth trajectory of renewables.

Ichord: I also believe these energy storage issues, especially in relation to integrating increasing variable renewable energy into the grid, and the regulatory framework for distributed power generation will be critically important. The expected drops in battery costs and the growth potential for electric vehicles will clearly have important implications for the operation of our electricity grids and distribution systems. These developments will be strongly influenced by likely continuing low natural gas prices in the U.S. and our emergence as one of the top world exporters of liquified natural gas. The devastating impact of the COVID-19 crisis on both the domestic and global oil and gas industry, as well as decisions on economic recovery, will have a major impact on future investments in renewable energy.

But I have a feeling that while U.S. utilities may advance the retirement of their coal plants. They will not want to become overly dependent on gas and will see renewables as desirable to diversifying their portfolios and enhancing their security and resilience. 

Published May 2020