Clean Tech & Energy

Low-Cost Renewables Have Big Implications for the Utilities Industry

Cities, states, corporations, and universities have committed to moving to 100% clean energy. Now, major utilities have joined them, and the shift could have major implications for the industry.

In December 2018, Xcel Energy announced plans to eliminate carbon emissions from its operations by 2050. The company has already cut carbon by 35% since 2005 as part of its pledge to reach a 60% reduction by 2030. While Xcel is not the first utility to commit to becoming carbon-neutral, the move indicates where others in the utilities industry could be headed.

“This is an extraordinary time to work in the energy industry, as we’re providing customers more low-cost clean energy than we could have imagined a decade ago,” said Ben Fowke, chairman, president, and CEO of the company.

The Larger Shift toward Renewables

Other big utilities are moving in the same direction. Just after Xcel’s announcement, its Colorado competitor Platte River Power Authority shared plans to be emissions-free by 2030. Xcel’s midwestern neighbor MidAmerican Energy is building a new set of wind farms to enable it to meet 100% of its Iowa customers’ needs with wind power.

In California, 2018 legislation requires power companies to be carbon-free by 2045 and use at least 60% renewable energy. Hawaii already requires its utilities to be entirely renewable by the same year. Other states may follow suit, as a newly elected wave of Democratic governors made 100% clean energy pledges in their campaigns. Colorado governor Jared Polis promised 100% renewables in his state by 2040, while Minnesota governor Tim Walz spoke out for cutting carbon emissions 80% across the whole state economy by 2050. Since states directly regulate the utilities industry, they have clear authority over how utilities source their power.

While Xcel is not the first utility to commit to being carbon neutral, the move indicates where others in the utilities industry could be headed.

Other entities currently play a role in the trend, too. Over 100 cities and counties, including Denver and Minneapolis, have made the pledge. The Climate Group’s RE100 campaign involves more than 160 major corporations around the world, from Apple to Walmart. The US Environmental Protection Agency lists 936 organizations in the US that have gone 100% green, including 42 colleges and universities. Notably, over half of the green power sold to those 936 organizations goes to 24 tech and telecom companies, including Facebook, Google, and Sprint.

Overall, the National Renewable Energy Lab says voluntary purchases of renewables account for a quarter of the market, while utility procurement to meet state mandates makes up 57%.

Drivers Away from Fossil Fuels

Three primary trends contribute to the move toward clean energy. First, climate change is top of mind for many elected and corporate officials, with governments and companies around the world taking the Paris Pledge for Action to cut emissions in line with the Paris Agreement.

Second, President Donald Trump’s hesitation to endorse most action on climate change has spurred a strong legislative reaction. Clean energy is now a standard plank of Democrats, who made large gains in the midterm elections. The Green New Deal touted by Congresswoman Alexandria Ocasio-Cortez has garnered support even across party lines.

But what translates these environmental and political dynamics into action on a significant scale is the third driver—the low cost of renewable energy. Wind and solar power prices have dropped far enough that they’re now beginning to undercut the price of fossil fuels. According to the International Renewable Energy Agency, the cost of onshore wind power generation fell 23% between 2010 and 2018, with the cost of solar electricity dropping 73% during that same period. Kaiserwetter Energy Asset Management puts the cost of fossil fuel–generated energy at $49 to $174 per megawatt hour (MWh), compared to $35 to $54 per MWh for renewables.

Perhaps nowhere are the implications of this change more clear than in Indiana, long one of the most coal-dependent states in the country. Even here, late last year the Northern Indiana Public Service Company (NIPSCO) released a plan to close five coal plants in favor of wind and solar energy and new energy efficiency programs. The move, flipping from 72% coal to 65% renewables in only 10 years, is projected to save NIPSCO customers $4 billion over 20 years. “We have the opportunity to invest in balanced options that will deliver more cost-effective and cleaner energy for our customers,” NIPSCO president Violet Sistovaris said.

So, while environmental commitments and political statements are accelerating action in some places, the low cost of clean energy is a key force behind this shift in the utilities industry. The announcement from Xcel Energy is notable but not disruptive in and of itself—it only suggests the direction many utilities may find themselves headed in the near future.

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