There is a seismic shift taking place in U.S. and world energy markets. The promise of affordable, clean wind power is no longer a distant dream. It’s a reality customers are demanding, and we are delivering, today. There are a number of key drivers – the environment, climate change, energy security, technology and energy policies. But most important is price. The real cost of wind energy has dropped 58 percent in the last five years.
Today, wind competes economically with all energy sources, even natural gas. In many markets, wind is now the lowest-cost energy, period. If it costs less, who wouldn’t choose wind? Globally, this is driving tremendous demand. At current trends, total installed wind capacity could more than double by 2020. Major companies, like Amazon, Apple, Google, IKEA, Microsoft, and WalMart, are investing in wind. The U.S. currently leads in producing wind power, with 70 gigawatts (GW), supplying nearly five percent of total U.S. electricity annually.
But China has now passed the U.S. in terms of total installed wind energy capacity. A big question is whether the U.S. will be able to keep up with the accelerating pace of demand, and affordable clean energy benefits, resulting from the switch to wind power in the rest of the world. I think it can.
There are several fundamental changes taking place in U.S. state energy markets, and two of them are like tectonic plates pushing up under the feet of state policy makers.
First, a really large amount of coal-fired electricity generation is going offline. Two analyses put this trend on a multi-GW scale: Earlier this year, ICF Consulting predicted 60 GW of coal plant electricity will go offline by the end of 2020. That’s enough to power more than 30 million homes. In May, the U.S. Energy Information Administration (EIA) made a similarly scaled estimate, that 40 GW of coal plant power will go offline from 2014 to 2040, most of it by 2017.
Why? Much of this shift has been driven by the low price of natural gas produced by fracking. Utilities have switched fuels because natural gas is close enough in price to coal to enable utilities to save money they would otherwise spend retrofitting existing plants to meet current pollution reduction standards.
While I wouldn’t have said this a year ago, some of this shift can be credited to efforts by climate change activists to move the country away from coal and other fossil fuels. This campaign has begun to gain traction, particularly with efforts to pressure institutions to “divest” their financial holdings from coal. Norway’s pension fund and the University of California have both announced their plans to divest from coal. As of last month, the divestment effort has commitments from 430 institutions and 2,040 individuals totaling $2.6 trillion of investable assets.
As a businessperson, I think there’s room to debate how much direct market impact such actions have on energy markets. However, with the Pope’s U.S. tour and his extensive remarks on climate change, along with actions being taken by U.S. and world leaders, there’s an important point for state policy makers: We have turned a corner in the national conversation about energy.
The second fundamental change is the writing of “implementation plans” by state officials to meet far-reaching federal Clean Power Plan (CPP) standards. These standards are arguably the biggest change in energy policy in 25 years or more. The CPP will help lower carbon pollution by 32 percent from 2005. It also will help accelerate a significant restructuring of energy markets.
Because of that impact, we know there are two realities for the CPP. The political reality is the CPP may be highly contested, with years of lawsuits and political ads trying to block or roll it back. However, regardless of where you stand on the CPP, the market reality is these new clean energy standards will be the law of the land. That’s why even traditional fossil fuel states, like Kentucky, are writing their implementation plans to meet the CPP. They understand the economic benefit of complying with the CPP on their own terms, instead of having a federal approach imposed upon them.
The good news for state policy makers is that wind energy offers a ready solution. In fact, wind is the only renewable energy that is price-ready to replace coal going offline. While the average cost of coal-fired energy has gone up from $66 to $75 per megawatt-hour (MWh) in the Americas, real costs for wind energy in central U.S. states has dropped to as low as $27-$30 per MWh. In fact, the Department of Energy found that wind energy could be the cheapest, cleanest form of electricity in all 50 states by 2050.
According to EIA, the average end-user price of electricity in the U.S. to end users ranges from 7 to 13 cents per kilowatt-hour (kWh). Those are retail rates, but still, they are significantly more expensive than what utilities have been able to lock in recently in the Great Plains states with more affordable wind energy.
This is not to say that states shouldn’t turn to a range of solutions to meet the CPP goals. States need to scale solar energy, which complements wind in many locations, and look at energy storage technologies. States should also cut the enormous amounts of energy we waste – up to 40 percent of all electricity generated. But a number of states – Montana, North Dakota, Wyoming, Kansas, Iowa, Illinois and Minnesota – have some of the best wind resources in the country, which makes wind energy a particularly good solution for meeting their big CPP goals.
For those states – and many others – wind energy is a must-have part of implementation plans. That’s something federal policy makers should also consider when they think about tax policies for renewable energies like wind and solar. Do they want to accelerate or slow the growth of this popular, increasingly important industry that is growing jobs?
The bottom line is that wind offers states an affordable clean energy choice, as well as climate change solution. And wind power is ready to turn on today.
Chris Brown is president of Vestas-American Wind Technology, Vestas’ North American business unit.