After the most drawn out race in recent American history, Republican nominee Donald Trump won the presidential election against the favored democratic candidate, Hillary Clinton. These candidates stood on opposite sides of the spectrum for every topic — especially energy policy. While Clinton proposed more renewable energy development,Trump favors traditional generation with oil, coal and natural gas. While Trump is not the presidential elect that our industry was hoping for, the renewable energy sector will survive on its own — as economics will always trump policy (pun non intended). Here are a few points to keep in mind going forward into his presidency.
Faith in Our System
Trump’s opposition to climate change policy no secret. Abolishing the EPA, revoking the Clean Power Plan and pulling American support from COP21 were all mentioned in his loose plan for America’s energy sector. However, there is a silver lining in this situation. The United Sates has an incredibly resilient checks and balance system, where in many cases, the president is powerless to overturn decisions without support from the judicial and legislative branches.
Take President George H.W. Bush for example. Known as the veto president, he vetoed 44 bills; one of which was overridden by Congress. In the early 1990s, when technology was making the Internet, television and telecommunication more accessible, the public wanted access to these things at a low cost, with varied options. However, the cable and telephone companies were creating local monopolies, limiting their options and controlling the prices of their services. As a result, the 1992 Cable Act was proposed to provide increased consumer protection and to promote increased competition within the cable television and related markets; yet this was vetoed by Bush. With increased pressure from the public, Congress had enough votes to override the president’s decision, proving that economics will always drive business. Renewables are already proving to do so.
Much like media consumption in the 1990s, today’s modern energy consumer wants to be in control of their own energy. Technology is providing this newfound independence, as the rapid rise of residential solar panels, battery storage and metering systems are putting consumers in control of their own energy production, storage and consumption. While this is still a newer concept in America, energy consumers now want only to be tied to their utility provider if anything; and certainly not the government.
Economics Trumps Policy
There’s no going back now with renewables; the economic “genie” is already out of the bottle. We have now reached a fundamental point in our industry where the cost of renewables has surpassed that of fossil fuel. Globally, over $349 billion has been invested into renewable generation, with $63 billion in the in the U.S. market.
It is important to distinguish that oil and gas provide fuel for transportation, whereas coal and nuclear generate electricity. These sources are uncorrelated from a pricing perspective, (and at this point, renewables have no impact on the first). Investors may however shift their attention if returns in oil and gas are better, yet demands have been low in recent years. However, if Sarah Palin (who made famous the phrase is “Drill Baby Drill”) becomes Trump’s Secretary of the Interior, the U.S. would add over supply to the open market, which would further drive oil and gas prices lower; a simple rule of supply and demand that we learned in Economics 101. This would actually make drilling less attractive to investors, as renewable energy generation and energy efficiency investments are creating a better ROI. Eliminating environmental regulations will not “save” the oil and gas industries; their fates lie in market dynamics.
While oil, coal and natural gas are finite supply sources, it’s also worth remembering that solar panels and wind turbines generate electricity from infinite resources (sunshine and wind) at zero cost. To put this into perspective, let’s compare the total costs of coal versus solar. The cost to produce electricity from coal is between $0.02-$0.03/kWh, where solar in the U.S. costs around $0.08-$0.09/kWh total. Since solar is produced locally, there is no additional transmission cost. Since coal is produced away from the point of consumption, it costs an additional $0.06/kWh to transmit. Very few people add up total costs of electricity production and transmission. Very few people add up total costs of electricity production and transmission.
While the price of solar against coal is leveling out, coal on the other hand cannot go cheaper. If anything, the total cost will increase in price with the addition of carbon capture technology. Solar, on the other hand, will only continue to get cheaper. Already we’ve seen panel prices drop from 70 cents to 40 cents a watt, and solar will continue to plummet as technology advances. We’re seeing the effects of this not only in America, but all over the world, where there is a tremendous amount of momentum in renewable development. The record-low utility scale solar project bids that were recently won in Chile, Mexico and Dubai under $0.03/kWh per kWh, are a testament to this. The simple truth is that coal can no longer compete with solar. President Trump needs to be educated on the economics of this.
It’s a Global Effort
While the United States is still fumbling over the acceptance of global warming, the rest of the world is well ahead of us in shifting towards a low carbon economy. China, India and Japan are continuing to stretch their lead in renewable energy deployment, with the U.S. trailing behind at a distant fourth place. Pulling out of the race at this point would not only negatively impact our relations with other countries, but allow our competitors to get ahead of us. If Trump really wants to beat of the Chinese, solar, not coal, is the best way to do so, especially when it comes to putting more jobs in America.
As we’ve pointed out before, the renewable and energy efficiency industries have created over 2.5 million jobs in the United States. Solar now employs more Americans than than oil, natural gas and coal combined. The nation’s fastest growing occupation is, believe it or not, the wind turbine technician; which is still projected to grow 108 percent in the next 7 years. All in all, the U.S. is on a steady path to leading the way in renewable generation, as BNEF predicts that 2040, solar and wind together will comprise 41 percent of total installed capacity in the U.S — up from just 9 percent at the end of 2015. The good news here is that the majority of growth projections were made independently of policy influence from the Clean Power Plan and ITC/PTC extension. If Trump is successful in lifting environmental regulations and slashing tax incentives, the renewable industry will hit a speed bump, but growth will not stop.
At such a critical time in the fight against climate change, Donald Trump has a major decision to make. He must choose whether he will be the president who botched America and the rest of the world’s efforts in reducing carbon emissions, or the president who listened to his people, invested in clean energy (the fastest growing sector in the U.S. economy) and kept us on track to climate progress. Either way, he will leave a critical legacy behind.
This article was previously published by Mercatus and was republished with permission.