America’s new and improved energy mix

Repost from Fuel Fix
[Editor:  Significant quote: “Since 2008, wind and solar energy capacity in the U.S. has tripled. A new report from the Energy Information Administration found that electricity generated from wind and solar grew a lot faster than electricity generated by fossil fuels last year.”  – RS]

Guest commentary: America’s new and improved energy mix

By Paul Dickerson and Thomas R. Burton III
Mintz Levin, April 25, 2015 8:00 am
(Sam Hodgson/Bloomberg)

Not too long ago, America was governed by an either/or energy market. Back in the 1970s and early 1980s, the rise and subsequent demise of solar energy as a viable energy alternative was directly related to the jump and collapse in crude prices before and after the OPEC oil embargo. Solar was resuscitated – along with a host of other nascent alternatives – in the first decade of this century when oil prices spiked once again. Plenty of pundits warned that investments in solar, wind and other energy alternatives would prove short-sighted when the price of oil finally retreated.

But something significant happened along the way: demand for energy alternatives became untethered from oil and natural gas prices. At a time when the price of crude oil has plunged by more than half and natural gas prices have plumbed two-year lows, growth in energy alternatives has actually accelerated. Since 2008, wind and solar energy capacity in the U.S. has tripled. A new report from the Energy Information Administration found that electricity generated from wind and solar grew a lot faster than electricity generated by fossil fuels last year. So-called distributed generation – a better proxy for real-time demand because it measures installations such as solar panels by end users and not utilities – exhibited even faster growth. In fact, by the time you’ve read this, another new solar project will have come online (it happens every 150 seconds).

A host of drivers help explain why these energy technologies are holding their own this time around. Whether you agree with them or not, growing concerns about climate change and energy’s role in it has created generous federal and state incentives for energy sources that aren’t derived from fossil fuels.

Incentivized by these policies, public and private sector innovation has driven down the cost of these technologies so they can increasingly compete on price even as their subsidies expire. Wind energy’s dramatic success here in Texas is a key reason why state senator Troy Fraser, a key proponent of Texas’s Renewable Portfolio Standard and Competitive Renewable Energy Zones, recently argued that those programs have accomplished their objective and are no longer needed.

Finally, innovation has migrated to the industry’s financing models. Previously, much of solar’s growth was driven by technology advancements. More recently, however, growth is being driven by financial improvements such as more flexible leasing models, a greater availability of capital that lowers costs for installers, and better analytics that enable installers to target customers more effectively. The result has been a rapid change to the competitive landscape, which has transformed and invigorated the market.

By now you might be wondering: Why does this matter to me? The answer is because there are huge implications from diversifying our nation’s energy supply.

The first benefit is the ability to hedge our energy positions when the price of one technology soars. Much in the way that investors are adding alternative investments to complement their holdings in stocks and bonds, a national energy portfolio that can draw on solar, wind and other alternatives is much less susceptible to downside risks. While still a small piece of the overall energy pie, these energy technologies give us a degree of flexibility in weathering market fluctuations. This flexibility makes us less reliant on any one energy source, putting downward pressure on the prices we pay to heat or cool our homes or fuel our cars.

The second big benefit is ensuring the reliability of our energy supply. Solar and wind technologies need to work in concert with 24/7 solutions such as natural gas since they can’t produce energy all of the time. Having access to more alternatives gives our electricity grid operators the flexibility to prevent or work around disruptions, use real-time usage data to identify and tap the most efficient energy sources at all times, and continue to meet our growing energy demands. Of course, we still have some work to do in this respect, and we urge federal and state legislators to continue to support programs that help develop the technologies needed to seamlessly integrate our growing array of energy choices.

A third reason, one that we are painfully familiar with as much of Texas remains gripped by drought, is water. One of the biggest demands for water is power generation, and as people continue to move to Texas, demand for electricity will continue to rise. By developing wind and solar sources, we will ease the burden of that growth on our already stressed water supplies.

Finally, a nation with greater flexibility in the way it meets its energy needs is one far less prone to the will or whims of others. In recent years, the term “energy independence” has been thrown around a lot. It’s a laudable goal, but we can’t achieve it by drilling alone. Before we can have true energy independence, we first must have energy diversity.

Thomas R. Burton III is the founder and chair of the Energy & Clean Technology Practice at Mintz Levin in Boston. Paul Dickerson, of counsel at the firm, is a former chief operating officer at the US Department of Energy.