Renewables Are Booming In Oil Country

The rapid growth of the renewable energy sector has been astonishing.

Renewables have been the fastest-growing sources of energy worldwide – and we’re seeing solar power coming in first as the fastest-growing source altogether.

Tech companies in particular have been embracing this “Renewable Revolution,” but it’s not just Silicon Valley that’s heading into this territory.

Big businesses like Starbucks and Target have been getting in on it as well, who have each announced aggressive targets to run 100 percent of its global operations with renewable energy.

In the midst of an energy revolution like this one, it’s easy to miss the subtleties involved in making it happen.

And there is one simple reason as to why renewables are surging…

Deep in Oil Territory, Renewables are Booming

Both solar and wind continue to decline in operating costs, while increasing in energy efficiency. The combination is making it difficult for coal to recover and poses a challenge in what had been oil-dominant areas.

Take West Texas, for example.

The Permian Basin, which straddles Texas and New Mexico, continues to be one of the most prolific drilling locations in the country.

Here, operating costs as compared to wellhead prices (the below-market price producers actually receive for the volume coming out of the ground) make for some profitable fields even at low oil prices.

Yet the same location has also become the largest in the country for wind power.

Fact is, even this deep in oil country, Texas produces more wind energy than the next three states combined.

Related: Is Saudi Arabia Losing Its Asian Oil Market Share?

Currently, the “Lone Star State” accounts for nearly a fourth of the nation’s wind power capacity, and current wind projects have the capacity to generate over 20,000 megawatts (MW) of power.

That’s enough to power more than 5 million homes.

In both solar and wind, the assumption not long ago was that once government subsidies had been phased out, a ceiling would form on additional renewable power production.

However, this argument in favor of a return to dominance for traditional energy sources failed to consider one salient point…

A Cheaper Energy Source

Solar and wind have become far cheaper to produce than even their strongest adherents had expected. That means they have both reached and exceeded “grid parity” – their generating costs being equal or lower than those of natural gas and even coal.

Yes, nuclear remains the cheapest way to produce electricity.

But the high costs of constructing nuclear power plants and the still long delays in approval and finishing the plants have propelled renewables into an ascendancy in the non-fossil fuel category.

Crude oil hardly figures into the electricity-generation equation in the U.S.

And until the next massive wave switch in vehicle engines – electric, hybrid, CNG (compressed natural gas), and LNG (liquefied natural gas) – distillates (gasoline and diesel) will have the lion share of the transport fuel market.

Which means that on the electricity production front, this has become a competition between coal and natural gas on the one hand, and renewables (solar and wind, with a marginal presence of biofuel and geothermal) on the other.

Now, natural gas production in the U.S. would seem to have been given a boost by the Trump Administration’s support for hydrocarbons. The problem has been a persistent surplus of production, combined with a penchant by Mother Nature to produce mellower than expected temperatures, which drives down air conditioning use and thus power demand.

Related: Can Saudi Arabia Afford Its Megaprojects?

The latter is likely to change as we move into summer and hotter temperatures.

But the bottom line remains the same.

The New Energy Powerhouse is Here

Solar and wind have become far more competitive and have in some cases – West Texas (wind) and the Southwest (solar), for example – emerged as the preferable move.

All of which has set the stage for a very different scenario following the D.C. decision to make the U.S. one of only three nations opposed to the Paris Climate Accord.

Even then, that number is misleading, since Nicaragua largely opposes the agreement because it did not go far enough in combatting climate change.

That leaves just the U.S. and Syria, of all places.

Yet here is the interesting matter.

Despite the elimination of government support and new management at the Environmental Protection Agency (EPA) bent on resurrecting coal, solar and wind continue to undercut the cost of increasing reliance on hydrocarbons.

Put simply, renewables are progressively becoming the energy “currency of choice” regardless of what exercise in political dominoes the Administration had in mind.

And consider this…

Solar and wind employees total nearly 800,000 in the domestic workforce – a figure likely to be doubled by 2020.

Meanwhile, U.S. coal jobs have dwindled to 160,000, less than a quarter as the renewable energy sector, and will decline even further by the end of the decade.

Regardless of the short-term electoral machinations practiced in the White House, the market itself is making its own decision.

While there will remain a position for coal in the developing energy balance, it’s not going to return to its dominance of last century.

And King Coal will have to give up his throne to a new ruler in the energy world.

By Dr. Kent Moors

More Top Reads From Oilprice.com:

• Oil Prices Rise On Crude, Gasoline Inventory Draw
• Canada’s Oil Patch To Turn Profitable In 2018
• A Natural Gas Giant Like No Other