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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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The U.S. Energy Grid Can Be Both Cheaper And Cleaner

A radical decarbonization of the U.S. power grid is no longer a clean energy utopia dreamed up by overreaching environmentalists: Now, it could actually help lower customer bills and add millions of new jobs to the economy in less than two decades. That is the finding by a new report from the University of California, Berkeley, that says that rapidly plummeting solar, wind, and storage prices make it entirely feasible for the U.S. to deliver 90 percent of power needs from carbon-free sources by 2035 with zero increases in customer costs from today's levels. Additional perks include 10 percent lower wholesale power costs and a 27 percent reduction in CO2 emissions.

Another important finding: Coal and oil can be eliminated from the U.S. energy mix over the next 15 years with natural gas providing the remaining 10 percent of annual electricity production.

Grid

Source: GridLab

In case you are wondering why not just go the whole hog and completely do away with fossil fuels in the power grid, it's because of the intermittent nature of solar and wind power. 

UC Berkeley found that setting the target at 90 percent clean energy allows vendors to burn a little gas when necessary, which proved feasible for meeting power demands under all conditions and weather variations over the seven years on which the study was modeled.

Cost Crossover

The report also says that building out the clean energy infrastructure to achieve this ambitious target could add more than 500,000 jobs per year and pump $1.7 trillion into the U.S. economy.

Related: The True Impact Of COVID-19 On Natural Gas Demand To ease the minds of power vendors, the report says utilities can retire their fossil fuel power plants in an orderly fashion that will allow them to recover their fixed costs. Since no new fossil fuel power plants will need to be constructed, the operating fleet would have ample time to fully depreciate by the end of the forecast period, thus limiting the stranded-asset problem and lowering overall cost. 

Further, by generating 90 percent of their power supply from renewables, the vendors will be able to lower wholesale power costs by 10 percent compared to today's levels, meaning new opportunities for margin expansion.

On the government side of things, all it will take are technology-neutral policies for renewables to gain the ascendancy through organic means as this companion piece by think-tank Energy Innovation suggests. 

In other words, just do away with those generous fossil fuel subsidies and renewables will start giving them a run for their money.

If that sounds a bit over the top, consider that the report says we have already reached a cost crossover with clean energy resources beginning to become cheaper than existing fossil fuel resources.

Indeed, UC Berkeley is not alone in these findings. 

Last year, the International Renewable Energy Agency (IRENA) - an organization dedicated to promoting global adoption of renewable energy and facilitating sustainable use - reported that renewables would begin to outprice oil and gas beginning 2020, with renewable electricity becoming consistently cheaper than the cheapest fossil fuel alternatives - minus subsidies.

According to the Environmental and Energy Study Institute (EESI), the United States Government provides numerous energy subsidies through the U.S. tax code to promote or subsidize cheap energy production. EESI has a conservative estimate that the U.S. fossil fuel industry receives roughly $20 billion per year in direct subsidies, with 80 percent of that going to natural gas and crude oil and the rest to coal. EU subsidies are estimated at ~55 billion euros annually.

The energy and environmental watchdog says that rather than being phased out in pursuant of the Paris 2015 Climate Agreement, governments the world over have actually been increasing their fossil fuel subsidies. The IMF estimates that $5.2 trillion, or 6.5 percent of global GDP, was spent on fossil fuel subsidies (both direct and indirect) in 2017, representing a $500M increase since 2015. The largest subsidizers in 2015 were China ($1.4 trillion), the United States ($649 billion), and Russia ($551 billion).

A Clean Energy Nation by 2035?

For these targets to become a reality by 2035, the report says that the U.S. would have to build 1,100 gigawatts of new wind and solar capacity over the next 15 years.

Related: World’s Largest Oil Trader Sees Profits Plunge 70%

That sounds more than a tad ambitious, considering it calls for ~70 gigawatts' worth of deployments per year, or more than 3x the combined wind and solar additions the country has completed in any single year. However, here again, it comes down to not having our priorities right since the same study notes that the country added 65 gigawatts of gas capacity in 2002 alone.

The Covid-19 crisis is further proving the resilience of the clean energy industry. At a time when the fossil fuel industry is experiencing its worst recession in decades, renewables have been bucking the trend by continuing to expand. 

The IEA has reported that renewable electricity generation increased 3 percent during the first quarter, with its share in the global electricity generation mix climbing to 28 percent - mainly at the expense of coal and gas - from 26 percent by the end of 2019.

In a nutshell, the UC Berkeley report boils down to this: Put the right federal policy action in place, and the economy, the U.S. consumer, and the environment will thank you for it.

By Alex Kimani for Oilprice.com

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Leave a comment
  • Lee James on June 11 2020 said:
    The U.S. would appear to have not much of an energy policy. However, as this article outlines, follow the subsidies to flesh out energy policy. Very interesting how subsidies for fossil fuels continue to grow, and the U.S. is company. Other major economies also provide big subsidy props for continued burning of fossil fuel.

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