The future hasn’t always turned out as gee-whiz as we expected — we’re still waiting on jetpacks and flying cars — but that doesn’t take away from the game-changing advances we have gotten. Phones evolved into pocket-size supercomputers that connect to the world’s knowledge from just about anywhere. Medical scientists have deconstructed the building blocks of life and reassembled them into seemingly miraculous medicines.
Compared with such fantastic technology, solar panels and wind turbines might appear less than dazzling.
But green energy might be on the cusp of its own moment. Long maligned as too expensive, wind and solar power have benefited from recent advances, making them competitive with many traditional — and dirtier — forms of energy. And unlike coal and natural gas, green power is still new. The potential for more discoveries and efficiencies is high, meaning the technology has the potential to outstrip traditional generators in coming years.
That process could be sped up as governments around the world shift energy policies away from carbon-spewing power. At the same time, COVID-19 spending packages in the U.S. and elsewhere, though aimed primarily at healing damaged economies, have carved out infrastructure and environmental goals. Together, the influx of interest and money could spur demand and innovation.
Those forces — lower costs, policy shifts and spending packages — are “the three elements of what I call the green trifecta,” says Bobby Chada, a Capital Group analyst who covers European utilities. “The magnitude of these forces is underappreciated.”
Of course, there are potential drawbacks and hurdles. Some locations simply aren’t suitable for wind or solar equipment. Older power grids might require investments and upgrades to use them. And green energy is more reliant on the weather than are fossil fuels; wind turbines won’t generate electricity on a still day, for example.
Still, the momentum for green energy is powerful and economically sound, Chada says. In a few years, renewables may evolve as phones and medicine have. Where we see windmills and solar cells, the next generation might see the power of wind and sun snatched from the heavens.
The average cost of wind and solar power generation has been falling by about 10% a year for the past five years, says Andre Meade, a Capital Group analyst who covers U.S. utilities and competitive power generation. Battery costs are falling even faster — about 15% per year — because the technology is newer.
“Wind and solar are now cheaper than coal, and they’re becoming cost competitive with natural gas,” Meade says. “That will drive continued adoption over the next decade.”
Technological advances are a big part of those price gains. For instance, wind turbines have become significantly more powerful. Three years ago, they didn’t generate more than 10 megawatts, Chada explains, but recent models can produce up to 14 megawatts — a massive increase in a short span of time. Bifacial photovoltaic cells capture solar energy that traditional panels can’t.
New approaches to equipment and usage can bring down overall costs. Many wind farm operators are reevaluating turbine life spans, with 30 years becoming the new target for equipment originally rated for 25. Stretching those life spans means each dollar spent on a turbine goes that much further, helping to limit costs for utilities and, ultimately, consumers.
“We’re still in such early stages of this technology,” Chada says. “Much of this technology is only 20 years old, commercially. And some of it is still being born. That potential for improvement, that potential for evolution, is what excites me.”
Many utilities in Europe, such as Italy’s Enel, Denmark’s Ørsted and Spain’s Iberdrola, already produce significant amounts of renewable energy. In fact, the European Union’s share of renewables is about 50% higher than the United States’. That’s not a coincidence; the EU has adopted aggressive carbon-neutral targets and environmentally focused infrastructure programs.
One of those, the 750 billion euro Next Generation EU, was adopted last year to offset some of the damage caused by the COVID-19 pandemic. It requires that 30% of the funding it provides supports climate action.
“Plans submitted to Next Generation EU must include the impact on the economy, obviously, but also the social, economic and environmental impact,” Chada explains. “And if you aren’t able to show a clear environmental benefit, it’s very unlikely that your plan will qualify for funding.”
The U.S. doesn’t have such a federal plan at the moment, though Biden’s infrastructure proposal would establish a goal of carbon-free electricity by 2035. How that goal would be accomplished isn’t outlined.
Additionally Biden, the U.S. has rejoined the Paris Agreement, a set of nonbinding climate goals.
The infrastructure plan would also extend some existing green energy credits while establishing others.
While such breaks, including federal subsidies and state-level portfolio standards have spurred green energy production in the U.S., they’re less necessary now.
“When renewables were earlier in their development and higher on the cost curve, they needed subsidies,” Meade notes. “Now, with operating costs rivaling natural gas, wind and solar generation increasingly make economic sense on their own.”
The smaller carbon footprint of wind and solar power isn’t simply a virtue in and of itself; clean energy is also gaining favor among regulators and customers. As a result, many utilities are replacing older, dirtier power generators, such as those fired by coal, with green options. This trend is likely to become more pronounced as the cost of renewables falls even further.
One of the challenges of renewables is that they are less reliable than fossil fuels. You need the sun to shine and the wind to blow to produce energy. That’s one reason we still rely on fossil fuels such as natural gas. Such generators produce power when you call upon them and are less subject to weather conditions — although they, too, can fail, as many did in the recent Texas cold snap.
Carefully choosing sites for renewable generators can increase reliability, to some extent. The Southwest, with its intense days and limited rainfall, is ideal for solar panels. The Great Plains are prone to gusty winds and thus perfect for wind turbines. Having some diversity helps as well: Wind generators often produce more at night, when photovoltaic cells aren’t producing anything, Meade says.
But that still leaves gaps. Enter battery technology, which stores excess energy during peak production and supports the grid during lulls. However, that technology is still immature, even by renewable standards, Meade says.
“At the moment, battery storage can be effective only for a few hours,” he says. “That’s better than nothing,” but longer-duration batteries could lead to more reliable systems. A bright spot is the burgeoning electric vehicle industry, which has been key to the development of battery technology.
“Power generation and power storage are really secondary markets for battery technology, after electric vehicles,” Meade says. “The auto industry is investing in the technology at scale, and the power industry will share the scale benefits, which drives cost down. It’s a big help.”
For all their progress, renewables have a lot of room for growth, Chada says.
“It’s not just market penetration, though that’s low, too,” he says, noting that less than 20% of European energy is generated by renewables. “It’s also a very fragmented market. If you take the top 10 players, they have less than 15% market share. The addressable market is continuing to grow, and there’s room for companies to continue to grow and to take share.”
“The technology works,” Chada says. “Economically, it works. From a policy perspective, it works.”
In recent years, you may have seen buses or construction vehicles emblazoned with their hydrogen fuel bona fides. The gas has become an attractive source of power for large vehicles and industrial applications because its only byproduct is water, in contrast to gasoline’s toxic brew of carbon, particulates and unburned fuel.
However, the technology still has a sizable carbon footprint, given that so-called gray hydrogen is created using energy generated with fossil fuels. Green hydrogen, by contrast, relies on renewables. That green transition could have implications for the industrial centers of the future, says Bobby Chada, a Capital Group equity analyst who covers European utilities.
“A lot of the early green hydrogen production centers will be clustered around industrial ports,” he says. “Places with heavy industry that can use green hydrogen — for example, refining.”
Companies are already ramping up their capacities around the world. Just last year, three U.S. projects accounting for 3,300 megawatts of energy production announced they would purchase hydrogen-capable turbines, as well as hydrogen creation and storage technology.