Renewable energy passes coal; advocates say it's just the beginning

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Renewable energy reached a major milestone in 2019, when the non-polluting power sources surpassed coal in electricity generation for the first time in 130 years, according to a U.S. Energy Information Administration report released in May.

Before 1885, coal, according to the EIA, was outpaced by wood — renewable if far from clean — to in generation of steam power.

Now researchers say that the U.S. can derive 90% of its electricity from carbon-free sources by 2035, a trend that could have a major impact on the municipal bond industry and public policy. The 2035 target is 15 years ahead of current projections from advocates of green energy.

“We’re talking about the ability to achieve near-100% clean electricity by 2035, in half the time most people are talking about,” said David Wooley, professor at the University of California Berkeley Goldman School of Public Policy. “However, this outcome isn’t possible without strong policy changes and our hope is this report can help inform the dialogue on federal, state, and corporate policies needed to achieve it.”

Research in the 2035 Report: Plummeting Solar, Wind, and Battery Costs Can Accelerate Our Clean Energy Future examines economic impacts as well as environmental.

Rapid buildout of additional renewable energy would bring $1.7 trillion of investment into the economy and increase energy sector jobs by up to 530,000 per year through 2035, across all regions of the U.S., without raising consumer bills, the study says. Delivering 90% clean electricity by 2035 also avoids $1.2 trillion in environmental and health costs through 2050 by reducing damages from air pollution and carbon emissions, according to the study.

The scenario outlined in the report may face a decision point in November. President Trump is the leading advocate of coal production in the U.S. and has issued orders to reduce enforcement of environmental rules.

A year ago, Trump’s Environmental Protection Agency administrator Andrew Wheeler announced the Affordable Clean Energy Plan, backed by the coal industry and designed to replace the Obama Administration’s Clean Power Plan of 2015.

It hasn't stopped coal's steady decline. Much of that coal consumption has been replaced by inexpensive natural gas, but that's not the entire story — 2019 was the first year in which coal’s diminishing share of the power market fell below that of renewable energy sources such as wind, solar and hydro.

Coal could make up as little as 11% of U.S. power generation by 2030 based on scheduled and likely coal retirements alone, according to Moody’s Investors Service. Morgan Stanley projected under a base-case scenario that coal-fired electricity will decline from 27% of the total U.S. power mix in 2018 to just 8% by 2030.

"We expect ongoing secular decline in the demand for coal, accelerated by the economic fallout from the global outbreaks of COVID-19, will persist in the early 2020s,” Moody's analyst Benjamin Nelson wrote after the EIA report came out.

Cattle graze near wind turbines at a wind power project in Texas, where wind has surpassed coal as an electricity source, according to the energy grid operator there.

In July 2019, the Electrical Reliability Council of Texas (ERCOT) reported that wind had met 22% of the state's electrical needs for the year, surpassing coal, which provided 21% of total electricity.

Electric utilities operating in Texas, mostly investor-owned, are shifting toward renewables. In 2013 utilities completed a $6.9 billion Competitive Renewable Energy Zone project that brought wind energy from West Texas to population centers in East Texas. The nearly 3,600 miles of transmission lines can carry 18,500 megawatts of wind power across the ERCOT grid, allowing a 50% increase in wind power.

The Berkeley report cited economic benefits from a renewable energy push.

“In a slack labor market, such as the one that Americans may experience in the coming years owing to a contracting economy, a clean energy buildout could be a key part of the economic recovery,” the report said, agreeing with Biden’s view of the sector.

U.S. House Democrats have been pushing legislation for paycheck protection and extension of tax credits for the renewable energy sector.

Democratic presidential candidate Joe Biden has embraced the so-called “Green New Deal” and pledged to set a goal of 100% renewable energy by 2050.

At a June 5 press conference, Trump said “the Green New Deal would kill our country."

But Trump's oft-stated embrace of coal has done nothing to stem its decline during his three and a half years in office.

The Berkeley study found that without new policies, renewable energy would supply 55% of the nation’s power by 2035.

Advances in battery technology contribute to a more aggressive timeline, the authors said.

“When renewable energy generation exceeds demand, storage can charge using this otherwise curtailed electricity and then dispatch electricity during periods when renewable generation falls short of demand,” the report said. “Despite the addition of storage, about 14% of available renewable energy must be curtailed annually. New long-duration storage technologies might reduce curtailment further.”

With renewables supplying 90% of the power, cost per kilowatt hour of 4.6 cents is 10% lower than current costs of 5.1 cents.

“The only sensitivity case in which those costs are marginally (10%) higher than costs in 2020 assumes both high technology costs and high financing costs,” the report said.

“Although the 90% Clean case requires about three times more spur line investment than the No New Policy case does, the total transmission requirements in the 90% Clean case add only 0.2 cents/kWh to total system costs,” the study added.

More than 75% of U.S. states have one or more utility-scale solar projects, according to the report.

“The Midwest, once considered a laggard for utility-scale renewable projects, accounted for the largest percentage of solar added to interconnection queues in 2018 (26%),” the report found.

The municipal bond industry would play a role in financing infrastructure such as transmission lines from wind and solar farms in rural areas to customers in population centers.

General obligation bonds, Clean Renewable Energy Bonds and Qualified Energy Conservation Bonds have financed some public sector renewable energy projects.

Global green bond and loan issuance grew 49% last year to a record high of $249.5 billion, according to the Climate Bonds Initiative.

The Climate Bonds data shows the largest international green bond market was the European Union with $106.7 billion of annual issuance.

The United States tops national rankings with $50.6 billion.

“The 2019 results and 2020 estimates bring the vital international milestone of $1 trillion in annual green investment by 2021/2022 into sight," said Sean Kidney, chief executive at CBI. "Acceleration into trillions of annual investments to support transition, adaptation and resilience must become the hallmark of the new decade.”

No municipal bond issuer has seen a switch from coal to renewables as dramatic as that of the Navajo Nation. For decades, the operator of the largest coal-fired generating plant in the U.S., the Navajo Nation and its chief customer Arizona's Salt River Project in 2019 began decommissioning the plant as it ramped up development of solar power.

The Los Angeles Department of Water and Power owned a 21.6% stake in the Navajo Generating Station until 2016 when the city switched off coal generation in favor of renewable.

Closure of the NGS and the neighboring Kayenta Mine in December led to a $30 million to $50 million decline in annual revenue for the Navajo Nation.

In April, the Los Angeles City Council directed the Los Angeles Department of Water and Power to seek an agreement to buy solar power from the Navajo project.

On the eastern side of the reservation, another coal-fired plant is facing retirement. The New Mexico Public Regulation Commission on April 1 approved the Public Service Company of New Mexico’s request to close the San Juan Generating Station and use securitization bonds through the Energy Transition Act, to finance its remaining investment in the plant.

New Mexico lawmakers created the ETA a year ago, allowing the issuance of $280 million of ETA bonds. The law requires the state’s utilities to take at least half of their electricity from renewable sources like solar and wind by 2030 and 80% by 2040.

While numerous renewable energy projects are on the boards, the same cannot be said of coal-fired power plants.

The Tri-State Energy Cooperative in Colorado announced plans in 2019 to effectively shelve the last coal-fired plant that was still under consideration.

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Energy industry Texas Utilities Los Angeles Department of Water & Power California Municipal utility districts California Public Finance 2020