“When the winds of change blow, some people build walls. Others build windmills” – so says the old Chinese proverb, which seems apt given the events of this week.
Aside from his wall, America’s divisive president-elect Donald Trump is a climate change denier, pro-fossil fuel and no fan of renewable energy – having labelled solar and wind projects as “a dangerous experiment”.
Renewables stocks have inevitably taken a hit on Wall Street, but that may be a knee-jerk reaction rather than a true devaluation of the sector.
While Mr Trump has promised to ‘save’ the US coal industry, the best he’s likely to achieve is to stave off its demise for a while, by cutting regulation and reneging on environmental commitments. In the long term, the coal industry will wither because it cannot compete with shale gas and the relentless rise of renewables in the US.
In spite of Trump
So despite Mr Trump’s ambivalence, I suspect renewables in the US will continue to thrive.
Solar generation is now a sustainable business model without the need for subsidies and every time solar capacity doubles in the US, costs drop by a quarter. Continued innovation will further drive cost down.
Combine this with the increasing viability and cost-effectiveness of battery storage technology and the localised (predominantly renewable) energy generation sector is now a serious challenge to America’s existing centralised utilities.
Batteries allow storage of electricity generated when the sun shines or the wind blows for use when the sun isn’t shining or when the weather is calm. This overcomes the main challenge facing (and criticism of) solar and wind generation.
“The coal industry will wither because it cannot compete with shale gas and the relentless rise of renewables”
Further, if you generate electricity from solar panels on your roof or turbines nearby, it costs nothing to transmit it to your house.
Centralised power generation, however, has a high transmission cost – hundreds of miles of high voltage power lines don’t come cheap – and around 10 per cent of power is lost in transmission, making it less efficient. Soon the transmission costs alone of centralised electricity generation will be greater than the total cost of localised generation.
That’s not a great place for the central utilities to be. A number of industry experts believe the centralised utility energy generation model will be defunct in fifteen or so years because it simply cannot compete.
For the big US energy utilities now, think Kodak or Blockbuster Videos fifteen years ago. Unlike the president-elect’s complexion, their future is neither bright nor orange.
Chris Hallam is infrastructure Partner at Nabarro