By Elizabeth R. Levy, CFA, Vice President and Lead Manager, Fossil Fuel Free Core Strategy
Given the politics and donor base of the current occupants of the White House and the Environmental Protection Agency (EPA) Administrator’s office, it would be reasonable to assume that the future of renewable energy is finished, vanished into a hydrocarbon- and particulate matter-laden haze. However, due in part to the tumbling prices of wind and solar technologies and the unpopularity of coal, that dystopian future seems unlikely to materialize, no matter how strongly the Administration might wish it so.
To be sure, the administration is trying. President Trump campaigned on a promise to revive the coal industry, and in March 2017, surrounded by coal miners and executives, made a flashy show of ordering EPA Administrator Pruitt to dismantle President Obama’s key climate protection, the Clean Power Plan. While we can debate why coal regions, companies, and employees are sticking with coal, their customers, electric utilities that traditionally burned the coal, are moving on. In April, The New York Times reported that six coal-fired power plants had closed since the election, with 40 more closures scheduled before the end of this presidential term. According to The New York Times, “with or without the Clean Power Plan, power companies say, coal is simply no longer the fuel of choice for keeping the lights on in America — and they do not expect it to make a comeback. Cheaper natural gas and renewable sources like wind and solar power have replaced it.” Even more importantly, as E&E News noted at the end of April, four of the five plant closure announcements since the beginning of 2017 were large, comparatively young plants rather than the small, old, fully depreciated plants that dominated earlier closings. For example, the Jacksonville, Florida Electric Authority is closing a large plant built in 1987. Why? Because the power is not needed, as other types of electricity generation are cheaper—the Jacksonville coal plant ran only 51% of the time during 2015 compared to 71% during 2011, and this lower output level cannot cover the high overhead costs of coal-fueled power.
While a stable policy environment would help the electric utilities, persistently low-cost natural gas, plummeting wind and solar prices, and access in the near-term to lower cost, grid-scale battery storage for back up is giving the utilities the confidence to plan for the future, rather than the present or past. As The New York Times notes, “Electric company executives are including in their longterm profit and loss calculations an expectation that the federal government will eventually tax or regulate carbon dioxide pollution… While Mr. Trump tries to roll back the rules today, executives of electric power generators assume that his successors will eventually reinstate them in some form. Essentially, they say, Mr. Trump’s moves are a bump on the road to a future in which the government constrains climate warming pollution and consumers increasingly demand cleaner power.”
Instead of looking back to a static electric grid where coal and nuclear plants consistently pumped out energy, utility executives are looking towards a flexible grid of the future, where intermittent renewable resources like solar and wind are partnered with natural gas backup capacity or, increasingly, battery storage. Industry publication Utility Dive polls energy utility executives annually, and announced the results of the 4th annual State of the Electric Utility survey in April 2017: “More than 80% of North American utility employees expect renewable energy to increase moderately or significantly in their service areas over the next decade… while 79% expect to see at least moderate coal retirements in the next decade.” These executives credit the cost competiveness of wind and solar with their assumed growth and also expressed less concern about integrating them into the grid than they had in prior surveys—only 16% of executives cited integration as their top concern, compared with 32% last year.
Interestingly, consumer demand for clean power was ranked first by the participating executives as their top reason for investing in renewables. Perhaps that should not be surprising (especially to those of us familiar with the Trillium Shareholder Advocacy team’s success in working with companies such as 3M and Akamai to develop renewable energy procurement targets.) According to the Advanced Energy Economy 2017 market report, “As of 2016, 71 Fortune 100 companies had set sustainability or renewable energy targets, up from 60 two years earlier.” In April, the Charleston Gazette-Mail pointed out the impact that the corporate desire for clean power has, even in coal country: “Giant businesses [that electric utility Appalachian Power] would like to lure to the state as its future power customers — the Amazons and Googles of the world — make it very clear that when they are scouting locations for facilities like new data centers, they have to go somewhere that can guarantee them a power supply that is generated from 100 percent renewable sources.” The article noted that Appalachian Power, a subsidiary of utility giant AEP, has been closing local coal plants and is set to announce new wind resources this spring.
Despite the current administration’s wishes to ignore the risks of climate change and reverse global progress on energy generation, there are still legal impediments to employing such actions. While President Trump formerly announced his decision to withdraw the United States from the Paris Climate Agreement on June 1st, there is still a key driver shaping the future energy mix more firmly. In 2007, the Supreme Court ruled that greenhouse gases (GHGs) are pollutants under the Clean Air Act. Two years later, in 2009, the EPA determined that GHGs endanger public health, a finding that the D.C. Circuit Court upheld. Under this finding, called the Endangerment Finding, the current administration is unable to ignore GHGs because the EPA is required to regulate them. While the EPA may write rules that are far more lenient than the recently abandoned Clean Power Plan, undoing the Endangerment Finding would require the EPA to prove that new evidence, discovered since 2007, demonstrate fault in the EPA’s original conclusion, a tall task even for a climate change denier such as Pruitt.
Combined, the lack of utility appetite for coal, the desire of major utility customers to use clean energy, and the inability of the administration to completely undo all climate protections paint a picture that is at least not quite as grim as it might seem at first glance. In the end, the fast but steady growth of renewables to economically compete on their own, without regulatory or policy help, will drive the electric grid to a cleaner, greener future.
Note: This article appears in the Summer/Fall 2017 issue of Trillium’s newsletter Investing for a Better World.®
Disclosure: The views expressed are those of the authors and Trillium Asset Management, LLC as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be a forecast of future events or a guarantee of future results. These views may not be relied upon as investment advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the authors on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is for informational purposes and should not be construed as a research report.