Solar & Wind accounted for (wait for it) 95% of all new electricity generation capacity additions in the first quarter of 2018! This is unbelievable. With recent solar prices less than coal & nat gas, this trend will continue, with significant implications for legacy industry participants, including power companies, service and equipment suppliers, and utility companies.
The shift of the US electricity generating system away from legacy generation technology to renewable energy sources is continuing apace, with significant implications, including:
(1) New construction of coal, natural gas and nuclear power likely to limited to severe niches driven by unique system needs. Companies involved in new power plant design, engineering, permitting, suppliers, construction and financing will be significantly negatively impacted going forward.
(2) Existing operation of the electric grid, specifically the reduction of annual operating hours on natural gas, coal and nuclear power plants due to integrating zero marginal cost renewables into the economic dispatch paradigm. Legacy power plant owners and operators will see reduced returns on their existing operations and financials. The trend is inexorable and will be very painful for many companies that are unable to accelerate increasing the mix of renewables in their operations and balance sheets.
(3) Grid operators will be challenged with the shifting operating demands and economics associated with high penetrations of renewables on the grid. New technical solutions will need to be identified and incentivised, such as battery energy storage systems, expanded demand management initiatives, and new and expanded rate options for customers.
(4) Utility companies will also have to purposefully integrate these massive changes taking place into their strategic plans, understanding that accelerating cost reductions in solar energy will enable greater penetration of customers that are self-generating. With reductions in load growth and expanding off-network peak power mitigations taking place, transmission and distribution utility companies are losing their primary source of earnings growth, namely expanding their rate base.