California has long led on climate change policy in the U.S. The state, which boasts the world's fifth-largest economy, plans to generate 100% of its electricity from carbon-free sources by 2045. California is currently home to 38% of America's installed solar capacity, and its alternative transportation fuels program has been so successful that other states and countries have joined in, or outright copied it. It puts its thumb on the scale of vehicle efficiency standards for the entire United States.
But now California finally has some competition. New York passed a sweeping climate change plan of its own in June, which The New York Times immediately called "one of the world's most ambitious." The legislation calls for 70% of the state's electricity to come from renewable sources by 2030, while 100% must come from carbon-free sources by 2040. The state must be carbon neutral -- including power generation, transportation, and building heating -- by 2050.
The emerging West Coast vs. East Coast power struggle for environmental leadership is certainly welcome news, but the Empire State's plan will look a bit different than California's. Here are some key takeaways for individual investors to follow, including some new opportunities clean energy businesses should be pouncing on.
1. A big boost to America's offshore wind potential
The United States operates roughly 100,000 megawatts of wind power today, but just 30 megawatts are located in coastal waters. That's expected to change virtually overnight, thanks in large part to falling costs and the ability to import expertise from Europe to jump-start the domestic industry. It helps that the United States boasts some of the best offshore resource potential on the planet. The nation sports a development pipeline of over 25,000 megawatts of offshore wind projects -- and over one-third of that capacity is penciled in along the coasts of New York.
The state's new decarbonization efforts call for building at least 9,000 megawatts of offshore turbines by 2035. The approval process has been a little opaque to date, but project developers might draw more confidence from a few recent events.
For one, Equinor (NYSE:EQNR) has proposed building Empire Wind, an offshore wind farm that could generate 1,000 to 2,000 megawatts, off the coast of Long Island. It plans to leverage some of its local port infrastructure to build and maintain the project, while also supporting the growth of the regional industry.
Meanwhile, Avangrid (NYSE:AGR) owns a stake in a proposed project 85 miles off the coast of New York City that could produce between 400 and 1,200 megawatts. There's also the Sunrise Wind project from Eversource Energy (NYSE:ES) and Denmark's Ørsted (one of the largest offshore project developers on the planet), and the Atlantic Shores Offshore Wind Project proposed by a group including Royal Dutch Shell.
The massive and relatively reliable output from offshore wind turbines is expected to replace large fossil fuel power plants, especially for energy-hungry population centers in Long Island and New York City, and could provide a significant growth opportunity for many power generators. However, the cost profiles of the projects are still a little uncertain. If offshore wind can't deliver electricity at competitive rates, then ratepayers are going to have to accept their role in the state's climate change action -- with their checkbooks, not their tweets.
2. Distributed solar and energy storage must step up
New York doesn't enjoy the same bountiful solar potential as California, but solar power will still be critical in meeting the state's ambitious decarbonization targets. It's going to be an uphill climb.
The state has just 1,700 megawatts of solar power capacity installed today, and reported a solar capacity factor (read: how often an asset operates at its full potential) of just 14% in 2017. The latter means New York would have to install 34,340 megawatts of solar power capacity to replace all of the electricity generated from its current 5,400-megawatt nuclear fleet.
Legislators remain unfazed. The latest plan calls for 6,000 megawatts of distributed solar to be installed by 2025. That should create an opportunity for solar panel manufacturer SunPower (NASDAQ:SPWR), which has high hopes for its Maxeon technology. The unique solar cell design resists degradation and allows more energy to be generated in a smaller footprint. That advantage could prove valuable for rooftop solar installations.
For instance, SunPower offers the market's first 400-watt solar panel, which offers 43% more power capacity than most competing panels and can generate 55% more energy over time. It's just the technology advance New York needs to achieve success, although power optimizer and energy storage products from companies such as Enphase Energy and Tesla will be needed, too. The state plans to install 3,000 megawatts of energy storage products by 2030, up from virtually nothing today. That could go a long way toward increasing the value of solar farms or rooftop solar installations, which otherwise have to curtail production when output exceeds delivery capacity.
3. Is New York open to next-generation nuclear?
The new legislation leaves nuclear power, the ugly duckling of clean energy, in a less certain position than renewable power sources. In 2017, New York generated 28% of its electricity from renewables and 60% from clean energy sources, including nuclear. The state plans to generate 70% of its total electricity from renewables specifically by 2030, and transition to 100% clean energy broadly by 2040.
That seems to leave the door open for continued support of the state's three existing nuclear power plants, at least until current operating licenses expire -- two will expire in 2029, and one in 2046. That's probably just fine with Exelon (NYSE:EXC), which owns all three units -- all dotting Lake Ontario -- and wrangled zero emission credits (ZEC) out of politicians a few years ago in order to save the facilities.
New York's long-term goals also seem to leave the door open to next-generation nuclear technologies, namely small modular reactors (SMR). While no SMRs are in commercial operation today, they hold tremendous promise. They're typically designed to be less than 300 megawatts, which could allow them to be manufactured in factories and installed on-site, saving years of construction and billions in regulatory costs. Many are also designed with passive shutdown technologies (meaning they're virtually meltdown proof) and built to run on unique fuels (such as nuclear waste instead of enriched uranium).
Exelon is currently working with General Electric and Hitachi to advance a boiling water design (BWRX-300). Meanwhile, some of its executives are on the boards of Holtec and NuScale, each working on competing light water SMR designs. If next-generation technology proves economical when it's ready to be commercialized, then Exelon will be ready -- and New York might help. If next-generation nuclear doesn't pan out, then Exelon might have to explore building some offshore wind farms in Lake Ontario -- if coastal wind turbines prove economical, of course.