One of the biggest issues holding back the renewable energy industry's full potential is intermittency. Since the sun doesn't always shine and the wind doesn't move at a steady speed, renewables don't generate a consistent stream of electricity. As a result, utilities either need to build supplemental natural-gas-fired plants or install expensive battery storage capacity to meet peak demand.

However, as battery costs continue to decline, renewable energy is becoming increasingly competitive with fossil fuels. That was a central theme on the second-quarter conference call of clean-energy-focused utility NextEra Energy (NYSE:NEE). Among the highlights was a can't-miss quote by CFO Rebecca Kujawa.

Wind turbines on the top of a mountain with fog below.

Image source: Getty Images.

The rapidly declining cost curve

Kujawa noted on the call that one of the drivers of NextEra's excellent second-quarter results was its energy resources segment. The company not only benefited from recently completed renewable energy expansion projects, but also continued securing new projects that will power future growth. Overall, the company added 1,850 megawatts (MH) of new projects to its backlog as "we continue to capitalize on one of the best environments for renewables development in our history," according to Kujawa.

That trend should continue, given what NextEra Energy sees ahead for the sector. Kujawa pointed out that:

With continued cost and efficiency improvements, we expect new NEER [NextEra Energy Resources] firm wind and solar to be cheaper than the operating cost of coal, nuclear, and less-efficient oil and gas fire generation units even after the tax credits phase down early in the next decade. The combination of low-cost renewables plus storage is expected to be increasingly disruptive to the nation's generation fleet, providing significant growth opportunities well into the next decade. By leveraging Energy Resources' significant competitive advantages, we expect to continue to capture a meaningful share of this opportunity set going forward.

Investors won't want to miss what Kujawa is saying here. She states that within a few years it will be cheaper to build new wind and solar capacity than all but the most efficient fossil-gas-fired power plants. That's without the benefit of tax credits and after adding in the extra costs associated with battery storage.

In the company's view, the renewable energy industry should hit this inflection point by 2022. At that point, the cost to produce 1 megawatt-hour (MWh) of energy from wind should be between $11 and $18, while solar should be around $24 to $30. Meanwhile, the cost of a four-hour battery storage adder should be down to about $4 to $9 per MWh. That will put the combined costs for near-firm power production from wind at $20 to $30 per MWh, while solar would be $30 to $40 per MWh. That's as cheap as, if not cheaper than, new natural-gas-fired plants, which will be able to produce power at $30 to $40 per MWh. To put this game changer into perspective, about a decade ago wind cost between $55 and $65 per MWh and solar was $140 to $150 per MWh, while battery storage was another $71 to $81 per MWh.

Solar panels, wind turbines, and battery storage with a bright sun in the background.

Image source: Getty Images.

Already picking its spots

While battery costs are still high, they've come down quite a bit in recent years. That's allowing NextEra Energy to add storage to some of its projects and still earn attractive investment returns.

Earlier this year, for example, the company announced plans to build the largest solar-powered battery storage facility in the world. NextEra is constructing this battery storage center next to an existing solar power plant, which will charge the batteries during the day. That will enable the company to discharge the power when the sun's not shining. It will also allow the company to retire to old, expensive gas-fired plants, which it needed when the solar plant wasn't producing enough power.

The company is also building some hybrid renewable energy plants. In February, it teamed up with Portland General Electric (NYSE:POR) to construct a first-of-its-kind facility that combines utility-scale wind, solar, and energy storage. The Wheatridge Renewable Energy Facility project will include 300 MW of wind, 50 MW of solar, and 30 MW of battery storage. This project will enable Portland General Electric to provide its customers with stable, emissions-free energy.

NextEra Energy followed up that project with an even larger one in Oklahoma that will provide steady renewable power to several utilities. The Skelton Creek project will feature 250 MW of wind, 250 MW of solar, and 200 MW of battery storage.

While tax credits and the high cost of developing new natural gas peaking plants that offset intermittency are driving these investments, the economics are rapidly shifting. Because of that, hybrid projects like these will become increasingly common in the future. That will enable utilities to take advantage of the falling costs of both renewables and battery storage to be able to generate consistent, clean power.

Renewables have a bright future

Renewable energy costs are nearing an inflection point where they'll soon be cheaper than fossil fuels. That's even after factoring in the added costs of battery storage and the eventual end of government subsidies. Because of that, the sector has significant growth potential ahead of it as more utilities make the switch. That's excellent news for NextEra, which will likely be the partner of choice for companies looking to go green.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.