Earlier this year, NextEra Energy (NEE +0.08%) made subtle changes to its outlook for renewable energy in the United States. Using a combination of data from the National Renewable Energy Lab (NREL) and its own internal analysis, the company estimates that America could generate 50% of its total electricity from renewable sources by 2030.
It remains the most optimistic projection of its kind -- and even it might understate the future's potential. On the one hand, considering the United States leaned on renewables for just 18% of its electricity in 2018, there will need to be a surge in investment to make the estimate come true. On the other hand, NextEra generates more electricity from the wind and sun than any other company in the world and builds a giant share of the country's wind and solar power assets, so it has unmatched insight into trends.
That said, the projection does seem much more optimistic than what you see from most such projections, so I decided to combine data sources and calculate how much U.S. electricity could come from renewable energy by 2030. After doing so, I think we should all actually be much more optimistic about the future of the industry -- and we should probably all have at least some exposure to renewable energy stocks.
Image source: Getty Images.
A furious expansion of wind and solar energy
The United States boasted about 124,000 megawatts of combined onshore wind and utility-scale solar capacity at the end of 2018, which generated a combined 9% of the country's total electricity. But investors can already see a significant expansion on the horizon.
Utilities and power generators need to have changes to their power mix approved years in advance by state and regional regulators, and current plans call for adding at least 20,000 megawatts of combined onshore wind and utility-scale solar per year through 2022. The United States could then average at least 30,000 megawatts of additions of the two power sources from starting in 2023.
It's also important to note that power (measured in watts) is not the same thing as energy (measured in watt-hours). A coal-fired power plant with a capacity of 100 megawatts can generate more electricity than a 100-megawatt wind farm, because weather conditions won't always allow the wind farm to operate at its rated capacity. The efficiency of a power source is expressed by its capacity factor, or the amount of time it operates at its rated capacity.
In 2018, the United States boasted a capacity factor of 37.4% for its wind farms and 26.1% for its solar farms. The national average capacity factor of wind farms is expected to increase thanks to taller and more efficient turbines, while that of solar farms may not grow much as northern states such as New York (with a solar capacity factor of just 15%) grow their national market share.
Taking all of that into account and using conservative estimates based on data from NextEra Energy, NREL, and the U.S. Energy Information Administration (EIA) leads to the following estimate for onshore wind power growth through 2030.
|
Onshore Wind Metric |
End 2018* |
End 2022 |
End 2030 |
|---|---|---|---|
|
Installed power capacity |
96,433 megawatts |
140,000 megawatts |
236,000 megawatts |
|
Average additions per year |
About 10,000 megawatts |
About 11,000 megawatts |
12,000 megawatts |
|
Average capacity factor |
37.4% |
37% |
40% |
|
Assumed total U.S. electricity demand |
4.2 billion megawatt-hours |
4.2 billion megawatt-hours |
4.2 billion megawatt-hours |
|
Estimated share of U.S. electricity |
7.5% |
10.8% |
19.7% |
Data source: NREL, NextEra Energy, EIA. Calculations by author. *Actual numbers.
A similar calculation for utility-scale solar (excluding all small-scale and rooftop installations) provides the following estimate:
|
Utility-Scale Solar Metric |
End 2018* |
End 2022 |
End 2030 |
|---|---|---|---|
|
Installed power capacity |
27,400 megawatts |
67,000 megawatts |
211,000 megawatts |
|
Average additions per year |
10,000 megawatts |
10,000 megawatts |
18,000 megawatts |
|
Average capacity factor |
26.1% |
25% |
25% |
|
Estimated share of U.S. electricity |
1.5% |
3.5% |
11% |
Data source: NREL, NextEra Energy, EIA. Calculations by author. *Actual numbers.
Taken together, the United States is on pace to generate at least 30% of its total electricity from onshore wind and utility-scale solar by 2030. But that's quite a bit less than total renewable energy generation for a few reasons:
- The United States generates about 8% to 9% of its total electricity from hydropower and other renewables. That's expected to remain essentially unchanged in 2030.
- The calculations above use conservative average annual additions for both wind and solar. Current projections call for 12,000 megawatts to 15,000 megawatts of new wind and 18,000 megawatts to 20,000 megawatts of new solar in each year from 2023 to 2030. The capacity factors of each could also exceed those used in the tables above.
- The wind calculation above leaves out up to 25,000 megawatts of offshore wind power currently in development, which could boast an average capacity factor of 55% or higher. Offshore wind could generate 3% of American electricity by 2030, up from nothing today.
- The solar calculation above leaves out small-scale solar installations, which currently generate at least one-third of all solar energy in the United States. Small-scale solar could generate more than 5% of total American electricity by 2030.
Take all of this into consideration, and the United States could generate close to 50% of its total electricity from renewable energy sources in 2030. Add in nuclear power, and close to 70% of American electricity could be generated from zero-carbon sources, up from 40% today, with lower-carbon natural gas responsible for much of the remainder.
That said, there is one massive wild card: electric vehicles (EVs). The calculations above assume the United States will consume 4.2 billion megawatt-hours of electricity per year by 2030. That number would increase significantly if EVs tax regional grids across the country. Then again, fueling EVs with electricity generated by natural gas -- and even coal in some cases -- results in lower emissions than burning gasoline in a vehicle of average efficiency today.
America is well on its way to a carbon-free future
The exponential rise of renewable energy in the United States paints an optimistic picture of the country's ability to rapidly decarbonize its economy to address climate change. It also creates potential investing opportunities in wind energy stocks, solar stocks, battery stocks, electric vehicles, and even the currently nonexistent offshore wind industry. Is your portfolio prepared to capture any of those opportunities?
