The world was a radically different place in 1880. The United States was only 15 years removed from the Civil War. The professional baseball organization known as the National League, which survives to this day as half of Major League Baseball, had existed for only four years. Light bulbs were used outside for the first time. The first patent was issued for a cash register.
It was also the last time energy consumption from renewable energy topped coal, according to historical data compiled by the U.S. Energy Information Administration (EIA). Well, that was until 2019, when the United States accomplished the feat again. Due to various market factors, the country will never again consume more energy from coal than renewables.
Here's how the United States achieved the energy milestone, why there's no turning back, and what it means for individual investors.
A milestone 139 years in the making
The last time the United States consumed more energy from renewable energy than coal was around 1880. To that point, biomass (primarily wood) was the primary energy source for the nation. But that changed as the first coal-fired power plants began producing electricity in the 1880s. While the first hydroelectric dams also entered operations that decade, coal proved much more scalable and distributable. By 1885, coal generated more total energy than renewable energy (still comprising only wood in that year) and held onto the edge for roughly 139 years.
That all changed in 2019, although a healthy dose of nuance is needed. Energy consumption from renewable energy topped coal last year, but only when all energy sources are counted. In other words, the math only works when electricity production, transportation, and consumption from industrial, residential, and commercial markets are combined. Similarly, renewable energy is a broad category that includes wind, solar, hydro, biofuels, other biomass, and several smaller contributors.
In 2019, energy consumption from renewable energy totaled 11.5 quadrillion British thermal units, or quads, according to the EIA. Coal was used to generate only 11.3 quads of energy last year. But the acceleration of the energy transition in the electric power sector means there's no going back.
A combination of mild winter weather, natural gas prices that are at the lowest levels since 1995, the addition of nearly 33,000 megawatts of utility-scale wind and solar power, and the consumption-sapping effects of the coronavirus pandemic will combine to deliver a record blow to coal and a record bump to renewables in 2020.
In 2019, the United States generated 966 terawatt-hours of electricity from coal-fired power plants and 720 terawatt-hours from all utility-scale renewable energy power sources. That was the lowest output from the nation's coal fleet since the 1970s and the highest ever for renewables.
In 2020, the United States might only generate 627 terawatt-hours to 724 terawatt-hours of electricity from coal (a 25% to 35% decline from the previous year), compared to 792 terawatt-hours from renewable energy sources (a 10% increase from the previous year). Adding small-scale solar bumps up the latter number to a projected output of 832 terawatt-hours, which would surpass the annual output from nuclear power for the first time since the 1980s.
What does the feat mean for investors?
The rapid growth of renewable energy is quite the feat. It was made possible by significant government policies, better wind turbine and photovoltaic panel technologies, and bountiful geographic advantages across the Lower 48. The value extended to renewable energy sources from the combination of those factors will likely compound in the next decade, which suggests natural gas-fired power plants could be the next assets to feel economic pressure from renewables starting in the 2030s.
But individual investors don't have to sit out the next decade to benefit from the trend. Here are some investment ideas that contributed to renewable energy's toppling of coal in 2019.
Coal: Investors should absolutely stay away from coal stocks. Coal-fired power plants are unlikely to regain much, if any, market share lost in 2020 due to factors described above. Investors can expect a wave of accelerated retirements in the coming years as power generators chase the enhanced economics from cleaner power sources. If your portfolio is exposed to companies such as coal-heavy PPL Corp that are moving more slowly than the energy transition, then that could be putting your capital at risk.
Biofuels: Aside from the electric power sector, renewable transportation fuels are the second-largest source of renewable energy in the United States. The country mandates 10% ethanol blends in the gasoline supply and relies heavily on biodiesel and renewable diesel each year.
Unlike electric power, biofuels have generally been a poor investment for individual investors. For instance, Green Plains (NASDAQ:GPRE) can produce 1.1 billion gallons of ethanol each year, but has struggled to overcome the weak margin environment of the industry. Ethanol prices in 2020 could be the lowest of the century. Green Plains has ambitious plans to increase operating efficiency and sell high-value, high-protein animal feed products. If the strategy works, then the small-cap stock could lift off multiyear lows for good. But it's still too early to gauge progress.
Meanwhile, Renewable Energy Group (NASDAQ:REGI) has been a rare biofuels stock with above-average returns in recent years. But it, too, faces headwinds. It's not profitable without generous government subsidies, although those are now in place through the end of 2022 for biomass-based diesel fuels. If the business can invest its cash hoard into high-value renewable diesel and retail sales, then it might be on sustainable footing in a few years.
Wind: The EIA estimates the United States could add up to 20,400 megawatts of onshore wind power capacity in 2020. That could be affected by the coronavirus pandemic, but as of early May many power generators reported being on track with projects slated for completion this year.
Xcel Energy (NYSE:XEL) is leading the way. The company, which owns four electric utilities in the American wind corridor, is bringing 1,692 megawatts of new wind power projects into service in 2020. It recently placed the 200-megawatt Blazing Star 1 project into operation, has another 300 megawatts slated for completion in 2021, and expects to have over 4,300 megawatts of owned wind capacity in service when the dust settles.
Solar: The EIA estimates the United States could add up to 12,700 megawatts of utility-scale solar power capacity in 2020. NextEra Energy (NYSE:NEE) is one of the companies leading the way. Through its Florida Power & Light subsidiary, the company plans to build 10,000 megawatts of solar power by 2030. That includes 1,200 megawatts that have or will enter service in 2020. The low operation costs of solar farms are expected to allow the electric utility to keep customer bills low and shareholder value trekking higher.
Renewable energy is just getting started
The United States consumed more total energy from renewable energy than coal in 2019 for the first time in about 139 years. That's an impressive feat, but the trend is still getting started.
Renewable energy accounted for only 11% of the nation's total energy consumption last year. There are major growth opportunities in stealing the rest of coal's market share (which would double total renewable energy consumption) in the 2020s, beginning to pressure natural gas in the 2030s, and powering cars and trucks as the transportation sector moves toward electric mobility. That suggests individual investors have many more opportunities to pounce on the energy transition -- and certainly won't have to wait another 139 years for the next big milestone.