You may not see it happening on a daily basis, but renewable energy is taking over the grid. The transition isn't happening overnight, but evidence is growing that renewable energy is replacing coal, nuclear, and even natural gas and will play an increasingly larger role in our future.  

July was a strong month for the industry with every single new power generating facility being renewable energy. Here's a look at just how big renewables have gotten.

A bigger piece of the pie
In the last decade, renewable energy has become more economical and is being built in larger numbers because it's the lowest cost option. Wind has returned from its depths during the recession, and solar energy is behind only natural gas in MW completed so far during 2014. If we added in distributed solar energy, which is built on residential and commercial rooftops, the amount of solar installed would rival that of natural gas this year.

Below is the recent recap of new generation built in the U.S. according to the U.S. Energy Information Administration (EIA).

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Source: EIA.

The table above shows where new electricity generation is coming from, but it's also important to put the figures in context. As you can see below, wind accounts for just 5.26% of the electric capacity in the U.S. and solar is just 0.75%.

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Source: EIA.

This shows the scope of potential wind and solar energy. Even if solar energy grew 10x in the next three years it would be just 7.5% of the grid.

What this means to investors
In energy it's important to understand trends that affect our investments. It's clear that coal and nuclear power are a shrinking percentage of the electric grid and renewable energy is going to take their place. At the same time, natural gas has come into favor because of its lower cost and ability to provide reserves for renewables and other energy sources.

If you're investing in energy it's better to go with the trends than fight them. So, the tables above show where your money should be headed.

What about rates?
So, all of this renewable energy is making electricity more expensive, right? Wrong.

The EIA just released data showing the increase in electricity prices nationally over the past year. The biggest price growth was in New England and the Mid-Atlantic, driven by higher wholesale energy prices from generators. The only region to see a decline is the Pacific coast, which includes California, Oregon, and Washinton state. These states -- particularly California -- just happen to be where a majority of solar energy has been installed over the past year.

Electricity Rates

Source: EIA.

One data point doesn't make a trend, and rates rise and fall for a variety of reasons, but I point out the decline in rates on the West Coast because adding renewables doesn't necessarily make electricity more expensive. In fact, the opposite can be true.

Foolish bottom line
Renewable energy is here to stay in the U.S., and I wouldn't be surprised to see wind and solar take an even larger portion of the grid in coming years. Economics for renewables continue to improve and fossil fuels are getting more expensive to burn at the same time.

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