Last year was the second in a row that solar panel maker SunPower (NASDAQ:SPWR) managed to reduce its solar panel manufacturing costs by 20%. And, at the same time, it has been improving the ability of its solar panels to convert the sun's rays into electricity. For a sunny state like Texas, cheaper and higher efficiency solar power may be just what the doctor ordered to usher in a rapid expansion on the solar front.
Wind first, then power lines
Texas embraced renewable power in a big way. For example, the state installed over half of its wind capacity, more than 7 gigawatts' worth, between 2006-2009. It was working fast and furious in that span, but unfortunately the power being generated by those wind turbines didn't have anywhere to go because there weren't enough power lines. That was step two and involved the construction of over 3,500 miles' worth of transmission lines so the wind power could get from where it was being generated to where it was needed.
And the build-out isn't done just yet, with new plans for power lines to connect Texas' wind to power demand in Louisiana and Mississippi. That's an important step, since the Texas grid is basically isolated from the rest of the country. However, that will all change once it links up to other states. And it could spell renewed demand for renewable power in a state blessed with both wind and sun.
And now solar?
Texas is the largest wind power state with some 12 gigawatts of power, easily surpassing No. 2 California's 5.8 gigawatts. However, on the solar front Cali is the clear winner. For example, the state installed over 2.6 gigawatts of solar last year, most of which was utility scale. Texas came in at No. 8 on the top 10 list for 2013, with just 75 megawatts (0.075 gigawatts, to make the comparison even more stark). On a cumulative basis, Texas isn't in the top 10 for solar.
So why think that solar could become such a big opportunity? For starters, the falling solar panel costs that SunPower is so proud of achieving are making solar more economically competitive with other power options. Second, the state is making investments in power lines, including attaching a once isolated grid to adjoining states.
American Electric Power (NYSE:AEP) and Warren Buffett's Berkshire Hathaway (NYSE:BRK-B) also have a 50/50 Electric Transmission Texas joint venture, which shows the grid's investment potential. This pair has around $2 billion worth of "in service" assets now with plans to expand by 50% over the next decade. This joint venture is one of the reasons why American Electric Power expects its transmission business to add $0.70 a share to earnings by 2018, more than twice the contribution projected for this year.
And then there's the sun. According to Ernst & Young, Texas is the sixth most desirable state for solar power, even though it doesn't break the top 10 for total solar installed. However, with the new transmission lines being built, lower solar panel prices, and vast stretches of sunny desert to exploit, that could change relatively quickly.
Is the future taking shape now?
In fact, as of April, there were nearly 4.5 gigawatts of new solar either on the drawing board or being worked on in Texas. Although all of those projects may not come to fruition, that's a pretty impressive backlog for a state that installed just a tiny fraction of that total in 2013. And while rooftop solar could be a notable part of Texas' future, watch closely for utility scale projects like the ones that SunPower works on in the near term.
Indeed, with the cost of solar panels dropping, a dedication to renewable power, and investments in the grid, Texas could soon become a boom state for solar. And this is clearly a market worth watching if you're interested in the solar space, for the benefit of the environment or for the health of your finances.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.