In his inaugural address yesterday, California Governor Jerry Brown called for the state to strive to get 50% of its electricity from renewable energy sources, up from a goal of 33% by 2020. It's an ambitious goal, but it's also one that California, of all states, may be able to reach. The state has already become a leader in renewable energy, and it's leading the way in energy efficiency and storage.
Where California will get all that renewable energy from?
A primary focus of California's renewable energy growth in recent years has been solar energy. The state has abundant resources, and with high electricity rates, it even makes sense for many residential customers to put solar on their rooftops.
But solar isn't the only component of a cleaner future California will focus on. Here are the four largest components to watch.
- Solar: California has long been a leader in solar energy. According to GTM Research, in 2013, the state installed 55% of the 4,751 MW of solar installed in the U.S., and as recently as the third quarter, it installed 642 MW out of 1,354 MW installed nationwide. Incredibly, solar energy is so cost-effective today that the largest state incentive, the California Solar Initiative, wasn't even used to fund most projects in 2014.
- Wind: Quietly, wind energy has also been a boon for California. In 2013, it accounted for 6.4% of the state's electricity. This will be a slow growth sector, but installed wind turbines will continue to contribute energy for decades to come.
- Efficiency: Efficiency was one of Governor Brown's focuses in his speech, and demand response will play a role in improving efficiency. The state's major utilities currently have demand response programs, but look for this to be a focus in the future, along with improving efficiency of the state's buildings.
- Energy Storage: The biggest leap forward in the next decade will come in energy storage. Two California companies, SolarCity (NASDAQ:SCTY.DL) and SunPower (NASDAQ:SPWR), have begun to roll out small-scale energy storage for residential and commercial building, but utilities are taking notice as well. Southern California Edison just bought 250 MW of energy storage, a big move that could help drive adoption of more solar and wind energy onto the grid in coming years.
What makes California unique from other states is its abundant renewable energy sources close to demand loads. Southern California is densely populated, but it's also in relatively close proximity to sunny deserts that are perfect for building solar systems. Similarly, wind turbines dot the hills of the same region.
Why Brown's wishes may not matter
The fact of the matter is that California is a leader in wind and solar, not because politicians are driving it, but because they're economical sources of energy. Residential solar leases can now be offered below utility electricity rates with $0 down in most of the state. Utility scale projects are being built with power purchase agreements well below $0.10 per kW-hr. A study by Lazard puts the cost of utility scale solar systems at between 7.2 cents and 8.6 cents per kW-hr, or about half of what Californians pay for electricity at the retail level.
Further cost reductions will continue to drive greater adoption of renewable energy, whether politicians help the industry or not. Putting a 50% renewable energy goal out in the public may seem like a big deal, but given California's favorable economics for renewable projects, it might be inevitable. That's good news for renewable energy companies who will grow in California over the next few decades.
Travis Hoium is long shares of SunPower. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. 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.