The U.S. is now installing more renewable energy power plants each year than fossil fuels and with costs continuing to come down the trend will likely pick up steam in the future. Old guard utilities like Southern Company (NYSE:SO) and Dominion Resources (NYSE:D) have even made the transition, investing billions in wind and solar projects of late.
But renewable energy isn't being installed evenly throughout the U.S. Midwestern states dominate the wind markets while the southwest and eastern U.S. dominate solar energy. Where is renewable energy really beating fossil fuel and why is it winning? A key lies in where resources are located.
Not all solar energy is created equal
We don't have coal mines or oil wells in every state in the U.S. because those fossil fuel resources aren't located everywhere. And while the sun does shine on every state it doesn't do so evenly.
You can see in the map below that solar potential is highest in the Southwestern states like California, Arizona, Nevada, and New Mexico.
Those markets are driven by abundant sunshine for large and small solar installations alike, but the East Coast is a booming market as well, driven by high electricity prices and state incentives.
Utilities have found ways to move where the resources are as well. Southern Company and Dominion are just two of a number of utilities buying solar projects through their unregulated arms, taking on long-term contracts to sell solar electricity to local utilities in California, Arizona, and elsewhere. It's a novel model that we can expect more utilities to pursue in coming years.
Solar energy isn't beating fossil fuel everywhere in the U.S., but where there's a combination of abundant sunshine, high electricity prices, and state willpower there's a booming market in the U.S.
Where the wind blows
The wind industry follows a similar dynamic to solar, making sense where the resource occurs naturally.
You can see that the Midwest down to Texas has abundant wind resource and that's where most of the wind turbines have been built. This is where Berkshire Hathaway's (NYSE:BRK-A)(NYSE:BRK-B) energy business began investing in renewables, building the largest wind fleet in the country. Since then it has taken ownership to the non-regulated side of the business like competitors, buying projects from wind and solar developers in states outside its home territory.
There's also abundant unutilized resources offshore. That's where manufacturers GE and Siemens have spent a lot of money to develop innovative solutions, but so far with very little commercial successs.
Incredibly, most coastal states have more wind resource than even the windiest states inland. But there's not enough infrastructure to exploit offshore wind and there remains a hostile local opposition in most states working against offshore wind.
Renewable energy still has challenges ahead
The growth renewable energy has seen over the last decade has been impressive, but it hasn't been smooth. Costs have come down but until recently the industry has been reliant on tax incentives to drive adoption and as those incentives have ebbed and flowed (coming down along the way) these renewable resources have seen ups and downs.
The next two challenges will come from the solar investment tax credit declining from 30% to 10% in 2017 and rate changes being put forth by utilities themselves.
But with utilities like Dominion, Southern Company, and Berkshire Hathaway Energy taking a little less adversarial approach to renewable energy, even finding ways to turn it into a growth platform, there's a bright future ahead for renewable energy. It won't be everywhere in the country, but where there are resources available renewable energies are beating fossil fuels long-term.
Travis Hoium owns shares of Berkshire Hathaway. The Motley Fool owns shares of and recommends Berkshire Hathaway. The Motley Fool recommends Dominion Resources and Southern Company. 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.