After last year's election, a number of pundits had predicted that a Trump victory would usher in a new age for coal and crude oil in the United States.
Renewables, like solar and wind, would be used as alternatives only in certain regions of the country – or so these pundits suggested.
Well, it's hardly worked out that way, even with the more recent decision to cut the U.S. from the Paris Climate Accord.
Renewables are soldiering on, and the reason why is simple (and market-based)…
Even in the Heart of the Shale Oil Boom, Wind Is Going Strong
Both solar and wind continue to decline in operating costs, while increasing in energy efficiency. The combination is making it difficult for coal to recover and poses a challenge in what had been oil-dominant areas.
Take West Texas, for example.
The Permian Basin, which straddles Texas and New Mexico, continues to be the most preferred drilling location in the country.
Here, operating costs as compared to wellhead prices (the below-market price producers actually receive for the volume coming out of the ground) make for some profitable fields even at low oil prices.
And yet the same location has become the largest in the country for wind power. Meanwhile, other areas have witnessed a surge in solar power.
In both cases, the assumption not long ago was that once government subsidies had been phased out, a ceiling would form on additional renewable power production.
However, this argument in favor of a return to dominance for traditional energy sources failed to consider one salient point…
Solar and Wind Are Now at "Grid Parity"
Solar and wind have become far cheaper to produce than even their strongest adherents had expected. That means they have both reached and exceeded "grid parity" – their generating costs being equal or lower than those of natural gas and even coal.
Yes, nuclear remains the cheapest way to produce electricity.
But the high costs of constructing nuclear power plants and the still long delays in approving and finishing the plants have propelled renewables into an ascendancy in the non-fossil fuel category.
Crude oil hardly figures into the electricity generation equation in the United States. And until the next massive wave switch in vehicle engines – electric, hybrid, CNG (compressed natural gas), and LNG (liquified natural gas) – distillates (gasoline and diesel) will have the lion's share of the transport fuel market.
Which means that on the electricity production front, this has become a competition between coal and natural gas on the one hand, and renewables (solar and wind, with a marginal presence of biofuel and geothermal) on the other.
Now, natural gas production in the United States would seem to have been given a boost by the Trump administration's support for hydrocarbons. The problem has been a persistent surplus of production, combined with a penchant by Mother Nature to produce mellower-than-expected temperatures, which drives down air conditioning use and thus power demand.
The latter is likely to change as we move into summer and hotter temperatures. But the bottom line remains the same.
There's a New Energy King in Town
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.