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US shift to renewables gains momentum

A gradual move towards renewables was already underway, and the pandemic is helping to push coal further out of favour

The US is on course to increase its uptake of renewables further this year. The trend is not new, as it was already playing out some time before the emergence of Covid-19. However, early indications appear to be that the pandemic is encouraging the shift away from coal-fired generation, which is increasingly falling out of favour for multiple reasons.

According to the US Energy Information Administration (EIA), the country’s renewable energy consumption last year surpassed that of coal for the first time. Total consumption of renewable energy grew for the fourth year in a row to a record high of 11.5 quadrillion Btu for 2019, while coal consumption fell for a sixth consecutive year to 11.3 quadrillion Btu.

This trend was already expected to continue into 2020 but is being exacerbated by the impact of Covid-19 on electricity demand. “Covid-19 will reduce the overall demand for electricity, but it will not affect the level of solar and wind production,” says Toby Shea, a VP-senior credit officer at ratings agency Moody’s Investors Service. “As a result, renewable sources should have a greater share of total electricity production during Covid-19.”

Coal-fired power plants have in many cases become more costly to operate than renewable generation capacity. “With wind and solar, once you have set up the solar farm or windmill, the incremental cost of running them is next to nothing. On the other hand, the fuel cost associated with coal-fired or gas-fired generation is significant. So, when the demand pie shrinks, coal and gas will back off, but solar and wind will keep running,” adds Shea.

Falling demand

And the demand pie is indeed shrinking. The EIA forecasts that US electricity consumption will fall by 5.7pc this year compared with 2019. The agency expects renewables to be the fastest-growing source of power generation in 2020, rising from 17pc of the electricity mix in 2019 to its latest forecast of 21pc.

In January, the EIA predicted that renewables would account for 19pc of the generation mix in 2020. However, it increased its estimate to reflect updated information on planned capacity additions—though it is not clear whether such additions are being spurred by Covid-19.

11.5 quadrillion Btu – US renewable energy consumption for 2019

Based on the most recent data available to it, the EIA estimates that non-hydro renewables accounted for 13pc of total US generation over January-April 2020, up from 12pc in the same period of 2019. It notes that this is in line with what it was forecasting in January, prior to the spread of Covid-19.

The EIA warns that a “high degree” of uncertainty surrounds future capacity additions, though no significant disruptions have yet materialised. “So far this year, the number of new generating units delayed beyond their original expected online date is similar to what it has normally been in the past. And only a handful of respondents have specifically identified Covid-19 as a direct reason for the delay.”

The EIA’s data therefore suggest that the gradual increase in renewable usage is largely playing out as expected but at a marginally increased pace. It also shows the comparative resilience of new renewable capacity. Coal’s fortunes, meanwhile, are waning.

The decline of coal seems set to further accelerate due to the fact that a number of US utilities have set targets to achieve net-zero emissions by 2050 in recent months. And with one such company, Dominion Energy, having just completed construction of the first offshore wind project in US federal waters, it appears utilities are pushing ahead with these targets.

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