It's Time to Break Up with Coal

 

It’s hard to say goodbye to something you knew and trusted for so long. If you are still investing in dirty options like coal or fossil fuel energy, then hopefully this is your wake-up call.

Why Coal is Dying

In 2017, utility scale solar photovoltaic and onshore wind became cost competitive, net of subsidies, with fossil-fuel electricity generation. Intermittent renewables are outbidding fossil fuels at wholesale markets, destroying their economic viability. In fact, by the year 2050, it is predicted that coal will provide just 11 percent of the global electricity generation, down from current levels at 38 percent (In 2018, the US had a record de-commissioning of coal plants). In a report just released in March 2019, public financial data and filings confirm that, in the US, coal power generation has already reached a cost crossover point. The cost of maintaining and operating coal-burning plants now exceeds the all-in expenses of a new project using wind or solar generation. Many are now asking, why are these coal plants still running? Unfortunately, the answer is ugly: direct, out of market payments coming from ratepayer wallets is propping up this “walking-dead” industry. The transition doesn’t stop with coal: according to the U.S. Energy Information Administration, non-hydroelectric renewable energy sources are expected to be the fastest growing source of energy generation in the U.S., with fossil fuel generation falling by 2% in 2019, and decreasing growth in upcoming years.

Wind and Solar: A Safe Bet

While investments in wind, solar, and other renewable energies previously returned outsized IRR’s for project investors who were willing to wager on the opportunity, this recently de-risked asset class is now returning depressed IRR’s reflective of more traditional infrastructure investments.

With the backing of large institutional balance sheets, PV and onshore wind deployments have exploded. More than 140 GW of wind and solar generation were deployed globally last year, according to IRENA. Renewables accounted for two-thirds of new generation capacity globally, led by PV.

New Markets

Offshore wind, pioneered in Europe, shows promise as a growth industry around the globe. Project investors with higher risk appetites will certainly find double digit IRR opportunities here. Energy storage bears a similar risk profile. In a decade, these sectors will look like onshore wind and PV in terms of project risk and return. Investors with stakes in fossil fuel assets can now re-allocate into a diverse, yet all-renewable portfolio with a range of risk and return profiles between these four energy technologies. Investors have never before been in a better position to profit while leading the push to decouple our energy system from carbon pollution. Now is the time to invest in the cleantech market.

 
JJ