September 19, 2019
The red state of Texas is about to go green – by 2020 more electricity will come from wind than coal, according to Rystad Energy.
Texas has a long history as an energy-producing powerhouse. Propelled forward by the surging shale revolution, Texas now contributes to 40% of total US oil production and nearly a quarter of marketed gas production. However, the lone-star state is about to break out of its hydrocarbon-rich mold with this wind versus coal milestone moment.
“Our forecasts suggest that onshore wind in Texas will generate about 87 terawatt-hours (TWh) of electricity by 2020, versus the anticipated 84.4 TWh from coal,” says Carlos Torres-Diaz, head of gas market research at Rystad Energy. “Texas is just one of many red states that have recently 'gone green' by harnessing their great wind generation potential.”
The US overall has seen a spectacular surge in wind production, led by Texas and other “red states” that overwhelmingly voted for Donald Trump in the 2016 presidential election. Wind power generation has grown at an exponential rate and is set to make up 10% of the power mix in the country so far this year, compared to 23% from coal (down from 44% in 2009). However, looking at the total power mix of the US, Democratic-leaning states are the clear winners when it comes to renewable energy. Renewable power, including hydro, has supplied 27% of total power demand in the Democratic states, compared to only 13% in Republican states.
The greener renewable sources may be ousting “brown” fossil fuels, but red and blue are also important colors in the equation – the political divide that invariably influences energy debates.
At the national and state level, renewables – in particular wind – have seen support throughout the past decades, but that support is waning under President Donald Trump, who ran on a campaign promise to revamp the coal industry.
“However, our view is that renewable energy technologies are reaching a level where new installations are not driven solely by policies or subsidies, but by economics,” Torres-Diaz commented.
This opinion is supported by the trend of ever-lower production cost, as well as the healthy pipeline of planned capacity additions, despite the soon-to-disappear tax break. The global average levelized cost of electricity from onshore wind farms dropped below $0.06 per kilowatt-hour (kWh) in 2018, according to International Renewable Energy Agency (IRENA). This development brings the cost of wind generation down to the lower cost limit of fossil fuel power, explaining why wind capacity has been growing and pushing increasing amounts of coal generation out of the power mix. As a result, 2019 is set to be the biggest wind development year yet, with an onshore installed wind capacity set to reach a peak of 14 GW by the end of 2019 if the projects currently in the pipeline materialize.
The future of green energy faces more than just rhetorical headwinds: the Production Tax Credit (PTC), a federal subsidy for each kWh produced by wind, is set to phase-out at the end of 2019*.
“Heartland” states in the windy Midwest basin have the most to lose. Clean energy sources in these states tend to enjoy bipartisan support as the surging renewable industry creates jobs and brings in state revenue through taxes.
“Even without government subsidies, wind will likely remain competitive in the Midwest and south-central US markets. Further expansion in the Rockies and California is likely, as state governments pursue more carbon-friendly energy solutions. However, downside risk to wind could materialize in the mid-Atlantic and New England states, as the loss of subsidies will make it harder to clinch new market share,” Torres-Diaz remarked.
*Under the current PTC legislation, wind projects are eligible to receive tax credit based on either the year the project starts operations, or the year the developer demonstrates it has spent 5% of the project’s total capital cost and construction has begun. Therefore, it is possible for companies to file a large purchasing order at the end of the year, and technically qualify for PTC in 2019.
Carlos Torres Diaz
Head of Gas Market Research
Phone: +47 24 00 42 00
Phone: +47 951 98 742
About Rystad Energy
Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Our products and services cover energy fundamentals and the global and regional upstream, oilfield services and renewable energy industries, tailored to analysts, managers and executives alike. Rystad Energy’s headquarters are located in Oslo, Norway with offices in London, New York, Houston, Aberdeen, Stavanger, Moscow, Rio de Janeiro, Singapore, Bangalore, Tokyo, Sydney and Dubai.