Regardless of which way the 2020 presidential election swings, renewable energy’s role and importance will only continue to grow in the foreseeable future. The only question may be: By how much?
While the sector would clearly benefit from a more centrist president like Joe Biden, what would a second Trump term mean for the industry? Despite the fact that President Trump has been a vocal advocate for the oil and gas sector and for the continued use of traditional fossil fuels such as coal, the cost of producing renewable energy has continued its precipitous decline over the course of his administration. This trend has fueled a rapid acceleration in the adoption of wind and solar power and, I believe, will continue to do so.
Biden Versus Trump On Green Energy Policies
In contrast to Trump, Biden has been an outspoken proponent of renewable energy, and has proposed an ambitious $2 trillion investment plan that includes upgrading the nation’s power sector to make it carbon free by 2035 along with creating millions of jobs up and down the supply chain—from the design and engineering of power technology to the construction, operation, and maintenance of facilities and transmission infrastructure.
If Biden wins the election, the prospects for renewable energy look even better. Not only would the economics continue to improve, but the U.S. government could be expected to help accelerate the trend.
Declining Costs For Renewable Energy
The good news for renewable energy investors is that the costs of producing renewable energy, having fallen drastically over recent decades, are typically on par with or cheaper than generating power with traditional fuels. This bodes well for the growth of the sector, as will any expected future cost savings, no matter who occupies the White House for the next four years.
According to a recent study by market research firm Wood Mackenzie, due to the slowdown in the U.S. economy from the Covid-19 pandemic, costs for residential solar systems are expected to fall 17% from 2020 to 2025. Even before the pandemic, however, costs were expected to drop 14% over that period. This is primarily due to the declining costs of photovoltaic solar cells, which have fallen from over $20 per watt in 1980 to $0.36 per watt in 2019.
Wind-power generation costs have also fallen significantly, according to the Berkeley National Laboratory’s 2020 Wind Energy Technology Data Update—down roughly 40% in 2019 from their peak in 2009 and 2010, largely driven by the increased efficiency and lower production costs of wind turbine equipment.
Investing in solar or wind power infrastructure is, at its most basic level, a bet that future cash flows from the sale of renewable energy will outweigh both the fixed costs of getting plants online and the variable costs of maintaining and operating the facilities. The ongoing sharp decline of solar and wind production costs makes this analysis materially less risky for those involved in developing and constructing facilities. These favorable economics put renewable energy at or near parity with traditional fossil-based generation and bode well for the continued growth and proliferation of wind and solar power.
Biden’s Plan—How Much Value Creation Potential Is There?
Biden’s energy plan would pour significant additional investment into all areas of the country’s power sector in ways that would further bolster renewable production—from funding for basic research and new product innovation to enhanced tax incentives for wind and solar to investment in improved storage and transmission.
The last 100 years have demonstrated that massive government investment in energy infrastructure can yield substantial long-term benefits for society. The New Deal, for example, lifted the country out of the Great Depression and put millions of Americans to work by making huge investments in buildings, dams, roads, pipelines and other national projects that benefited generations of Americans.