Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: Is Wind REALLY Becoming the Lowest-Cost Source of Power in the U.S.?
November 19, 2018

In our industry report from last Friday - ''Clean Tech Primer 2019: Ten Ways to Play the Decarbonization Megatrend'' (video recap available) - we highlighted the relentless trend of coal losing ground in the U.S. electricity mix, and elsewhere. Our base assumption is that wind and solar will capture two-thirds of the incremental U.S. share over the medium-term, and natural gas the remaining third. But we routinely hear the question: why wouldn't gas do better than just one-third? Put another way, are wind and solar truly cost-competitive with gas… particularly as the federal tax credits begin to phase out in the coming years?

Today we will dive into the underlying economics of U.S. wind and solar generation. Our conclusion is that onshore wind, even without tax credits, is already matching gas as the two lowest-cost U.S. sources of utility-scale newbuilds, albeit with site-specific variability. Solar is not quite there yet, but its costs are falling faster, so it is only a matter of time. Gas still has some advantages, notably dispatchability, but as grid-scale batteries become mainstream, the combination of renewables and storage will increasingly pose a threat to gas peakers.

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

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