Natural Gas and Renewables Slug It Out

[IsailedawayfromFR]

Infrastructure investments supporting generation changes drive utility earnings and dividend growth.

Charles Fishman, CFA
Nov 27, 2019

Coal and natural gas have been fighting for the top spot in the U.S. generation market for the past 20 years. Gas just threw the knockout punch. In 2016, U.S. gas generation topped coal for the first time since the U.S. government began keeping records. Gas is king with 35% market share and growing. Now the battlefield is shifting, and in the next decade, we expect natural gas and renewable energy to slug it out. Renewable energy has been growing at extraordinary rates but from a small base and still has just 10% market share. By 2030, we forecast renewable energy will pass coal, nuclear, and hydro as the second-largest source of power generation in the United States while gas extends its market share lead.

The U.S. Energy Information Administration believes renewable energy growth will level off as wind and solar tax credits ramp down, absent a spike in gas prices. We disagree and think renewables will continue to grow at a similar pace without tax credits and low gas prices. Our bullish outlook is built on the investments that utilities are making to meet state renewable portfolio standards and satisfy corporate demand. Gas generation will continue to grow because of its flexibility to support intermittent wind and solar. Nuclear power’s reliability and carbon-free generation will encourage continued legislative and regulatory support, but generation will fall about 10% during the next decade as plants retire and only two new reactors come on line. The future of coal remains ugly as its market share plummets.

We continue to believe that integrated utilities with supportive regulatory frameworks should benefit as they retire coal plants and replace these assets with natural gas, renewables, and transmission infrastructure. The largest U.S. utilities--Dominion Energy (D), Duke (DUK), NextEra Energy (NEE), Southern (SO), and Xcel Energy (XEL)--are investing billions in narrow- and wide-moat projects that should result in strong earnings and dividend growth over the next decade.

https://www.morningstar.com/articles/957901/article

Author is bullish on continued growth of renewables, not due to tax credits or economics but by corporate demand and government edict.

I think economics causes a bigger bite over the long term than what he envisions.

[Joe Wooten]

Without subsidies and mandates, the so called renewables cannot compete with gas plants AND coal/nuclear.