Premier Miton Global Infrastructure Income Fund manager
For information purposes only. The views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
In the first quarter of every year, the US Energy Information Administration publishes the electricity generation data by source for all 50 states for the preceding year. For us this is essential reading, as one of our key investment themes is the growth of renewable generation in the USA, which we see as providing cheaper electricity to consumers, increased returns for both regulated utilities and independent developers, and as a crucial element in the path to net zero emissions.
So, what does the 2022 data tell us?
The headline number is encouraging, as wind and solar generated 650,871Giga Watt Hours (GW/h) of electricity in 2022, an increase of 15% on the preceding year. For context, the total generation from wind and solar in 2017 was 387,244 GW/h, so over the 5-year period electricity generation from these sources is up by 68%. Looking at the detail, 47 of the 50 states saw increased generation from wind and solar year-on-year in 2022, with only Oregon and Washington in the Pacific Northwest and Kentucky in the coal heartland seeing falls.
Texas continues to lead the way, with generation from wind and solar up 19% in 2022. There are concerns that the state has run too hard on renewables, with the Republican legislature in the Texas House of Representatives pushing for more investment in dispatchable power sources – which in Texas means natural gas, where there is abundant supply from the shale basins such as the Permian and Eagle Ford.
However, the state leads the nation in wind generation, and this source of cheap energy is essential for its continued economic growth. Other states seeing notable increases in wind and solar generation include Iowa (up 21% year-on year), Illinois (+25%), New Mexico (+33%) and Nebraska (+31%).
Future growth in US wind and solar generation has been underpinned by the Inflation Reduction Act, signed in July 2022, which has extended existing tax subsidies out by a decade, as well as introducing flexibility to pass economic benefits to customers more quickly. This enhances the renewable proposition with direct subsidies for batteries, which can partly counteract the intermittency of wind and solar generation.
A consensus is building
There is a danger in the ever-febrile US political environment that continued support for renewables becomes a partisan issue, as the current debate in Texas illustrates. However, a look at the top 15 states for wind and solar generation in 2022 shows 7 states with Democrat governors and 8 states with Republican governors, and the overall data shows that 58% of the electricity generated from wind and solar came from the 26 states with Republican governors, whereas 42% came from the 24 states with Democrat governors. In reality, the economic benefits of cheap renewable energy mean that, in our view, there is an underlying bipartisan consensus underpinning its continued growth.
We see the data as very encouraging from an environmental perspective, but there is still a way to travel. Coal-fired electricity generation fell by 8% year-on-year in the USA in 2022 and has fallen by 31% in the last 5 years. The absolute number is 377,000 GW/h lower than 2017, but is still at 829,000 GW/h, so generation from wind and solar was still around 178,000 GW/h lower on aggregate than coal-fired generation in 2021.
The big retirement opportunity
We are seeing planned coal retirements across the US generation fleet, and there is a huge opportunity for wind and solar to fill this gap. We are investing in both the regulated utilities who have firm plans to decommission their coal-fired generation and replace the capacity with wind and solar, such as Xcel Energy and WEC Energy, and also in the renewable developers such as NextEra Energy and Clearway Energy who continue to build wind and solar generation for utility and corporate customers.