America’s utilities are facing a choice when it comes to renewables: Jump in and profit or dig in their heels and risk becoming unprofitable. 

About 64% of the 4.2 billion megawatt-hours of electricity the U.S. generated by utility-scale facilities last year came from fossil fuels, while only 17% came from renewables, according to the Energy Information Administration. Renewables are projected to meet an increasing share as costs come down and governments try to curb greenhouse gas emissions. A growing number of utilities are switching to wind and solar as they seek to balance cost, regulations and reliability.

“The utility sector is certainly not monolithic in how it looks at renewables,” Nathanael Greene, a senior renewable energy policy analyst at the Natural Resources Defense Council, told Karma. “So much depends on the regulator attitude to renewables.”

The U.S. utility sector is diversified. Some companies generate the electricity they sell to consumers, while others purchase electricity from other power producers or from a wholesale market. Some Americans purchase power from electric cooperatives, while in other areas for-profit utilities are the provider, and some consumers get electricity through a power marketer.

Utilities have to decide whether to replace coal with renewables, natural gas or some mixture of the two. Natural gas releases about half as much carbon dioxide as coal when burned, but it poses additional risks for the climate, because methane, a major component of gas, is released into the air at every stage of its life, from well to power plant.

“It ultimately comes down to two factors,” Chris Namovicz, team leader for renewable electricity analysis at the Energy Information Administration, told Karma. “They are looking for what’s the lowest cost resource to meet the need, and they have to take into consideration any regulatory decisions that require them to use renewable sources.”

Wind power is projected to make up 46% of the 23.7 gigawatts of new electricity capacity that the U.S. will bring online this year, according to the EIA. Natural gas is expected to be responsible for 34% of the additional capacity, while solar will account for 18%. The EIA stated that 8.3 gigawatts of capacity will be retired in 2019.

“Wind and solar are capital intensive at first, but there are no fuel costs once it’s built,” Namovicz said. “The capital costs are cheaper with natural gas but you have to pay for the fuel, and its price is subject to change.”

NextEra Energy, which bills itself as the “world’s largest producer of wind and solar energy,” has been a leader in the transition. The company plans to bring between 3,000 to 4,300 megawatts of wind energy capacity online. They expect to bring an additional 1,000 to 2,500 megawatts of solar energy outside of Florida online between 2019 and 2020. In Florida, a rate-regulated utility subsidiary announced plans to build 10 new solar plants with a combined capacity of 750 megawatts when finished in 2020.

Duke Energy, the country’s second-largest utility, has announced plans to boost its use of renewables while also investing in natural gas capacity in Indiana and continuing to burn coal in the state into the 2040s. Duke competed against private developers to build an 80-megawatt solar plant in North Carolina, the state’s biggest solar plant, only to cancel the project.
Falling prices for renewables could threaten the profitability of investments that some utilities continue to make in fossil fuels. There’s also a risk coming from consumer demand for cleaner energy, with growing numbers of choices homeowners can switch to, from power to solar and wind.

Karma Take: The rapid advances in technology and growing concern about climate change should make renewables a safe bet in the decades to come.