Here's a surprising new fact about energy in the United States: the percentage of our electricity coming from the greenest sources -- that is, the non-hydroelectric renewables such as solar, wind, geothermal and biomass -- has doubled in just four years to nearly 6 percent. (Thanks to climate uberblogger Joe Romm for uncovering this data from the Energy Information Agency).
This significant win for clean energy has gone mostly unnoticed in the press. If anything, the story has been the opposite: recent reports herald the decline of wind, and for a year the media has made a big deal out of the demise of solar panel manufacturer Solyndra.
Given this negative drumbeat, it's not surprising that the business world tends to perceive renewable energy as an altruistic, rather than fiscally prudent, investment. But this view is dead wrong. The renewable energy industry is growing very fast... and not because it's a philanthropic effort.
Let's look at the plight of solar panel manufacturers again. Every growing industry experiences painful shakeouts driven by rising competition. In the case of solar, vast investments in production capacity in China have quickly brought down the cost of panels -- a jaw-dropping 65 percent slide in just 18 months. This is good news for people buying solar, but it's not great for many manufacturers. By lowering the "China price," the world's low-cost manufacturer is doing to solar what it did to the apparel and electronics sectors: driving higher-cost producers (usually in the West) out of business.
Aside from China's role specifically, all of this should look familiar to any students of business history. Adam Shor studies the solar sector for the Electric Power Research Institute. As he put it to me, "Show me a mature industry with more than five big players." In the most oft-cited parallel example, a century ago there were hundreds of car manufacturers.
But all of this context misses a critical point that most businesspeople are overlooking: problems for manufacturers do not equal problems for the entire sector.
Jigar Shah, a well-known clean tech entrepreneur and former CEO of the Carbon War Room, gave me this perspective: Solar cell manufacturers account for only three percent of the roughly 100,000 U.S. jobs in the solar sector. Another quarter make other components and the rest, making up a large, growing and local job base, work elsewhere in the value chain. Thus the fastest growing players are young companies that sell, install and service solar: soon-to-be household names like SunEdison (which Shah founded), SunRun, Sungevity, and SolarCity. In a lengthy article on these solar entrepreneurs, The New York Times recently reported that Sungevity, for example, has seen its revenues explode 16-fold in just two years.
So back to this doubling of the share of electricity. Once technologies take off, doublings can happen pretty fast -- just ask the investors in the Internet, mobile or social media. Will renewables' share double every 4 years? As Shah pointed out to me, the solar business is growing 30 percent per year (see the Solar Energy Industries Association site for general info in the U.S. solar market). Here's a math check: doubling every 4 years requires 19 percent annual growth.
The power of exponential growth and economic tipping points work wonders: in just three more doublings in share, non-hydro renewables would provide nearly half of our electricity needs -- more than we get from coal or natural gas today.
The scale and pace of change I'm describing is not a fantasy -- it has already happened elsewhere. Portugal transformed its electric grid from 17 percent renewables to 45 percent in just five years (as of 2010). And in the first half of 2012, renewables provided over 25 percent of Germany's electricity. On one sunny day this past May, Germany set a world record by generating 50 percent of its peak electricity needs solely from solar power. Shah predicts that next spring, the number will be closer to 70 percent.
It was easy to write off renewable energy as a side show at one or two percent of total electricity generation. But it isn't good business to ignore it now, as the economics get better and better. Making the assumption that solar or all green energy won't work because one company didn't pan out is absurd. In 2000, were all technology investments poor bets because Pets.com went under?
The cost of using renewable energy, either through power purchasing agreements that cost nothing up front or through direct investment, is dropping fast. This reality changes the calculus on green energy for homeowners, governments and corporations alike. Upfront costs are falling, which makes the ongoing variable cost of renewables -- that is, zero -- even more attractive. Better yet, zero is a predictable cost, which CFOs love.
In recent years, several corporate energy managers have told me that when they run the numbers on renewables, the payback just isn't quick enough.
I'd suggest running the numbers again.