“The war on coal is over,” declared Environmental Protection Agency (EPA) Administrator Scott Pruitt when announcing that the EPA would seek to repeal the Obama Administration’s Clean Power Plan. But is the penetration of renewable power generation vulnerable to such policy changes?

The economics of renewable power generation are clearly established. Improvements in technologies are resulting in cost reductions. As a result, Bloomberg New Energy Finance estimates that 72% of the $10.2 trillion spent on new power generation worldwide by 2040 will be invested in new wind and solar photovoltaic (PV) plants.  And, in November 2017, the U.S. Senate’s tax proposal, scheduled to be finalized in January 2018, left production tax credits in place on renewables.

There’s no rolling back the economics of renewable power generation.

In my opinion, there’s no rolling back the economics of renewable power generation, in part because of politics.

The graphic below shows why. Wind generators are primarily located within the blue bands and coal generators within the black bands, with solar generators on the outskirts. But as you can see, the wind and coal generators are located primarily within red states—those controlled by Republican legislatures after the 2016 elections. They’re in Iowa, in Nebraska, in Minnesota, even Texas—and it would be very politically difficult to disrupt the economics of those states.

Additionally, wind and solar employ a substantial number of people in the United States—just north of 475,000, according to the Department of Energy as of Q1 2016. That’s significantly more than coal employs at 160,119. Congress is not going to want to put those people out of work.

And that’s why, as growth investors, we’re looking at investment opportunities in renewable power generation.

 

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Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2018 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

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