American renewable energy had a record month in April 2022. In fact, several records were set.
According to data compiled by the U.S. Energy Information Administration (EIA), onshore wind and utility-scale solar combined to generate more electricity than nuclear for the first time ever. Wind power generated 15% of the nation's electricity that month, which was a monthly record. Meanwhile, the country leaned on non-zero carbon power sources for nearly 46% of its electricity. That was well above the 39% average for all of 2021.
The record month led to a number of takes across the media. Some questioned why nuclear power was needed at all. Others hammered another nail into the coffin of fossil fuels. While fun and entertaining, those questions and declarations are a little premature.
Wind and solar have considerable momentum and will only get stronger throughout this decade. However, the numbers are a bit misleading for a few reasons.
Renewable Energy Records, Explained
There's no denying the headline numbers. Wind and solar (19.3% combined) really did generate more electricity than nuclear power (17.9%) in April 2022. Renewables really did come close to providing half the nation's electricity that month. But it's important to consider the nuance and context of the records.
First, the United States consumes the least amount of energy every April and October. That's primary due to cooler weather alleviating the need for air conditioning or heating. For context, American electricity consumption in April 2022 was 20% lower than in January 2022.
Second, lower monthly energy consumption makes April and October a natural time to take power plants offline for routine maintenance. For example, nuclear power plants typically shut down reactors every 18 months or so, which purposely lines up with April and October.
Consider how major power sources compared between April 2022 and January 2022.
- Natural gas generated 22% less electricity
- Nuclear power generated 22% less electricity
- Coal generated 37% less electricity
Routine maintenance is routine maintenance. That's why the EIA expects renewable energy to combine for 22% of total U.S. electricity generation in 2022, well below the 27.7% from April 2022.
Third, it just so happens that April and October are seasonal high points for onshore wind energy in the United States. The country generated 21% more electricity from wind power in April 2022 compared to January 2022.
Finally, the United States experienced a record build out of onshore wind and utility-scale solar in 2021. Resources brought online last year are contributing to regional grids for the first time this year. The EIA estimates the nation added 14,000 megawatts of onshore wind capacity and 13,000 megawatts of utility-scale solar capacity in 2021. Analysts expect another 10,000 megawatts of wind and 20,000 megawatts of solar in 2022.
Green Energy is a Boon for Utility Stocks
This context and nuance isn't being provided to scare investors away from renewable energy. Rather, to ground expectations. There's a long road ahead, but there are also plenty of reasons for optimism.
Renewable energy represents one of the best growth opportunities for electric utilities in decades. There are billions of dollars of power generation assets, transmission lines, and electric vehicle charging infrastructure to build out – for every regional utility. Even better, wind and solar farms don't need fuel and are much simpler than thermal power plants, which keeps fuel expenses and maintenance costs low. That leaves more profits for dividends, share buybacks, or reinvestment.
Xcel Energy (XEL) is one the leaders in renewable energy. The company's wind energy portfolio, one of the largest in the world, saved customers $870 million in 2021 alone. The company's advantageous geography has kept it well ahead of national or global mandates. Roughly 36% of its energy mix came from renewable energy in 2021. That's expected to grow to 53% in 2025 and 67% in 2030. Each will be solidly ahead of the nation's average at the time.
Low-cost renewables make it easy for Xcel Energy to keep a simple commitment to investors. Management wants to return 8% to 10% to shareholders each year, which will be driven by 5% to 7% earnings growth and maintaining a dividend yield near 3%. The business has delivered for decades.
NextEra Energy (NEE) is more popular among investors – and for good reason. The company's generation subsidiary, NextEra Energy Resources (NEER), is the world's largest generator of wind and solar energy. It outproduces most countries. It's also the largest developer of energy storage assets in the United States, which represent an important source of long-term growth.
NEER is the company's sneaky weapon. Whereas NextEra Energy owns electric and gas utility companies in Florida, the generation subsidiary owns and operates renewable energy power plants across the United States. This part of the business contributes significant earnings to the parent company. Case in point: NEER was responsible for 17% of NextEra Energy's net income in 2021. That's a big advantage over many peers that only operate electric utilities.
The Energy Transition is Unstoppable
America is quickly ditching fossil fuels for renewable energy. In fact, renewables could generate up to 47% of the nation's electricity by 2030. That number swells to 63% when nuclear is included. Add in next-generation sources of non-zero carbon power sources, such as next-generation nuclear and enhanced geothermal systems (EGS), and the future looks pretty bright -- and much cleaner, too.
