In our industry report from last Friday - ''Clean Tech Primer 2019: Ten Ways to Play the Decarbonization Megatrend'' (video recap available) - we highlighted the relentless trend of coal losing ground in the U.S. electricity mix, and elsewhere. Our base assumption is that wind and solar will capture two-thirds of the incremental U.S. share over the medium-term, and natural gas the remaining third. But we routinely hear the question: why wouldn't gas do better than just one-third? Put another way, are wind and solar truly cost-competitive with gas… particularly as the federal tax credits begin to phase out in the coming years?
Today we will dive into the underlying economics of U.S. wind and solar generation. Our conclusion is that onshore wind, even without tax credits, is already matching gas as the two lowest-cost U.S. sources of utility-scale newbuilds, albeit with site-specific variability. Solar is not quite there yet, but its costs are falling faster, so it is only a matter of time. Gas still has some advantages, notably dispatchability, but as grid-scale batteries become mainstream, the combination of renewables and storage will increasingly pose a threat to gas peakers.