The Future of Electric Energy

The electrical grid is notoriously slow to change. Since the days when Thomas Edison debated the merits of A/C versus D/C power transmission, the biggest debates in electrical generation have been about whether to use natural gas or coal for power. But that's all changing as the cost of traditional energy sources rises, and that of alternative energy falls, and it becomes viable to generate power on-site.

The big question is: What does the future of electric energy look like?

Coal takes a tumble
It's no secret that the coal industry has struggled since President Obama took office: 15,000 MW of coal supply has been taken off the market due to uncompetitive costs and the sheer age of the plants. Some of the industry's struggles have been due to increased regulations put in place under the Obama administration, but another big driver is the low cost of natural gas, which has become the country's most used fuel for generating electricity.

Henry Hub Natural Gas Spot Price Chart
Henry Hub Natural Gas Spot Price Chart

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The coal industry has long provided most of the country's power, but that dominance is now in question. Natural gas passed coal as the No. 1 generator for a short time last year, and will likely do so in the future as coal supply leaves the market. Natural gas is now in favor due to lower costs and lower emissions, something that will keep it growing until another energy source with even lower costs and fewer emissions emerges.

Renaissance in nuclear falls flat
This was supposed to be a time for a nuclear renaissance in the U.S. The economic stimulus plan passed during the recession included money to guarantee nuclear plants, and a number of companies made big plans to build new capacity. But the excitement has cooled considerably and, one by one, companies have abandoned nuclear plants altogether.

NRG Energy was one of the first to give up on its grand nuclear plans in 2011, while Duke Energy recently announced it would retire its Crystal River nuclear plant and stop pursuing the $25 billion Levy County nuclear project as well. Southern Company's Plant Vogtle in Georgia is also coming under fire for being uncompetitive compared to natural gas generating, and even renewable energy, sources.

New nuclear plants have been cancelled domestically; internationally, the trends don't look good either. Germany has said it will close all of its nuclear plants, and since the Fukushima Daiichi disaster in Japan, that country is looking at solar as an alternative source of energy.

There's still hope for nuclear growth in China but the momentum that nuclear backers thought they had gained in developed countries is evaporating. High costs for nuclear power and new low-cost alternatives will keep the industry down for the foreseeable future.

Solar emerges as a viable energy source
A decade ago solar energy was a pipe dream that only made sense in countries like Germany where the energy source was highly subsidized. Today, the solar is cost competitive with the grid in many parts of the world without subsidy, its costs continue to fall, and installations in markets like the U.S. are exploding.

On the cost side, the average cost to install a solar system in the U.S. has fallen 37% from Q1 2011 to Q1 2013 to $3.37 per watt. That has helped drive 670% growth in installations over the past two years, hitting 1.8 GW last year, a figure that will likely more than double this year. What we'll see in the future of electricity is that more and more of these installations will end up on the rooftops of homes and commercial buildings around the country, pushing power generation from power plants closer to the source of demand.

One company leading the charge is SolarCity , who has made a goal of 1 million rooftop solar installations in the next five years. By offering a zero-dollar-down product that saves consumers money, the value proposition is an easy sell and SolarCity, along with others, is taking advantage.

Electric cars, batteries, and the future of the grid
The next giant leap forward for electric energy regards batteries and electric vehicles, which need similar advancements in technology. So far, Tesla Motors has been the only company proven worthy of building electric vehicles that people will buy -- and a big reason for that is its battery. The next leap forward for EVs, which will bring more manufacturers into the fold, will come when battery technology allows storage of 300-plus miles of power in a smaller, more economical package. Tesla is working with Panasonic on this next-generation battery; lab results suggest that it may be about four years away.

The role that EVs would play in the grid can be viewed as a storage system for solar power. Plans for a smart grid include using either a separate battery or the EV itself as a storage system to smooth the ebb and flow of solar power and store it for night use. This is still years away, but that's the vision of the electricity grid that Tesla, SolarCity, and many others are working toward.

The future of electric energy
The power sources of the future likely look nothing like the power sources of the past. Coal and nuclear power are being replaced by natural gas and solar, and as the cost of renewable energy falls it will play an ever larger role in the grid. As solar grows we'll also see power generation move to a more distributed model instead of the current one in which large power plants provide all of the power. Changes are in store for the industry and all companies will have to adapt.

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Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Southern Company and Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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