The Outlook for Renewable Energy

By Lydia Miller, Dana Investment Advisors

Dana-Investment-Advisors-LogoThe last decade was quite a remarkable period for renewable energy growth. In 2019, estimates indicate new capacity additions were slightly more than 70 percent renewables and over half of newly commissioned utility-scale renewable power generation provided electricity at a lower cost than the cheapest new fossil fuel powered source.[1]These are significant milestones, especially so, given that they are driven by the incredible cost declines that occurred during the decade. The chart below illustrates these cost declines and Solar Photovoltaic (PV) electricity generation stands out with the most dramatic decline, approximately 80 percent. Expectations over the next few years are for further price declines across renewables.

Renewable Power Generation Costs drop graph-2019-IRENA

Let us step back and review the efforts and circumstances that brought us to this point. In retrospect it may look obvious and predictable. Yet in 2010, the global economy was still recovering from the financial crisis. Also, a significant amount of venture capital investment in renewable technologies in the U.S. were made in 2006-07, only to be written off over a multiyear period post crisis. It turned out that renewable energy technology was more energy than technology and lofty valuations, high costs, and much needed subsidies were significant hurdles to new investments, certainly in the U.S. Prior to the crisis, many European countries made great strides in deploying renewables, supported by various programs and subsidies.

Fast forward to the middle of the last decade, and cost declines in solar PV were taking hold. Investors could see the potential competitiveness of this renewable source. The laws of supply and demand would drive the growth providing a transition to a low-carbon economy. Battery storage prices, vital to deploying renewables, also experienced price declines. These factors gained traction and greater renewables growth did indeed occur.

What drove these cost declines? The cost curves pictured in the chart above depict the levelized cost of energy (LCOE), often referred to as the levelized cost of electricity. LCOE is the average total cost of project per unit of total electricity generated. The LCOE allows one to compare various energy-producing sources on a “level” playing field. It also illustrates the breakeven point of a project. It works as a net present-value calculation and allows developers to compare lifetime costs. Thus, many assumptions are embedded in these calculations.

Price declines can be driven by a variety of factors including innovation, “learning” (i.e., improvements due to experience), supply chain improvements, equipment cost declines and economies of scale. The degree to which each of these factors impacted renewables pricing has varied across the different renewable sources. For example, utility-scale solar PV module price declines have been the key determinant of declining LCOE. In onshore wind, technological innovation in turbine design has been a significant factor. The “learning” that results in greater capacity utilization depends, in part, upon greater deployment.

The Outlook: Renewables’ competitiveness with fossil fuels is strong, driven by considerable innovation, learning and economies of scale. We believe that the transition to a low-carbon economy is happening and will continue to happen. This happens over decades, with investors increasingly discounting this long-term trend. Corporate leaders have largely embraced this outlook and individual and institutional investors have turned to ESG strategies in part to avoid risk, capture alpha and drive this low-carbon transition. Developing countries are still in great need of energy and renewables can and should play a significant role. Near term, new renewable projects may even be cheaper than the marginal operating costs of some of the least competitive coal-based plants. Retiring these and replacing with solar PV or onshore wind could lower plant operational costs while reducing carbon emissions.

However, energy growth, in whatever form, is severely challenged by COVID-19 and its economic aftershocks and collateral damage. There is simply no getting around this. Challenged economic growth is an energy-demand shock. This makes deploying and converting to renewables more difficult. It is one thing to add renewable capacity to satisfy growing demand and quite another to replace existing infrastructure while demand is flat, declining, or uncertain, when all eyes are on credit worthiness, and when government stimulus is so heavily relied upon.

Competing needs for funds, calls to close the wealth gap or provide basic support for those in need, falling fossil-fuel exports for export-dependent countries – all of these are headwinds to energy demand. While sun and wind may be “free,” harnessing them, deploying in scale, reaping the benefits of experience are not and these costs are upfront. Renewables are indeed competitive with fossil fuels in many places and situations, and renewable capacity additions place fossil fuel assets, the jobs and supply chains related to these fossil fuel assets at greater risk. How will fossil fuel companies act going forward? Will they go the way of coal or embrace new strategies?

Our Strategy: At Dana Investment Advisors, we are focused on identifying and investing in the strongest players in this field. That is, we seek entities that have experienced leadership, an excellent track record in project development, better demographic geographies, strong balance sheets, and demonstrated success in funding R&D and bringing these investments to fruition. Those companies capable of navigating the current demand shock and playing the long game, can succeed. The need for innovating and delivering reliable and affordable clean energy solutions has never been greater, and we expect the gap between the strongest players and all others to grow larger through a more challenged economic backdrop.


Article by Lydia Miller, Senior Vice President and Portfolio Specialist with Dana Investment Advisors ( and focuses on the Firm’s Sustainability and ESG investment strategies. Prior to joining Dana, Lydia was a Managing Director at Big Path Capital (formerly Watershed Capital Group, a certified B Corporation). She was a Managing Director at UBS where she managed a global sustainability equity fund. Lydia is an advisor for Equarius Risk Analytics LLC and guest lectures at various universities on topics related to sustainability and portfolio management. Lydia graduated summa cum laude from the Pennsylvania State University and has an MBA in Finance and International Business from the University of Chicago.


[1] Source: IRENA.Org Article: How Falling Costs Make Renewables a Cost-effective Investment Date: June 2, 2020

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