How wind and solar became America's cheapest energy source

• The price of renewable energy has been dropping exponentially over the past decade—and shows no sign of reversing.
  
• In most of the U.S., it's now become cheaper to build a new solar or wind farm than to keep an existing coal plant running.
  
• Part of the reason is better technology—solar panels and wind turbines have gotten more effective at generating power 
• Economies of scale help, too: "When renewables get cheaper, we buy more, and then they get even cheaper and we buy even more," one expert said.

In late 2009, as America was clawing its way from the worst recession in 80 years, fiscally pressured local and state governments were doing everything they could to slash costs. That included cutting back on clean-energy initiatives. Here's how the New York Times described the case of Durango, Colorado, a town of 18,000 in the southwest part of the state:

But for many other groups, even green-minded ones, the higher price of clean electricity has caused soul-searching and hesitation. Early this year, the city government of Durango, Colo., stopped buying renewable power from its utility, saving $45,000 a year. The clean electricity had cost 40 percent extra.

Ten years later, nearly one-third of Colorado's electricity comes from renewable sources, the state's biggest utility is moving to entirely carbon-free energy, and its voters have elected a governor who promised to set the most aggressive clean-energy standard in the nation. 

That story is mirrored in dozens of other states, where consumers have demanded cheap power and corporations have moved into clean-energy projects in droves. Behind this shift is not just increasing environmental awareness, but simple economics. The price of renewables has been dropping exponentially—and shows no sign of reversing.

Rapid price drops

In most of the U.S. today, it's cheaper to build a new solar or wind farm than to simply keep an existing coal plant running. Most of those cost decreases have happened just in the last 10 years, to the surprise of some energy analysts.

Part of this is technological improvement—solar panels and wind turbines have gotten steadily more effective at generating power. But most of it is economies of scale, said Rushad Nanavatty, principal at the Business Renewables Center at the Rocky Mountain Institute, a sustainability think tank.

"When renewables get cheaper, we buy more, and then they get even cheaper and we buy even more," Nanavatty said. "When you're talking about wind and solar, the cost declines are driven mainly by manufacturing volumes and the cost declines that come with it."

Since the first large-scale wind project in the U.S. took root in California in 1981, wind turbines have gotten taller and wider. Taller turbines are more effective because they can access the steady wind that blows at higher altitudes, while larger rotors mean turbines can create more energy. A mid-sized turbine today creates as much energy as 15 of the earliest model.

Larger turbines also mean lower installation and construction costs. "Instead of deploying 10 turbines and moving your crane from site to site to build 10 foundations, you only have to build one foundation, and you are able to access more wind," said John Hensley, vice president of research and analytics for the American Wind Energy Association, or AWEA. Modern turbines also make it easy to identify problems and breakages, so repairs take less time and often don't require shutting down the machine.

Corporations bought in

Utilities—the large entities that historically buy power and sell it to homes and businesses—are no longer the only buyers for electricity. Increasingly, big business is buying power directly. 

What started as a marketing exercise to win over the "green" consumer has become more and more of an economic proposition, as corporations from AT&T to Anheuser-Busch InBev sign deals to purchase large amounts of clean power.

"In many cases, the motivation is to do the right thing, but what makes these deals viable is that it makes economic sense," said RMI's Nanavatty.

Last year, a record 37 corporations signed contracts for wind power, with nearly half of them being first-time buyers, according to AWEA. Contracts like these kick off the process of building new wind resources, which will be coming online in future years. The pipeline of projects seems long. The group noted that among the "Renewable Energy 100" — a group of companies that pledged to move to 100 percent clean energy—just 25 percent of the total corporate demand has been met to date.

The power of groups

It's not just big business. Medium-sized business, increasingly, is getting in on the renewables game.

A handful of companies and nonprofits last month launched the Renewable Energy Buyers Alliance, a project to make it easier to buy clean power projects. The group's aim is to grow corporate renewable energy deals threefold in the next six years.

That matters because, as clean energy finds more and more buyers, these customers will need help navigating the byzantine world of electrical systems and electric purchases, where the barriers to entry can be high.

"When you look at the market for deals, typically only a very large, sophisticated buyer with a large energy team was in a position to transact," Nanavatty said. "Now you see a situation where a group of buyers, each one of which might have a relatively small load, can come together and go to market with a much larger volume that would be attractive to developers, and make a deal that much more viable."