Conor Walsh, Assistant Professor of Business at Columbia Business School, said that Utah is uniquely positioned to experience “ludicrously cheap” energy costs and significant economic growth in the not-too-distant future if the is state willing to facilitate in the rapidly proliferating trend toward renewable energy sources.
Walsh gave a lecture and participated in a Q&A as part of the annual “Econ Week” event staged by the David Eccles School of Business’s Marriner S. Eccles Institute for Economics and Quantitative Analysis,
and he suggested that continued declining capital prices for manufacturing solar panels and wind turbines could yield a massive opportunity.
The major beneficiaries of falling clean energy prices, he noted, will be in places that are naturally endowed with sunny or windy conditions, with lots of open land, but that have relatively small populations. Places like, say, Utah.
First of all, there’s the growth factor. In Walsh’s recent research paper, “The Economic Impacts of Clean Power,” he points out that the transition to clean energy in the United States has accelerated over the past decade, with solar and wind power contributing nearly 15% of total electricity generation as of February 2024. He expects this figure to grow.
Why? Well, the costs for solar energy have decreased about 15% a year, and wind energy has decreased 4% per year. Last year alone, solar panel prices fell an astounding 50%. Manufacturers are now mastering production techniques and eliminating waste; improved battery chemistry is leading to increased storage capacity; new technology innovations continue to come online; and new solar and wind plants are built using “modular technology” (rows upon rows of the same tech). As a result, costs of renewable energy power plants are falling quickly relative to coal-fired power stations and natural gas plants, which are “mature technologies” with limited capacity for technological improvement and significant ongoing fuel costs.
Ergo, as costs decrease and availability increases:
“If you project forward, say in 2040, on what people think these things are going to cost in the future, you’re looking at basically a four-fold reduction in capital costs from this point,” said Walsh. “What does that mean for prices? … In Arizona and Utah, importantly, power is probably going to cost about $15 per megawatt hour. How does that compare to today? Power can go anywhere from $50 a megawatt hour all the way to $100 a megawatt hour in the northeast.”
Beyond having access to cheap energy, Walsh continued, Utah could benefit another way.
Because western states tend to have so much more open spaces and available land, they have much greater capacity to host power stations and transmission infrastructure. Increased production would be good for labor, wages, and economic growth, he argued.
“Salt Lake City, if you do some simulations, get a 5% wage change — wage growth — just from transitioning over to renewable energies,” said Walsh. “If you could build that and connect the west to the east with lots of transmission capacity, you basically double the economic prize on offer — double the wage gains, double the GDP growth. What would that look like? If you were able to get the whole country connected to Utah’s cost of solar by 2040, you’re looking at $300 billion extra GDP a year. That almost justifies any investment you could think of.”
There are, of course, risks and impediments to these unfettered riches.
Growth in renewables tends to happen very fast in decentralized markets, such as Texas and California. A downside of this disruption is it threatens profits and employment in the fossil-fuel industry.
Meanwhile, in contrast, to decentralized markets, Utah features a “vertically integrated structure” — in effect, one monopoly running the generation, transmission, and distribution. Rocky Mountain Power supplies about 80% of Utah’s power, but because it has significant legacy assets in coal and gas (which are fully depreciated and fully paid off), it’s less incentivized to invest in solar and wind.
Despite such potential roadblocks, Walsh expects that Utah will ultimately capitalize on the unique geographic, demographic, and environmental factors that give it such economic potential.
Indeed, to some degree, he sees it as inevitable.
“The raw cost of burning coal? Something like $20 a megawatt hour, just for the coal. There’s also depreciation cost, maintenance cost, paying your workers. But within the next 10 years, new-build, all-in solar with batteries will cost less than that,” Walsh said. “So even if you’re Rocky Mountain Power and you’ve got these legacy assets, if you don’t transition to renewables at that point, you’re ignoring your fiduciary duty for shareholders, you’re not maximizing profits. So, I think we’re gonna see an about-face on this at some point.”