How Innovation Transformed Energy in 10 Short Years

By Markets Fool.com

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A decade ago, the idea of a solar home community would have been crazy. Today, it's a reality. Image source: SolarCity.

No one could have predicted how fast the energy industry has changed in the last decade. Ten years ago the U.S. was heavily reliant on foreign oil to power its vehicles, coal was the dominant energy source for electricity, and new industries like electric vehicles and solar energy were a pipe dream that seemed unlikely to ever catch on.

Since then, the energy industry has been turned on its head. Here are just a few of the amazing developments that we've witnessed over the last decade.

What dependence on foreign oil?
The most dramatic change in energy over the past decade is the boom in domestic oil production and a surprising decline in oil consumption domestically. Combine the two and you have a drop in net oil imports from 60.3% of consumption in 2005 to 26.8% so far this year, a trend that shows no signs of slowing.

Below is a chart showing the near-doubling of U.S. oil production, along with the slow decline in consumption. In the red line you can see how fast net imports of oil have fallen.

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Data source: U.S. Energy Information Administration. Chart by the author.

A decade ago, there was a great deal of concern about our dependence on foreign oil and the implications of increased oil demand from sales of trucks and SUVs. Now, Saudi Arabia fears the U.S. shale oil market so much that it's flooding the market with oil to squeeze out shale drillers.

On the demand side, the U.S. has passed CAFE standards that will require 54.5 mile per gallon fleet efficiency by 2025. Our days of being dependent on foreign oil are almost over, and (as I'll cover later) the days of being dependent on oil at all may be coming to an end.

Natural gas became a powerhouse
Shale drilling didn't just help oil production, it made natural gas a real power in the U.S. at the expense of coal. At the start of 2005, coal provided 52% of the electricity in the U.S. to 15% for natural gas. Today, coal is just 37% of the electricity generation market, while natural gas has nearly doubled to 28%.

Image source: U.S. Energy Information Administration.

This is where the biggest shift has taken place on the electricity side of energy. But it's not the only source of electrical energy that consumers and investors should pay attention to.

New energy sources have become competitive
If you told someone in 2005 that by 2015 solar energy would account for 32% of all new electricity generation in the U.S., they would have said you're crazy. The idea that a rooftop residential solar system from a company like SunPower (NASDAQ: SPWR) orSolarCity (NASDAQ: SCTY) could actually save homeowners money would be completely foreign in 2005. But that's exactly what has happened.

The amount of progress is incredible in a very short time. Since 2012, SolarCity has lowered its costs from $4.73 per watt to $2.86, showing a bit of that progress. SunPower has built a project in Chile that sells electricity into the competitive wholesale market -- without subsidies. Nearly any way you measure it, solar and even wind energy is competitive with fossil fuels for new generation.

On an industry wide basis, you can see below that, according to GTM Research, the cost to install solar in the U.S. has fallen over 50% for all size systems. And that's in just the last five years!

Data source: GTM Research. Chart by the author.

The other new energy technology that could change energy forever is the growth in electric vehicles. A decade ago, the EV industry was non-existent outside of recreational vehicles, while in 2014 321,000 EVs were sold worldwide.

Both solar energy and electric vehicles are still a small share of their respective markets, but they both have incredible momentum because they're cost competitive with conventional energy sources. And that's a big development in the last decade.

The energy revolution has just begun
When you think about the progress made in shale drilling, fuel efficiency, solar energy, and electric vehicles in the last decade, the energy industry may be unrecognizable in another decade. Cleaner, more renewable energy sources are taking over, not because of environmental concerns, but because they're the lowest cost option. The revolution has just begun, and for investors who can adapt there will be a fortune to be made in the next decade.

The article How Innovation Transformed Energy in 10 Short Years originally appeared on Fool.com.

Travis Hoium owns shares of SunPower. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. 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.