Content provided by Grant Engelbart, CLS Research Analyst
Unlike most people, the sun is my enemy. I love being out in the sun, unfortunately I have about a 15 minute window before my skin starts on fire. The good news, for the large majority of people on earth, is that the sun is good. We can, at ever-increasing efficiency and reduction of costs, harness the power of the sun to power our homes, businesses, and even vehicles. The chart below from GMO shows the reduction in energy costs over the years and projections of those costs into the future.
Of course, the sun doesn’t always shine in many of parts of the world (as I look out the window at the snow covered ground). As air moves from the sunny high pressure system to the low we get caught in the cross-fire and stuck with the wind. As the costs for constructing and operating wind and solar farms decreases, and a little help in the form of tax incentives, these options are becoming competitive and viable. Certain solar farms can store energy for up to 40-hours. Berkshire Hathaway owns MidAmerican Energy, and has just begun work on a 3000+ acre solar farm in California with panels that track the sun’s movement, capturing 25 percent more rays (if Warren is involved there’s got to be value right!). There is evidence to suggest that the manpower, science, and money flowing in the fossil fuel industry has become focused on these types of alternatives.
Recently, a bill has been introduced in the Senate called the “Master Limited Partnerships Parity Act” (MLP) (stop yawning) which could potentially enable clean energy projects to take advantage of the MLP structure that is currently available for oil & gas companies. This could significantly lower the cost of capital for these industries, and help with funding for the large up-front costs associated with wind and solar farms.
Anyway…. once it became news that this bill was being reintroduced last week – solar stocks have been on a tear. ETFs have made alternative energy very investable, and I personally believe they have some of the best ticker symbols out there. Guggenheim Solar (ticker symbol: TAN) is up 26 percent in the past month. First Trust Global Wind Energy (ticker symbol: FAN) has managed to squeeze out a 6 percent return. As most have probably stopped reading at this point, I’ll save the equity valuations of these industries for another time. Alternative energy sources only account for about 10 percent of worldwide energy consumption now, with solar and wind combined less than 1 percent. That is a lot of potential! The U.S. Department of Energy has set goals to produce 20 percent of all U.S. power from wind, and to make solar energy as “cheap as traditional sources of electricity.”