Whatever Happened to Alternative Energy?
Energy is a global need that will always be in demand in some way or another. It’s not a defensive sector like consumer staples or utilities though – energy is highly cyclical and tied to global economic supply and demand. As such, energy companies tend to undergo regular ups and downs along the business cycle.
The energy sector has largely been the realm of oil, gas, and coal, while green energy has been relegated to speculative investments fit for those with a high risk tolerance. A few years ago, green energy like solar was a daily headline, but since OPEC began cutting oil production and oil prices began to rise again, alternatives have fallen by the wayside.
But alternative energy isn’t gone – in fact it’s the only obvious long-term choice for global sustainability. With the coal industry gasping its last breath, green energy companies are poised to take over the power vacuum that coal will leave behind.
Predicting the future of energy
Since the advent of the industrial age, coal has been the primary energy source for every country. Even looking back at the last decade, coal has been vital for energy production. But the industry may have finally been supplanted by something else. Coal is responsible for less energy these days, and few new investments are being put into coal production. As a polluting fossil fuel, coal isn’t a popular form of energy either.
One of the reasons coal has previously been so popular is how cheap it is. In fact, the biggest argument against other energy sources like solar has been their reliance on government subsidies in order to make them competitive with coal. But technology has been improving for decades, and green energy isn’t the unrealistic cost/benefit outlier it used to be.
As of 2016, coal prices averaged around $0.05 cents/kWh, with natural gas hovering around $0.03 cents/kWh. But a commercial PV solar company beat that at $0.029 cents/kWh without subsidies – officially making solar the cheapest energy source.
As costs go down, the end of coal’s reign might seem obvious, especially considering the negative impact it has on the environment. But there’s another major obstacle for alternative energy to overcome: energy storage. Solar and wind power is largely dependent on weather conditions. A large amount of unobstructed sunlight is necessary for solar installations, which makes sense for places like Phoenix but becomes less reliable in places like Seattle. Wind power relies on relatively high and consistent sources of wind. Because alternative energy is so reliant on weather and geography, worldwide implementation is a challenge.
New advances in battery technology led by companies like Tesla Motors are making the alternative industry more competitive though. Within the next decade, coal might only have a small regional impact on the globe while solar and wind provide the majority of power.
Despite the current market focusing on oil prices, the future of energy is still in alternatives like solar and wind. Long-term investors should ignore the short-term news and focus on longer fundamentals. Companies like First Solar will likely grow larger and become increasingly important in the energy grid space.