A Peek Into the Energy Crystal Ball

A year ago, our energy future seemed a simple thing to predict. Oil prices were reasonable, the Middle East seemed to be relatively stable, and an abundance of domestic natural gas helped keep prices low.

But that didn't last very long. You may have heard of the little oil spill that happened in the Gulf of Mexico, which put a temporary halt on offshore drilling. A little revolution in Bahrain spread to Egypt and Libya, and there are concerns it could spread to extremely important oil producers like Saudi Arabia. And when the earth rumbled in Japan late last week, everything we thought we knew about nuclear energy was put into question.

So where do we go from here? Although we've seen a dip this week, it doesn't appear that oil prices are heading significantly lower in the long term, and any growth in the nuclear power sector will likely be slowed by heavy scrutiny in the future.

The market certainly thinks nuclear power is about to go dark, sending uranium supplier USEC (NYSE: USU  ) down 10% yesterday, with Uranerz Energy (AMEX: URZ  ) down 17% so far today.

This past weekend, politicians hit the television circuit to try to calm the worries over nuclear power plants already in the works -- but the damage has already been done. It's likely we're headed toward a "not in my backyard!" period for nuclear power for at least a period of time.

So what do we do now? Oil and gasoline prices are up, nuclear power looks more dangerous than it did a week ago, and the Gulf oil spill is still fresh in the nation's memory. The answers to these questions are neither easy nor politically popular, but I'll take a shot by looking into my energy crystal ball.

Short-term solutions for a long-term problem
The phrase "drill, baby, drill!" is going to be back in our mainstream lingo very soon. In the short term, there simply isn't any energy source that can replace oil and natural gas in our economy -- there's just no getting around that.

That should be good news for offshore drillers like Hercules Offshore (Nasdaq: HERO  ) and SeaDrill Limited (NYSE: SDRL  ) . Expanded offshore drilling is the best way to expand oil production in the short term, despite the risks we saw last summer. Natural gas will also get some backing as domestic supplies increase. Whether you prefer oil or natural gas, any way to increase supply domestically will be viewed as a good thing.

The future beyond fossil fuels
The long-term solution is easier than most people think. For years renewable energy solutions have been falling in cost, becoming more efficient and growing in size.

Germany is leading the way with 80% of installed electric capacity being wind and solar power, although the amount of electricity generated would be lower than 80%. This is exactly where we need to be headed.

Wind is an abundant source of energy along our coasts, the most populated areas of the U.S., but has yet to be exploited. Current wind turbine designs have reached 10 megawatts offshore, and the bigger the turbine, the more cost effective it is.

Solar power is making big progress as well. Unlike just two or three years ago, solar energy costs are now cost competitive with peak power sources and are expected to meet grid parity in 2013 in some locations. And competition between Chinese firms like JA Solar (Nasdaq: JASO  ) , JinkoSolar and LDK Solar (NYSE: LDK  ) is just starting to heat up, which is good for ratepayers. Falling solar prices and increased competition will keep driving costs down.

With solar and wind you also don't have to worry about varying costs or whether you can replenish depleted resources. There's no such thing as "peak solar" or "peak wind." The only question is how to smooth out the power supplied to the grid but battery makers A123 Systems (Nasdaq: AONE  ) and Ener1 are working on solutions for that. By the time wind or solar power become big enough to be a significant portion of our electric power, we'll have those peaks and valleys evened out.

Transportation is also taking steps away from oil with a slew of electric vehicles hitting the market. They may not be widely adopted yet, but in the long term they will be a part of the solution.

With nuclear power likely hitting serious challenges ahead, I anticipate a renewed excitement in offshore drilling -- but the long-term questions are much harder. How do we wean ourselves from fossil fuels without subsidizing so frivolously that we go broke in the process?

My crystal ball tells me the falling cost of solar energy will play a big role in our energy future. What do you think our energy future holds? Let me know in the comments below.

Fool contributor Travis Hoium is long First Solar, SunPower, and is long JA Solar via selling put options. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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.


Read/Post Comments (15) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 16, 2011, at 11:01 AM, curt00 wrote:

    Dear Travis:

    Solar companies have soared in revenue and profits, faster than most other growth companies.

    Yet, in the past 1-2 years, there have been a lot of negative press, downgrades, short selling and bearish articles pushing solar stocks down to unbelievable levels. Their share price is lower than it was in 2007, but their 2010 revenue is approx. 300% higher.

    There is a lot of frustration amongst solar investors with these Wall Street analysts, rating agencies, publications and short sellers. They claim that there is stock manipulation. One of the investors gives several reasons why the oil industry may be oppressing the solar stocks. Washington also has a motive to oppress Chinese solar stocks. Others claim that there is naked short selling.

    There is mounting evidence that manipulation, or something very strange or bizarre at the least, is happening.

    Imagine this:

    A company’s revenue is dropping by 50% per year, losing money and gives you guidance that their revenue and losses will get worse in the next year and this is guaranteed because 90% of their customers have already committed by law that they won’t buy anymore. Despite this, a Wall Street firm gives the company a “strong buy”. The P/E goes from 70 to 80.

    This is the kind of rating that Wall Street gives.

    From 2007 to 2010:

    Revenue growth:

    JA Solar: 337%

    Netflix: 79%

    Salesforce: 121%

    Apple: 165%

    Net Income growth:

    JASO: 338%

    Netflix: 141%

    Salesforce: 251%

    Apple: 301%

    Amazon: 142%

    Share price change:

    JASO: -70%

    Netflix: 560%

    Salesforce: 111%

    Apple: 63%

    JA Solar expects 2011 shipments to be 50% higher with 90% of 2011's shipments already under contract. How many companies can say this?? With a P/E of 5, Wall Street downgrades JASO.

    Please read this for more information:

    http://seekingalpha.com/instablog/872074-curt0/143971-is-wal...

    Do you disagree with any part of that blog?

  • Report this Comment On March 16, 2011, at 11:10 AM, jimmy4040 wrote:

    Hmmm, how to put this politely. You're the opposite of correct!

    Wind and solar need nuclear more than anything else. For an explanation why, read this column from the New Republic:

    http://www.tnr.com/article/environment-energy/85289/nuclear-...

    Any energy company that looks at having to replace a planned reactor or an aging current one, would inevitably HAVE to choose fossil fuels, because nothing like the power available in them can be gotten from w and s.

    That doesn't mean that there aren't short term profits to be made in the w and s trade, but longer term they are not the future. Expect the Japanese to make a big push on hydrogen after this, because they are low on natural resources of all kinds, and their country is physically unsuited to large scale wind or solar, even if they wanted to.

    BTW, if you read the papers on which the article is based, you will find that they type of turbines and solar installations they are discussing are extremely vulnerable to natural disasters, much more so than any coal or nat gas plant.

  • Report this Comment On March 16, 2011, at 1:19 PM, sailrick wrote:

    I agree with the first comment bycurt00.

    There is a reason that renewables like solar and wind get slighted by analysts and right wing talk show entertainers like Limbaugh.

    Wall St doesn't like renewable energy and clings to the status quo of fossil fuels. The Wall St Journal is notorious for printing pseudo scientific global warming denier rubbish. The U.S. Chamber of Commerce, which is funded 50% by 16 corporations (though they claim to represent 4 million businesses) is a global warming denial misinformer as well. As someone who has spent at least 4,000 hours studying the subject and read at least 4,000 articles on climate change, mostly written by scientists, I assure you, there is no legitimate debate about whether global warming is real or that human's are causing it. But powerful interests want to perpetuate the myth that the science is not valid and that we can go on burning fossil fuels. The GOP is conducting a witch hunt in Congress, aimed at climate scientists. Only a handful of GOP congressmen are not global warming deniers, while scientists worldwide are nearly unanimous in agreeing with the IPCC. Virtually every major scientific organization in the world agrees, including every national academy of science in the world.

    I urge you to read:

    "Merchants of Doubt: How a Handful of Scientists Obscured the Truth on Issues from Tobacco Smoke to Global Warming"

    by Naomi Oreskes and Erik Conway

    "Climate Cover-Up": The Crusade to Deny Global Warming"

    by James Hoggan with Richard Littlemore

    "The Boiling Point" and "The Heat Is On" by Ross Gelbspan

    "Censoring Science: the Political Attack on Dr. James Hansen and the Truth of Global Warming" by Mark Bowen

    Unlike the absurd conspiracy theories of global warming deniers, the real scam is very well documented, with all the dirty details.

    Two years ago I was opposed to nuclear power. I still have grave concerns, but realize that it might be needed as part of the energy solution to fossil fuels, at least over the next several decades. The public bears the liability for any nuclear accidents, as they are uninsurable. It wasn't a bunch of hippies that put a stop to the growth of nuclear in the U.S. It was investors like bond issuers who were reluctant to take such big risks.

    Nuclear is very expensive, despite claims to the contrary. It is slow to build. A 1GW solar thermal plant with heat storage can be up and running in 2 years.

    If we develop solar thermal with heat storage on a large scale, much of our current base load power can be replaced. The challenge is getting the power distributed to the rest of the country from the southwest.

    Combining solar thermal with wind and solar PV could meet much of our energy needs. Solar thermal with heat storage makes it easier to integrate more intermittent PV solar and wind into the grid, because of it's dispatchable power. That is where solar thermal has an edge over base load coal and nuclear, which cannot produce dispatchable/load following power. We have 1,000 GW potential for solar thermal (or CSP) in the southwest states. We will need to develop long distance HVDC transmission lines to take full advantage of this. Solar trough type CSP plants with heat storage have capacity factors of about 50%. Power tower CSP plants, like those built by eSolar and Brightsource, have up to 70% capacity factors. The first plant with heat storage of 6 hours is being built in Arizona. Arizona has 285 GW potential. That's the equivalent of about 150 nuclear power plants, after adjusting for capacity factors.

    Any kind of power system can be vulnerable to natural disasters like earthquakes and tsunamis. At least with renewables there is no concern over releases of life threatening radiation or pollution. Offshore wind turbines would not be effected by a tsunami, as the wave at sea is very small. Solar thermal in the desert areas would not be effected by natural disasters, as these areas are not prone to hurricanes, earthquakes, tornadoes or tsunamis.

    We cannot choose fossil fuels for future energy needs. Not if we want a liveable planet for our descendents. Natural gas can help as a transitional solution to get off coal, but is not a long term solution, and is still a big emitter of greenhouse gases.

    Hydraulic fracturing may not be a reliable source of gas if threats of fresh water contamination prove to be a major problem. So far, there is a lot of evidence that this is true. Low prices for gas are not guaranteed in the future. Demand for gas as a cleaner alternative to oil and coal will also put pressure on natural gas prices.

    The cheapest solution is efficiency and conservation. We are very wasteful of energy.

  • Report this Comment On March 16, 2011, at 1:28 PM, NCbluesman wrote:

    Here's a link to an alternative energy cost comparison showing that solar costs 15-30 cents/kwhr vs Gas 4 c/kwh, Coal 5 c/kwh, Nuclear 13c/kwh.

    http://peswiki.com/index.php/Directory:Cents_Per_Kilowatt-Ho...

    Without goverment subsidies, solar is beyond the budget of most consumers. Right now we need to use what is affordable.

    There is a prediction that solor will fall to 3-4c/kwh when the silicon supply problem is fixed. Perhaps you can shed some light on that development.

  • Report this Comment On March 16, 2011, at 1:37 PM, sailrick wrote:

    I agree that Japan has few options for energy, due to geography. There is no excuse for the U.S., where vast amounts of land suitable to solar and wind are available.

    Remove all subsidies for fossil fuels and apply them to renewable energy. This wil do wonders. Oil has been subsidized since 1918 nonstop. Coal has been subsidized since 1932 nonstop. Globally, subsidies for fossil fuels are over $200 billion/year.

    "These oil industry subsidies are nothing to scoff at. In 2005, then-President George W. Bush authorized a total of $32.9 billion worth of new subsidies for the industry over five years, bringing the annual total of their subsidies to a staggering $39 billion. The new subsidies were put in place at a time when Americans were paying the highest price for gasoline at the pump in history, which coincided with the largest oil company profits to date."

    http://www.desmogblog.com/congress-seeks-end-billions-subsid...

    Current attempts by the GOP to cut funding for renewables is criminal. Several large solar installations in California, Nevada and Arizona are at risk due to this stupidity.

    They also want to cut funding for climate research, apparently so they don't have to acknowledge the truth. How can we develop sensible sustainable energy systems when one major party is in denial of well established scientific facts?

    The greenhouse effect has been accepted science for a century.

    Fourier calculates colder earth without an atmosphere (1824)

    Tyndall discovers relationship between CO2 and long-wave radiation (1859)

    Arrhenius calculates global warming from anthropogenic CO2 (1896)

    Chamberlin models global carbon exchange including feedbacks (1897)

    Callendar predicts global warming increase catalysed by CO2 emissions (1938)

    Revelle predicts inability of oceans to sequester anthropogenic CO2 (1958)

    from "The Discovery of Global Warming" by Spencer Weart

    the greenhouse gas effect was first proposed by Joseph Fourier in 1824, proven to exist by John Tyndall in 1858, and quantified by Svante Arrhenius in 1896.

    But for Rush Limbaugh and the Republicans and tea baggers, Global Warming is just an agenda cooked up by Al Gore and other liberals.

  • Report this Comment On March 16, 2011, at 1:39 PM, sailrick wrote:

    The U.S. gives fossil fuels TWICE as much as renewables receive in subsidies and tax credits.

    And the renewables number includes a big chunk for corn based ethanol, which no one except big industry thinks is a good idea.

  • Report this Comment On March 16, 2011, at 1:43 PM, sailrick wrote:

    The numbers you give for nuclear costs are probably low. New plants are much more expensive.

    Fossil fuel prices can only go up. Renewable costs are falling quickly.

    The real costs of fossil fuels are much higher than what you show. If the real cost of gasoline was obvious at the pump, it would now be about $8 gallon. A recent study showed that the real costs of coal are at least 15cents/kWh more than the nominal prices.

    Health costs alone are probably about $150 billion a year, just in the U.S.

  • Report this Comment On March 16, 2011, at 1:46 PM, sailrick wrote:

    Any comparison of fossil fuels costs with renewable costs, that doesn't include the externalized costs of fossil fuels is just a lie.

  • Report this Comment On March 16, 2011, at 2:21 PM, TMFFlushDraw wrote:

    @curt00 and others:

    I agree that solar stocks are cheap. If you look at my disclosure you'll see that I'm long FSLR, SPWRA and JASO (via puts). I have also been ragging on analysts about how wrong they are about solar for quite a while, see link below.

    http://www.fool.com/investing/general/2010/11/19/wall-street...

    I will say that the reason solar stocks tend to lag behind what we may think they should trade at is the potential pressure on margins going forward. We saw costs become stagnant and even rise at some manufacturers in Q4 2010 so if sale prices fall that will put a lot of pressure on margins, and in turn profitability.

    In essence, I agree, but I understand why not everyone has jumped on the bandwagon in the short-term.

    With an eye on 10-20 years from now there is no question in my mind wind and solar will be close to 100% of any new energy installations. But that's a long ways away and Wall Street can only see next quarter at best.

    Travis Hoium

  • Report this Comment On March 16, 2011, at 3:07 PM, jimmy4040 wrote:

    I'm not making any political argument because I do believe in global warming. However the idea that we can ever generate enough power from wind and solar to run the economy is the sheerest fantasy. You are talking about replacing 90-95% of the power generating capacity of the US. the capital required would be astonishing.

    Also, as soon as your announced the attempt all your projected numbers would go out the window because there are only about 5-6 genuine lithium producing countries world wide versus 12-15 major oil producers. If you like OPEC or you like oil future speculation, you would LOVE lithium.

    Furthermore China controls the rare earth market completely. We don't even have ONE operating mine in the US. All it would take is for a State department official to mention human rights at a dinner somewhere and suddenly there would be a "shortage" of r e available to the US, as Japan found out last year.

    Alternate energy people are good people, but they live mainly in labs and college classes, not real world markets.

  • Report this Comment On March 16, 2011, at 3:21 PM, ChangItOrDrownIt wrote:

    I am long on LDK, Beacon, SPWRA, HOKU, and (got none of) CHOMF. CSP storage of energy is excellent, wind and solar are in great need of grid conditioning/storage inclusive of high power transmission. To compete with nuclear we need consistency and subsides. I believe with all my being Beacon has the solution. Please take a moment and research the Beacon flywheel. After 11 years perfecting their flywheel, the first commercial completion in New York happened in January 2011. A Great/frequency conditioner and energy storage system is here! I vote with my dollar for our energy future first, then I vote to make money.

    ChangeItOrDrownIt

  • Report this Comment On March 16, 2011, at 11:36 PM, Ghaud wrote:

    It sucks when people quote news articles from authors that are unreliable....might as well be gossip.

    As for solar energy. Here is a simple calculation.

    3,953,000,000,000 kWh used by the USA per year or lets just say 4000 tWh to make is simple.

    Divide 4 trillion by 365 days = 10,958,904,110 kWh/day

    1 200Watt solar module placed in Arizona can make an average of 1000Watts per day or 1kWh.

    So basically it will take 11 billion solar modules.

    1 solar module is about 1.5 square meters +-

    Size of 11 billion solar modules = about 16.5 billion square meters or 16,500 square kilometers or 6370.6 square miles.

    For energy losses increase 10% = 7,000 square miles.

    Arizona is 114006 square miles total.

    Beyond price...this figure shows the size of the PV plant necessary to produce the yearly electrical energy consumption stated by the EIA in 2009.

    http://www.eia.doe.gov/aer/pdf/pages/sec8_8.pdf

    Currently producing all the electricity via solar energy is insane and impossible but this figures shows the necessary land allotment. Typically the best scenario is to spread out generation to where there is usage so this size becomes minute at best.

    Peace!

  • Report this Comment On March 17, 2011, at 12:08 AM, TMFFlushDraw wrote:

    @Ghaud

    Your ballpark seems pretty accurate. I remember hearing from a prof. at Berkley that if we were able to capture all of the solar energy that hit the Mojave Desert it could power the entire world. The Mojave is ~25,000 square miles and considering the capacity factor of solar modules you already have built into your numbers that seems conceivable. The Mojave example has always stuck with me because it shows the incredible potential of solar power.

    @jimmy4040

    I guess the point is, today it seems like a fantasy but in another 10 years the capacity and cost of solar manufacturers will make adding 30 or 40 GW a year of solar in the US seem like a breeze. That's also why I put it as a long-term solution. It's not going to happen today, but in 10 or 20 years it will.

    Travis Hoium

  • Report this Comment On March 19, 2011, at 7:35 PM, DDHv wrote:

    For right now, solar thermal, as in building heating and solar hot water, pays off. And better than a bank account!

    Per house heat, several of us in the Dakotas are using fans to blow summer air through the basement, with dehumidifiers to remove the moisture. Cheap cooling, and after several years, it is having a positive effect on my late fall and early winter heat bills. ;-))))

  • Report this Comment On March 19, 2011, at 7:36 PM, DDHv wrote:

    As the soil under the building warms up. Apologies for not making it plain.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1459086, ~/Articles/ArticleHandler.aspx, 9/3/2014 3:05:44 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement