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.