Obama Should Focus on Green Today

Today is the big day. President Barack Obama is set to address the nation about how he proposes we create jobs and get the country back on track. Yesterday, fellow Fool David Lee Smith penned an article titled "Obama Should Avoid Green on Thursday" and as the resident green writer at The Motley Fool, I feel compelled to respond.

Stock prices don't make a business
Solar stocks have struggled this year for a variety of reasons. Earnings are down because of feed-in tariff uncertainty in Europe, profits are down, and some solar manufacturers have filed bankruptcy. But don't mistake that for the death of the industry.

1. A shakeout is not only good for the solar industry, it is absolutely necessary, and a normal part of the business cycle. Solyndra's technology never really stood a chance against the falling costs of more traditional cells and panels from the likes of LDK Solar (NYSE: LDK  ) , Trina Solar (NYSE: TSL  ) , and Yingli Green Energy (NYSE: YGE  ) . More companies will file for bankruptcy, leaving stronger manufacturers with a bigger piece of the pie.

2. Profits are falling because module prices are down. Falling module prices mean lower costs for each kilowatt-hour of solar electricity. Lower electricity costs will lead to higher demand for solar power. It's a reinforcing loop we should promote.

3. Solar stocks have always been volatile and don't always reflect the strength of the industry. Most Chinese manufacturers like Suntech Power (NYSE: STP  ) trade with single-digit P/E ratios, unheard of for a business growing double digits every year. That's value, not a vanishing industry.

4. The solar industry now employs 93,500 people directly or indirectly in the U.S. and is one of the few good things we have going. With installations up 66% over the past year, job growth is strong while the rest of the economy is slashing jobs or holding steady. Why not invest more in an area actually creating jobs?

Misinformation and dated information on subsidies continues
Renewable energy bashers like to point to "unsustainable subsidies" as a major reason renewable energy isn't worth investing in. However, they fail to remember that most coal and natural gas power plants were built decades ago, so cost comparisons are irrelevant. And no one likes to mention that coal (ahem, railroad giveaways) and nuclear plants (cough, limited liabilities) benefited greatly from government subsidies. But most troubling, very few understand what renewable energy really costs.

In 2007, when David Lee Smith cited $24.34 per megawatt-hour in subsidies for solar, First Solar's (Nasdaq: FSLR  ) panels cost $1.23/watt to manufacture. That figure has since fallen 39% to $0.75/watt. And in the last two years, the balance of system costs have fallen 29.3% from $1.40/watt to $0.99/watt. 2007 might as well have been a half-century ago in the eyes of solar.

So what does solar really cost? Of course, it varies by location. A common figure often quoted for cost to install a watt of solar is $3. If an investor expects a 10% return on investment and a panel was at a 20% capacity factor, that investor would be paying $0.17 per kwh for solar power, about $0.02 higher than retail prices in California, for solar power. First Solar thinks it will bring that cost of energy to between $0.10 and $0.12 in the next three years, lower than retail electricity in much of the country.

With solar power generating 0.5% of our electricity today, how much would it cost to increase that to 2.5%? Based on a $0.17 cost per watt, the average bill would go up $1.23 per month. A total of $2.1 billion per year. This would have the effect of lowering the cost per watt in the future, by the way.

Getting subsidies right
What Obama should focus on is getting subsidies for renewable energy right to create jobs. We've demonstrated that giving loan guarantees or grants to solar manufacturers to build manufacturing plants in the U.S. is the wrong approach. We should let the market decide where manufacturing takes place; we should focus on where installation takes place.

Installation will have not only a direct effect of creating temporary and permanent jobs to build and maintain plants, it will also have positive side effects. As manufacturing costs continue to fall, manufacturers are already moving operations closer to demand sources. First Solar is building another U.S. plant in Arizona, while SunPower (Nasdaq: SPWRA  ) and Suntech both operate U.S. plants.

As solar power becomes less expensive and gains market share, new technologies will also be needed to store power and eliminate the need for backup, a beneficial side effect. A123 Systems (Nasdaq: AONE  ) is among the companies working on grid storage, but until solar or wind are a significant portion of generation we won't need energy storage, a key to making it a reality.

What we should do
How should we invest in green jobs? We can start by building transmission lines to parts of the country that are windiest and sunniest to eliminate that roadblock from investment. Second, we can set up a renewable energy reverse auction for medium-sized projects, modeled after California's new system, in which states would set their own renewable energy goals. Finally, we need to encourage homeowners to take the leap into renewable energy. The government could do this by setting feed-in tariff rates for rooftop solar with a standard reduction in the rate based on how much is installed every six months, a la Germany's new feed-in tariffs. This would put construction workers to work, ease demands on an aging grid, and eventually bring manufacturing jobs to the U.S.

I hope President Obama outlines some smart investments in green energy tonight. It's the right thing to do, and it's long overdue.

What would you like to hear from Obama tonight?

Fool contributor Travis Hoium owns shares of First Solar, LDK Solar, SunPower, and has sold puts in SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Motley Fool newsletter services have recommended buying shares of First Solar. 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 (12) | Recommend This Article (5)

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 September 08, 2011, at 12:00 PM, Triller wrote:

    Obama should lift restrictions on coal and oil and use these technologies, that run the country's electricity by the way, proven technologies and jobs, and future considering 40% of the country's electricity is provided by coal and since we are starting a coal supercycle the country could benefit from this financially. Asia, India and the rest of the world need steel, metallurgic coal and Australia lost the market when they got flooded last summer. This opened the door to the USA coal market and stifling the industry is just stupid. We don't have sophisticated alternative energy superstructure in place, the technologies we are depending on don't have it yet. We need coal and oil for at least 10 years while we develop alternative options. Obama needs to lift the restrictions he and his administration put in place and force these industries to make the changes, slowly and surely. We need cooperation, not constipation. We need jobs!

  • Report this Comment On September 08, 2011, at 1:08 PM, sailrick wrote:

    Oil has been subsidized since 1918 nonstop.

    Coal has been subsidizd since 1932 nonstop.

    Subsidies and tax credits for fossil fuels in the U.S. are TWICE as much as for all renewable energy combined.

    Triller

    No, what is stupid is continuing to use coal as an energy source.

    Apparently, you must be a global warming denier. Okay, you probably would argue that you are a skeptic. I can almost guarantee that you are not a skeptic.

    That's based on the 4 years and approximately 7,000 hours I've spent studying AGW and the supposed debate about it. Unless you have thoroughly studied the science, you are not a skeptic, just a denier.

    And I am not talking about reading the psuedo-scientific bunk at sites like WUWT or listening to the complete disinformation from news sources like FOX, where nothing ever said on the subject is honest science.

    Do some reading.

    "Merchants of Doubt" by Naomi Oreskes and Erik Conway.

    and:

    "The Inquisition of Climate Science" by James Lawrence Powell

    You might also read the article "Climate Change and Disinformation" at

    http://energysolutionswecanbelievein.blogspot.com/

    There is no debate. There are only a handful of industry funded climate scientist shills, who also just happen to be free market/no regulation/anti envirionmental ideologues, that don't agree. Contrary to what delusional deniers think, the science just keeps getting stronger and stronger.

    Virtually every major professional scientific organization in the world and 98% of climate scientists agree on AGW. AGW is the most thoroughly peer reviewed theory in the history of science, with well over 10,000 research papers backing it up.

    Fossil fuel prices will only increase, while wind and solar prices will only decline.

  • Report this Comment On September 08, 2011, at 1:11 PM, sailrick wrote:

    GetEnergySmartNow had a good article yesterday on what Obama should do about jobs, including support for renewables and efficiency.

    http://getenergysmartnow.com/2011/09/06/jobs-jobs-jobs-fast/

  • Report this Comment On September 08, 2011, at 1:41 PM, Brettze wrote:

    As the old saying goes, nobody can control the weather , right? Wrong! With billons and billons tons of carbon emissions every year, we are already influencing the weather patterns. I am sure that we are now running supercomputers to figure out where the weather may be heading ...

  • Report this Comment On September 08, 2011, at 1:42 PM, Brettze wrote:

    I am musing at the thought of the vast Pacific Ocean and other oceans where hardly nobody exist let alone the continents on Earth, but the vast oceans is losing the fight with mankind..

  • Report this Comment On September 08, 2011, at 1:43 PM, yoblakejones wrote:

    Great article, Travis. And I completely agree with you regarding "what we should do." There are significantly more jobs in solar system installation than there are in manufacturing - and jobs installing solar panels on rooftops can't be exported offshore.

  • Report this Comment On September 08, 2011, at 1:47 PM, Brettze wrote:

    The key to our successful energy policy is namely energy conservation ... We havent even begun on energy conservatoin... The construction company ought to fire all HVAC guys who are clueless about energy conservatoin.. HVAC guys ought to go back to drawing boards and come back with better designs to help reduce energy consumptin in homes, retail and office buidlings.. Automatic thermostats is a phony red herring ... It requires complete rethinkings about designing to take advantage of outdoor temperatures.. Air conditioners and heat furnaces ought to take a backseat ... They are energy guzzlers.. We must do away with them and start looking at outdoor temperatures that is going up and down through the day and take advantage of that...

  • Report this Comment On September 08, 2011, at 4:57 PM, JPAKolypse86 wrote:

    I agree with the majority of your article Travis. Although I believe the problem with solar is that it is unreliable, that is, you can't really predict the weather several weeks out. This also has an impact on other energy producers that try to decide how much they will need to produce for their customers. The German energy industry has become a lot riskier since solar was subsidized.

    The current administration made it a point to throw money at the solar industry in the hope that it will develop like the oil and gas industries. That's fine if you do your due diligence. But they invested in a company that was already defunct, most likely because their zeal for the green movement blinded them to the reality of the business. Their beliefs combined with public sector inefficiency meant that this was going to happen eventually.

    An editor for The Atlantic has a good quote for this situation.

    "When banks engage in this sort of behavior, we call it a bubble, and try to figure out how to fix things so they won't do it again. When government agencies do this, we call it a weekday."

    The quote is in this article towards the bottom.

    http://www.theatlantic.com/business/archive/2011/09/feds-rai...

  • Report this Comment On September 08, 2011, at 5:16 PM, robwg wrote:

    "Green energy" is a huge waste of government money. Look at the "success" in Spain, the largest subsidizer of green energy in the EU. I hope he doesn't waste one penny on an industry that creates few jobs and burns cash. What we need are ordinary jobs in construction, retail and manufacturing that can be filled by the people who are without jobs, not jobs in a not-ready-for-prime-time industry that will send most of it's profits to China. Lets build/fix roads and bridges, not tilt at windmills.

  • Report this Comment On September 08, 2011, at 5:43 PM, TMFEldrehad wrote:

    <i>Renewable energy bashers like to point to "unsustainable subsidies" as a major reason renewable energy isn't worth investing in. However, they fail to remember that most coal and natural gas power plants were built decades ago, so cost comparisons are irrelevant.</i>

    That fossil fuel plants were build decades ago does not make cost comparisons irrelevant.

    I can keep driving my old car, or buy a new one. That I paid for the old car long ago makes the cost comparison irrelevant? I'd argue that it's of particular relevence.

    When dealing with competing against a sunk asset base (plants paid for long ago), anyone looking to steal existing market share must pit their total costs against the incumbents' marginal costs. Again, keep fueling and maintaining the paid-for car, or buy a new one?

    <i>that investor would be paying $0.17 per kwh for solar power, about $0.02 higher than retail prices in California, for solar power.</i>

    The Golden State enjoys some of the highest utility rates in the country. If it's $0.02 higher in California (the state I call home), the difference is likely even greater in the rest of the country.

    Part of the reason those utility rates are as low as they are for fossil fuel generated electricity? It's the very fact that those plants were, indeed, built and paid for long ago.

    I'm not arguing whether or not we should have subsidies, or if so, where they should be targeted -- but again, I don't think that cost comparisons can be deemed irrelevant. It's a game of marginal cost against marginal cost -- and it's highly relevant.

    And with today's technology, fossil fuels still win that battle.

  • Report this Comment On September 08, 2011, at 8:28 PM, TMFFlushDraw wrote:

    @TMFEldrehad

    I should have specified that the comparison for NEW generation is irrelevant with generating power that was built 50 years ago. We are going to have to build new generation in this country to replace old plants and take up growing demand.

    The discussion we should be having is how much does solar cost vs. new natural gas or coal plants. And more specifically, vs. peak energy producing plants. Does fossil fuel still win that battle? I think not.

    California and New York are attractive for distributed solar because grids are stretched during peak seasons/times and distributed solar takes peak energy demand essentially off the market (by reducing a household's demand). The cost comparison for this shouldn't be what a coal plants costs are, it's whatever the most expensive electricity is in CA (around $0.59/kW-hr if I remember my California Edison data sheets correctly).

    You can drive your old car for a while, but eventually you're going to have to replace it. And eventually a Toyota Prius is going to make more economic sense than a Model T.

    The marginal cost of a Model T is only relevant until it stops running.

    Travis Hoium

  • Report this Comment On September 09, 2011, at 9:27 AM, TMFEldrehad wrote:

    Travis,

    I agree with your points above and appreciate the Foolish discussion -- and you're, of course, absolutely right -- when we're talking about adding new generation, the economics are entirely different.

    For new generation, all costs are marginal, and whether or not solar of fossil wins the battle (and I simply don't have the data to say either way), the scales certainly tip more heavily in favor of solar in that instance.

    -Russell

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