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As investors look forward to 2014 to find the next long-term winners, it's always prudent to remember the developments that transformed the past year. In the energy sector, we witnessed Warren Buffett taking an unexpected leap into two large integrated oil companies. We also saw activist investors replacing entrenched wildcatters in the exploration and production space, as well as watching refiners moving on from the "golden age" of cheap domestic crude oil. Here are three energy developments that defined 2013 and will likely parlay into solid investment themes for the coming year.
Travis Hoium: Solar power is here to stay
What could be more shocking than completely redefining the future of energy? That's what the solar industry is doing, and when we look back I think 2013 will be seen as a year when solar power became a viable energy source around the world.
Consider this: According to a report by the Solar Energy Industries Association and GTM Research, the cost to install a solar system has fallen 40% since 2011 and 50% since 2010. The average price of a module is down 60% since 2011. That's made solar power competitive with the grid around the world and costs will only improve in the future.
SolarCity (NASDAQ: SCTY ) has led the way in the residential solar market by offering to install a solar system for $0 down and a lease payment lower than the cost of electricity from the grid. The company hopes to install solar on 1 million homes by 2018 and is one of the leaders in upending the traditional electricity business model.
SunPower (NASDAQ: SPWR ) also offers $0 down solar leases, but its bigger development this year was a 70-megawatt project being built in Chile without any subsidies. Energy from the new solar farm will be sold directly to the grid, just like any other power plant.
The solar industry has long relied on subsidies to be competitive but utility scale power plants are becoming competitive with the grid subsidy-free and residential solar is getting close. As solar passes grid parity, the market will grow by leaps and bounds and solar power will become the energy source of choice. That's a shocking and incredibly important development in 2013.
Maxx Chatsko: Global ambitions for nuclear power remained intact
In the wake of the 2011 Fukushima Daiichi nuclear disaster, Japan mothballed its 50 nuclear reactors. Germany followed by deciding to immediately shut down 41% of its nuclear capacity and expedite the closing of the remaining power plants by as much as 14 years. That was quite a statement given that Germany had relied on atomic energy for one-quarter of its electricity, and it caused many experts to declare that the world's appetite for uranium fuel was at last waning.
Those experts sure sounded wise given the rhetoric at the time, but their predictions began to unravel in 2013. Not only are Japan and Germany experiencing some short-term remorse -- in the form of higher electricity costs and rising air pollution -- for turning their backs on nuclear energy, but the rest of the world has largely continued on with atomic ambitions. You can still find plenty of headlines touting nuclear's decline and aging facilities, but it isn't turning out to be as bad or as permanent as previously thought. Today, more than 70 reactors are under construction in 13 different countries, with dozens more being planned. The works in progress will boost global reactor count by 16% once completed by 2018.
China has assumed a leadership role in the global nuclear industry, brokering deals with Pakistan for new construction, and Britain for new investments to replace the former colonial power's aging fleet, and adding a colossal fleet within its own borders. Meanwhile, the Russian government recently announced plans to build 21 new nuclear reactors by 2030.
Don't think the industry's growth is passing up the United States. Sure, the industry is struggling domestically this year: Four plant closures and a nixed joint venture between the world's largest nuclear plant operator and Exelon (NYSE: EXC ) -- the nation's largest nuclear supplier -- are hardly instilling optimism. But Southern (NYSE: SO ) is pushing ahead with new reactor construction and Babcock & Wilcox is developing more economic modular reactors.
The rising costs and blown budgets of numerous nuclear projects worldwide still cast doubt on a complete revival for the energy source, especially when costs for renewable energy are falling. Will cheap renewables doom the future of nuclear power? I think that's possible but unlikely given the growing wave of support for nontraditional nuclear energy investments such as small modular reactors that consume waste and thorium technology. Like it or not, atomic energy will remain an important and inevitable part of the world's electrical grid.
Tyler Crowe: Crude by rail is not a temporary solution
When oil via rail got started, it seemed like a decent temporary solution for remote oil plays to get their product to market until pipeline infrastructure was in place. This year, though, we learned that oil via rail will have a much more permanent role in the U.S., and it has completely changed oil market dynamics in North America.
The one thing that oil via rail has been able to give producers that pipeline has never been able to do is optionality. The ability for companies to choose a destination for oil allows them to get the best price possible. For example, Continental Resources (NYSE: CLR ) currently sells all of its oil from the Bakken region to either the East or West Coast via rail shipments. If using pipelines, these markets would essentially be inaccessible.
Despite the higher prices to move oil via rail, it is proving economically feasible to transport oil from Canada all the way to the U.S. Gulf Coast. Next year, total oil via rail shipments from Canada to the U.S. could reach as much as 683,000 barrels per day, the same amount as would be transported by the Keystone XL pipeline.
Without the rail option, oil-producing regions like the Bakken would not be the production powerhouses that they are today, and the continued use of rail will allow these regions to remain a critical component of America's energy boom.
Profits to be had in America
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