Solar Power has Natural Gas in its Crosshairs

Source: NextEra Energy 

There may be rainy days ahead for natural gas. The nation's newest cheap fuel is getting more expensive, and a new report predicts that solar (yes, solar) will be cost competitive with natural gas by 2025. But the news isn't all bad for natural gas investors. Here's what you need to know. 

Solar soars?
According to Lux Research, unsubsidized utility-scale solar power will give natural gas a run for its money by 2025. In 10 different regions around the globe (including the United States), solar electricity prices will drop enough over the next 12 years to make the renewable energy as cheap as natural gas.

Lux Research cites two main reasons for the competitiveness switch. First, solar power system costs are expected to drop almost 40% by 2030. A penny saved is a penny earned and, in solar's case, expensive capital expenditures have been a major barrier to uptake.

On the front end, government subsidies like production tax credits have helped some utilities stock up on solar over the past few years. At the same time, power purchase agreements (PPAs) ensure that, once built, solar companies and utilities can sell off their solar power to other utilities, local governments, and even large corporations.

If it seems too good to be true, SunPower (NASDAQ: SPWR  ) is already defying solar bears by building a 70 MW subsidy-free solar farm in Chile. Solar system costs have dropped a whopping 50% over the past three years, and Lux Research expects that trend will continue to benefit SunPower and other producers.

Utilities like Duke Energy (NYSE: DUK  ) are also taking advantage of solar's value add today. In August, Duke Energy acquired a 4.5 MW urban solar farm in San Francisco. With high energy demand and expensive transmission costs, Duke Energy's purchase will provide well-priced solar power to the San Francisco Public Utilities Commission for at least the next 25 years.

The second reason for solar's big break is "barriers to shale gas production." Specifically, the report cites anti-fracking policies in Europe and expensive capital costs in South America. Anti-fracking policies are a major reason why coal consumption has remained high in Europe, so it should come as no surprise that environmentally conscious Europeans would be keen to switch to solar if the opportunity should arise.

Natural gas isn't gone
But just because solar is soaring, natural gas isn't out. Lux Research made sure to mention in its report that as solar ramps up, natural gas will continue to complement the renewable energy. According to Lux, natural gas will be a pivotal power partner to solar, providing a fall-back fuel source that will allow more areas to adopt solar earlier.

The double-whammy natural gas/renewable offering is a major reason why NextEra Energy (NYSE: NEE  ) has fared fantastically in recent years. With 320 MW to its name, NextEra Energy claims the title of largest generator of solar energy in the nation. But that amounts to just 1% of the utility's generation, while natural gas snags 23% and wind accounts for a whopping 57%.

Source: NextEra Energy 

NextEra Energy has made the most of government subsidies to ramp up its renewables effort, but the utility's diverse energy portfolio is ultimately the company's best feature. When the wind doesn't blow and the sun doesn't shine, NextEra Energy's natural gas assets will be there to deliver.

Solar synergy
Investors trying to pick the next big winner may be missing the point. Lux Research's findings may ruffle the feathers of natural gas bulls and solar bears, but the wisest investors realize there's plenty of good news for everyone. America is setting itself up for a cheaper, cleaner, and more diversified energy portfolio than it's ever had before.

The Future of America's Energy
Solar power is set to soar, and record natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Read/Post Comments (10) | Recommend This Article (3)

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 December 19, 2013, at 5:57 PM, mvogell wrote:

    Natural gas in fuel cells would be much better than burning it in a gas turbine, no? Especially when trying to match the solar load.

  • Report this Comment On December 19, 2013, at 6:02 PM, rodgerolsen wrote:

    Three days in a row, the writers ignore the basic facts. NextEra "made the most of government subsidies" means "they are not competitive unless they rip off the taxpayers."

    "will be cost competitive with natural gas by 2025" means that is NOT competitive now and may never be.

    All the companies in the article, from Chile to Frisco are ripping off taxpayers and pretending that solar will someday be practical - but it isn't.

  • Report this Comment On December 19, 2013, at 11:11 PM, kdavis860 wrote:

    Investing in solar power can be really dangerous. I've seen it be a wipe out, I've seen a lot of money vanish, and I don't mean I read about it in the next, I saw it close up.

    12 years can be a long time in electronic technology, but for what it's worth, Wikipedia published some estimates for 2018 putting solar at $144 per megawatt hour, wind at $86, natural gas at 65-67, coal at 100 and nuclear at 108. I guess you can have anything you like in your "crosshairs" but it's a long shot in this case.

  • Report this Comment On December 20, 2013, at 3:01 AM, BobWallace wrote:

    Solar is already going head to head with gas.

    "The cost of large-scale solar projects has fallen by one third in the last five years and big solar now competes with wind energy in the solar-rich south-west of the United States, according to new research.

    The study by the Lawrence Berkeley National Laboratory entitled “Utility-Scale Solar 2012: An Empirical Analysis of Project Cost, Performance, and Pricing Trends in the United States” – says the cost of solar is still falling and contracts for some solar projects are being struck as low as $50/MWh (including a 30 percent federal tax credit)."

    "Another interesting observation from LBNL is that most of the contracts written in recent years do not escalate in nominal dollars over the life of the contract. This means that in real dollar terms, the pricing of the contract actually declines.

    This means that towards the end of their contracts, the solar plants (including PV, CSP and CPV) contracted in 2013 will on average will be delivering electricity at less than $40/MWh. This is likely to be considerably less than fossil fuel plants at the same time, given the expected cost of fuels and any environmental regulations."

    http://reneweconomy.com.au/2013/big-solar-now-competing-with...

    A utility can sign a 20 year PPA and lock in solar at 5c/kWh, non-inflating. That totally beats any gas contract they could purchase.

    And what it really wrecks is the market for gas peakers.

  • Report this Comment On December 20, 2013, at 3:06 AM, BobWallace wrote:

    "Wikipedia published some estimates for 2018 putting solar at $144 per megawatt hour, wind at $86, natural gas at 65-67, coal at 100 and nuclear at 108."

    Those are EIA (DOE) numbers and they are wrong.

    $86.6/MWh (8.66 cents /kWh) for onshore wind in 2018.

    "The prices offered by wind projects to utility purchasers averaged $40/MWh for projects negotiating contracts 2011 and 2012, spurring demand for wind energy."

    http://www1.eere.energy.gov/wind/pdfs/2012_wind_technologies...

    Onshore wind is not going to cost over 8c/kWh when it's been selling for 4c/kWh for the last three years. Add in the 1.2c subsidy (2.3 c/kWh for the first 10 years) and wind is now selling for just over 5c. It's not going back up to 8+c.

    And check the solar prices in my other comment.

    The prices of wind and solar have been plummeting. Better take that into consideration before investing in energy.

  • Report this Comment On December 20, 2013, at 5:51 AM, hiltbrunn wrote:

    burning sand when the gas is gone

  • Report this Comment On December 20, 2013, at 11:38 AM, Odaat12 wrote:

    Good luck ever getting solar power to be enough for heavy duty applications like class 8 trucking. The horsepower of combustion fuels are required. While torque would not be the issue with, for example, a tractor-trailer rig, range, recharging, and cost anxieties really put that concept off the table, at least for many many years, if not decades.

    Instead, we see OEM engine manufacturers and entities like Wesport developing all-natural gas engines, or, better yet, the novel approach of retro-fitting current inside and outside of useful life heavy duty diesel engines to be able to displace much of the diesel with natural gas with no changes to performance, and with fewer emissions. Best of all, it's a "range anxiety" defeating approach, because if for some reason the natural gas is running out and there isn't a fueling station nearby, no big deal...with a flip of a switch (or in the case of the best product out there, automatically), the engine just reverts back to 100% diesel. I outline this market and technology in a Seeking Alpha editor's pick article, and in much more detail in its corresponding Instablog, here:

    http://seekingalpha.com/article/1875091-american-power-group...

    Best,

    Odaat

  • Report this Comment On December 20, 2013, at 8:19 PM, Rodney7777 wrote:

    Yes, natural gas does compliment solar. Worldwide solar electric output is now at .075% According to inventor and futurist, Ray Kurzweil, solar output is doubling every two years and has been for a long time and will continue to do so. That makes solar output at 96% by 2028. Kurzweil accurately predicted when the internet would cover the world and he predicted when the genome project would be solved. In 8 years (12% solar power worldwide) I think we can expect first nuclear, and then coal electric plants to start shutting sown. Followed by the end of oil refineries and oil drilling. As for trucks, Smith Trucks in Kansas City makes a straight truck with an up to 8 ton payload and a 50 to 150 mile range and can be recharged in as little as four hours. Perfect for urban trucking and the range will undoubtedly be increasing over the years.

  • Report this Comment On December 21, 2013, at 12:49 AM, BobWallace wrote:

    "Good luck ever getting solar power to be enough for heavy duty applications like class 8 trucking."

    The Trans Siberian Railroad runs a distance twice the width of the United States. It runs on electricity.

    Motors don't discriminate against solar produced electricity. They don't care where their electricity comes from.

    One option for getting away from fossil fuels is to move most of our long distance freight to electrified rail and use trucks for "the last mile". Railroad siding to warehouse.

    And that could be done with 100 mile range battery powered trucks. Battery swapping at the rail or other places along the route would give adequate range.

    It's one way....

  • Report this Comment On December 21, 2013, at 12:54 AM, BobWallace wrote:

    Solar will likely top out around 40% of our total grid supply. The cheapest solution will always be to use electricity direct and not from storage. The wind blows far more hours per day than the Sun shines.

    We're seeing both coal and nuclear plants being closed due to costs. Coal may go down first since it has higher operating (fuel) costs and is under a lot of pressure due to CO2 and other pollutants.

    A big repair bill (Crystal River, SONGS) can easily mean that a reactor may be retired rather than repaired.

    It's a brand new world in the energy business. People need to be careful to not leave their capital stranded in a dying business.

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