Why Renewable Energy Won't Save Us from Climate Change

Climate change is real, but leaning on renewable energy alone is a strategy that is sure to fail. Will that affect the investment thesis for SolarCity, SunPower, or NextEra Energy?

Feb 2, 2014 at 1:37PM


The growth rates of solar and wind energy may have taken to the sky, but renewables alone won't stop climate change. Source: NASA.

Renewable energy installations have soared in recent years. Wind energy has grown at an average rate of 30% since 2007 and now supplies 3.4% of the nation's electricity. The photovoltaic segment of the solar industry grew at a 35% clip in the year preceding the third quarter of 2013. More impressive is the fact that residential solar installations from companies such as REC Solar, SolarCity (NASDAQ:SCTY), and SunPower (NASDAQ:SPWR) have grown at a nearly 50% annual clip in recent years.

Even energy generators are getting in on the action. NextEra Energy (NYSE:NEE) generates 52%, or 9.2 gigawatts, of its power from wind and another 19% from nuclear, hydroelectric, and solar power. Numerous other power generators have increased the presence of renewables in their portfolios in the last decade. That means we can sit back and watch climate change worries vanish into the midday sun and cool summer breeze, right?  

Not quite. James Hansen, the former chief climate scientist at NASA, captured headlines in early January by smacking green enthusiasts with a dose of reality at a press conference held to discuss a climate change study titled Assessing "Dangerous Climate Change": Required Reduction of Carbon Emissions to Protect Young People, Future Generations and Nature. His central argument was that relying on renewable technology to save planet Earth from the devastating effects of climate change was irresponsible and impossible, instead suggesting that the world needed vast quantities of nuclear power to have any real shot at averting disaster.

You may not agree with Hansen's comments, but the hard numbers prove him correct. Here's what the data show and how it could affect your investments.

Easter Bunny. Tooth Fairy. Renewables?
Hansen didn't pull any punches in delivering his message:

Suggesting that renewables will let us phase rapidly off fossil fuels in the United States, China, India, or the world as a whole is almost the equivalent of believing in the Easter Bunny and Tooth Fairy.

Sorry, kids. It's a bit harsh, but it accurately conveys reality. Barring a significant and overnight technological advancement that makes renewable energy drastically cheaper, more accessible, and more efficient than existing sources of energy (including current-generation renewables), renewable technologies are not our best bet to combat climate change.

For instance, despite the impressive growth of solar installations the entire solar industry only generates 0.12% of the nation's electricity. Wind has been more successful -- and got a technological head start -- but still accounts for just 3.4%. I actually think that's quite impressive, especially considering that wind energy generation increased more than 23-fold from 2000 to 2012. But it means little in the grand scheme of things.  

In 2000, renewable energy as a whole -- wind, solar, hydroelectric, geothermal, wood, and waste -- generated 9% of the nation's electricity. Despite the impressive growth in the years since, the United States will likely only generate about 13% of its electricity from renewable sources. Worse yet, traditional renewables (wind and solar) will generate slightly more than 3.5% of the total. We could -- and probably will -- produce a majority of our energy from renewable sources one day in the future, but if that future is decades from now it will be too late. We need to take climate action now. 

What does it mean for your investments?
Renewables alone may not help the world avert a climate disaster, but that fact doesn't alter the investment thesis for companies such as SolarCity, SunPower, or NextEra Energy. In fact, it may bolster the reasons to own the companies. Why? Each company offers a solution to one or more of the problems plaguing the large-scale adoption of renewable energy.

Consider that the residential and commercial solar platforms of SolarCity and SunPower crush the obstacle of geography. The bulk of renewable resources are located in geographically remote regions far from urban centers that consume the most electricity. It simply isn't realistic to build large new transmission lines -- or even tap into existing lines -- to distribute renewable power throughout the grid. Enabling households and businesses to generate power locally certainly solves that issue, which partially explains the exploding growth opportunities for SolarCity and SunPower.

^SPX Chart

^SPX data by YCharts.

Another problem with thinking traditional renewables will quickly provide any significant portion of the nation's electricity is the obstacle of replacement. A recent article in Scientific American estimated that fossil-fuel-related infrastructure had a global value of $20 trillion. Why, then, should we expect global companies to abandon their capital-intensive assets already in the ground and with years of useful life ahead of them in favor of more capital-intensive renewable assets? The numbers simply don't work.

NextEra Energy is proving that power generation portfolios don't need to rely on fossil fuels for the majority of their capacity. When older, dirtier power plants are retired and utilities search for cleaner, cheaper sources of generation, NextEra will have the national reach and expertise to answer the call. It's also difficult to argue with the combination of market growth, dividends (3% at the moment), and a swelling bottom line offered by the company.

Foolish takeaway
The growth of renewable energy in terms of technological advancement (increased efficiency, falling costs) and contributions to the national grid is impressive and welcome. It will certainly play a critical role in reducing the world's reliance on energy imports, and will help in answering the challenges presented by climate change. However, renewable energy alone won't be the planet's savior.

It's important to note that Hansen isn't saying renewable energy represents a waste of research dollars or that it should be abandoned. Neither am I.That doesn't mean investment opportunities don't exist and, as I've outlined, it may even strengthen the investment thesis in renewable technologies.

Will renewable energy continue its torrid pace of growth?

There's a huge difference between a good stock and a stock that can make you rich. There may be a massive opportunity in residential solar for SolarCity and SunPower, but with such large share gains in recent years investors may be wondering how much growth is left in the tank. Luckily, the Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio, his CAPS pagehis previous writing for The Motley Fool, or his work for the SynBioBeta Blog to keep up with developments in the synthetic biology industry.

The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers