Do-It-Yourself Electricity Will Increase Demand for Natural Gas

Home and business owners are about to start generating their own electricity, which will create a big new market for natural gas.

Mar 10, 2014 at 10:04AM

Natural gas producers including Chesapeake Energy (NYSE:CHK) and Devon Energy (NYSE:DVN) could soon have a huge new market to tap: do-it-yourself electricity.

Many American homes and businesses are going to be generating their own electricity in the years ahead. This trend will benefit gas producers because natural gas is the logical fuel for such home-based micro generators or micro turbines. Unlike solar panels, natural gas-burning generators don't shut down at night or on a cloudy day. They can also generate much more power than solar panels.

Some energy experts, including NRG Energy CEO David Crane, think do-it-yourself electricity, or "diffused generation," is the wave of the future. Crane has hired Dean Kamen, the man who invented the Segway, to develop a device called the Beacon 10. The Beacon 10 is a "home energy appliance" that is a combination furnace, water heater, and generator.

Natural gas as an alternative to the electric grid
The Beacon 10 uses a Stirling, or hot air, engine to run a generator that can provide up to 10 kilowatts of power. The appliance is being sold as part of a micro-grid that also contains battery backup and solar panels that can generate up to 5 kilowatts of electricity. That would indicate that natural gas can produce twice as much electricity as solar systems, which gives it an advantage.

Crane is currently peddling the Beacon 10 as a "backup to the electric grid," but it is easy to see it as a grid alternative. Nor is Beacon 10 the only natural gas-burning electric grid alternative out there. There's the Bloom Box that large companies such as eBay, Google, and Wal-Mart are deploying. The Box from Bloom Energy is a set of fuel cells that can run on natural gas.

A Maryland company called Redox Energy Systems has announced plans to market what it calls the Cube. The Cube is a natural gas-powered fuel cell system the size of a washing machine that weighs less than 1,000 pounds. Redox claims the Cube will generate 25 kilowatts of electricity, and it will be 90% cheaper to operate than existing fuel cells. If Redox's claims are true, the Cube would be the perfect do-it-yourself grid alternative for homes and businesses.

Why natural gas is the perfect grid-alternative fuel
Natural gas is the perfect fuel for such grid alternatives for two reasons. First, it is very cheap and getting cheaper. Last year natural gas prices fell to $2 per thousand cubic feet. In January prices spiked to around $6 per thousand cubic feet because of low temperatures, but that price was still less than half 2008 levels. On March 3 Bloomberg reported that natural gas for April delivery was trading at $4.492 per one million British thermal units, roughly a thousand cubic feet.

Second, natural gas is already piped into most of the homes and businesses in North America. The delivery system for it is already there, which gives it a tremendous advantage over gasoline, propane, or diesel fuel, which must be delivered by truck.

Natural gas could be cheaper than electricity
What's truly interesting is that natural gas is getting cheaper as the cost of electricity keeps going up and the supply of electricity falls. The Bureau of Labor Statistics reported that electricity costs increased by 1.8% in January, the highest increase since March 2010. If that wasn't bad enough, the U.S. Energy Information Administration reported that the nation was making less electricity than it did in 2007.

To add icing to the cake, the Nerdgraph website compiled a chart based on EIA figures that showed electricity costs in the U.S. will increase by 21% in the next 10 years and 51% in the next 20 years. If those predictions are true, at some point the cost of do-it-yourself electricity generated by natural gas could be lower than electricity from the grid.

At that point, do-it-yourself energy would become a viable alternative to the grid. If that happens, home-energy appliances will be all the rage. Everybody will be hooking up fuel cells or turbines to save money, and demand for gas will increase. The biggest beneficiaries will be companies like Chesapeake and EOG Resources, which are sitting on huge reserves of natural gas.

DIY electricity not guaranteed
There are some major hurdles to natural gas as a grid alternative. The main natural gas-burning do-it-yourself power plants, the fuel cells and the Beacon 10, are largely unproven technologies. Nobody knows if they will work as advertised, and safety concerns have yet to be addressed.

Then there are solar panels, which are a proven technology. Solar is already in the market, and it has been accepted by the public; fuel cells and Stirling engines have not. The leading solar company, SolarCity, installed 103 megawatts of solar panels in the fourth quarter of 2013, Reuters reported. The public accepts the idea of do-it-yourself electricity, but only if it is solar.

It remains to be seen if do-it-yourself electricity generated by natural gas is the future of power or not. Yet one thing is clear: Revenues for gas producers like Devon and Chesapeake are going up without the do-it-yourself electricity market.

Get in before the crowd
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

 

Daniel Jennings has a position Chesapeake Energy and a position in another gas producer Royal Dutch Shell. The Motley Fool owns shares of Devon Energy. 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